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, 1999

[ ]      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, PO 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,  1999  were
approximately $3,225,000.

     As of  March  15,  2000,  there  were  1,852,209  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 $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 2000 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 over the
past five years which resulted in the Company having no compensated employees at
February 29, 2000, 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.
Throughout 1998, Cortech retained a core group of professionals who, among other
things, were engaged in efforts to secure  collaborative  partners for Cortech's
technology   portfolio.   In  November  1998,   these  efforts   resulted  in  a
collaboration  based on CE-1037 (the  Company's lead human  neutrophil  elastase
inhibitor) with United Therapeutics Corp. ("UT") a pharmaceutical  company based
in North Carolina.  Under the exclusive worldwide product and license agreement,
UT made an  up-front  payment  of  $250,000  and  will pay the  future  costs of
developing the compound in pulmonary  diseases.  The agreement also provides for


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<PAGE>

Cortech to receive milestone  payments if the compound is successfully  advanced
in  development   and  a  royalty  on  product  sales  should  the  compound  be
successfully commercialized.  The agreement resulted in no revenues in 1999, and
it is not expected that the  agreement  will result in  significant  revenues in
2000. UT has recently started clinical development of CE-1037, targeting chronic
obstructive pulmonary disease.

     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.
Prior to this  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 the  accompanying
financial  statements.   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  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.

     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.

     Efforts to sell or establish  partnerships for the remaining  components of
Cortech's   technology   portfolio  have  now  virtually   ceased  and  although
discussions  with  some  potential  collaborators  continue,  there  can  be  no
assurance that any transaction will be completed.

     In December 1997,  Cortech announced that it had signed a definitive merger
agreement with BioStar, Inc.  ("BioStar"),  a privately held diagnostics company
based in Boulder,  Colorado.  The merger  agreement  was mutually  terminated by
BioStar and Cortech on May 7, 1998.


                                       I-2

<PAGE>


     Following its Annual Meeting on September 4, 1998, the Company announced on
September  18,  1998 that  four of the  nominees  of Asset  Value  Fund  Limited
Partnership  ("AVF"),  a Delaware limited  partnership,  had been elected to the
Company's Board of Directors, constituting a majority of the Board of Directors.
Then on September 21, 1998,  the Company  announced  that three of AVF's elected
nominees,  Paul O. Koether,  Mark W. Jaindl and John W. Galuchie,  Jr., had been
elected to the positions of Chairman, Vice Chairman and President, respectively,
at the Company's annual  organizational  meeting of the Board of Directors.  The
Company also announced implementation of a one-for-ten reverse stock split which
became effective at the close of business on September 22, 1998, and elimination
of the Company's  Shareholder Rights Plan (the "Plan"). The Company redeemed all
rights issued under the Plan. The redemption  resulted in a one-time  payment of
$0.10 per share on a split adjusted basis to the Company's stockholders.

     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.

     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



                                      I-3

<PAGE>

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 will pay the future costs of developing the compound for
the potential treatment of pulmonary diseases.  Notwithstanding  this Agreement,
there can be no assurance  that CE-1037 will be proven safe and  efficacious  in
clinical   trials,   that   the   regulatory   approvals   necessary   for  this
commercialization  (if it is ever  advanced to this  stage)would  be obtained or
that it could be manufactured at acceptable costs and in appropriate quantity.

     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.



                                       I-4

<PAGE>



     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.  Prior to this 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 the accompanying  financial statements.  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
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.

     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.  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-5

<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


                                      I-6

<PAGE>

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 NeurochiSurgica.

     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.


                                       I-7

<PAGE>


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

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

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

     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.



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<PAGE>



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

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

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

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

     Cortech  has  patent   protection   related  to  the  following:   protease
inhibitors,  bradykinin  antagonists  and  immunology  vaccines and  treatments.
Cortech  holds  sixteen  United  States  patents and has numerous  United States
patent  applications  pending which concern protease  inhibitors.  Cortech holds
eight United States patents and has numerous  United States patent  applications
pending  which  concern  bradykinin  antagonists.  In  addition,  Cortech  holds
twenty-six  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


                                      I-9


<PAGE>

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
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


                                      I-10


<PAGE>

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  or 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.

     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



                                      I-11

<PAGE>

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 approached 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.


                                      I-12

<PAGE>

Preclinical  studies  are  regulated  by the FDA under a series  of  regulations
called  Good  Laboratory  Practice  ("GLP")  regulations.  Violations  of  these
regulations can, in come cases,  lead to invalidation of the studies,  requiring
those studies to be repeated. During this time, a manufacturing process which is
capable of producing the compound in an adequately  pure and well  characterized
form for human use is  developed.  Production  of compounds for use in humans is
governed by a series of FDA  regulations  known as Good  Manufacturing  Practice
("GMP") regulations, which regulate all aspects of the manufacturing process.

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

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

     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.

                                      I-13

<PAGE>



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

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

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

     To  market  its  products  abroad,  Cortech  also must  satisfy  regulatory
requirements   implemented  by  foreign  regulatory  authorities.   The  foreign
regulatory  approval  process  includes  all of the  risks  associated  with FDA
approval set forth above,  and may introduce  additional  requirements of risks.
There is no  assurance  that a  foreign  regulatory  body will  accept  the data
developed  by  Cortech  for any of its  products.  Approval  by the FDA does not
ensure  approval in other  countries,  nor does  approval  by any other  country
ensure approval decisions by 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


                                      I-14

<PAGE>


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.

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.



                                      I-15

<PAGE>



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 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,
claims to be on behalf of a class of all the Company's stockholders and contends
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  shall be made to  Cortech on
behalf of Defendants by Cortech's  directors and officers insurance carrier.  If
the Court approves the settlement,  Plaintiff's  counsel intend to ask the Court
for an  award of  attorneys'  fees  and  expenses  in an  amount  not to  exceed
$160,000.  Defendants  have agreed that they will not oppose such an application
up to $160,000 and Cortech has agreed to pay, from the settlement proceeds,  the
fees and expenses actually awarded by the Court up to $160,000.  Such settlement
will be presented to the Court of Chancery at a hearing  scheduled  for April 6,
2000.  Copies of the  Notice to  Shareholders  relating  to the  settlement  are
available upon request from the Company.



                                      I-16

<PAGE>


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

     The Company held its Annual  Meeting of  Stockholders  on November 4, 1999.
All nominees to the Company's Board of Directors were elected.  The following is
a vote tabulation for all nominees:

                                          For           Withheld
                                       ---------        --------

        Leonard M. Tannenbaum          1,703,002          8,743
        Sheri Perge                    1,703,002          8,743









                                      I-17


<PAGE>

                                     PART II

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

     At February 29, 2000, the Company had  approximately  500  stockholders  of
record.  The  Company's  common stock  currently  trades on the NASDAQ  National
Market System under the symbol  "CRTQ".  On February 29, 2000, the closing price
per share of the common stock was $7.9375.

     On July  13,  1998,  the  NASDAQ  Stock  Market,  Inc.  ("NASDAQ")  Listing
Qualification  Panel (the "Panel")  notified the Company that as of the close of
business on such date,  the  Company's  Common Stock  ("Common  Stock") would be
delisted  from  the  NASDAQ  National  Market.  NASDAQ's  maintenance  standards
require,  among other things,  that the common stock of companies  listed on the
NASDAQ  National  Market must have a bid price of at least $1.00 per share,  and
the basis for the Panel's  decision  was that the bid price of the common  stock
was less than $1.00 per share.  As a result of the  delisting,  the Common Stock
traded  on the  Over-the-Counter  Bulletin  Board.  The  Company  implemented  a
one-for-ten  stock split,  as approved by the  stockholders,  as of the close of
business on September 22, 1998. On January 21, 1999,  NASDAQ approved  Cortech's
Common Stock for re-listing on the NASDAQ National Market,  and the shares began
trading on January 25, 1999.

     The following  table sets forth the high and low bid and ask prices for the
common stock for the periods  indicated,  as  reported  by the  Over-the-Counter
Bulletin Board.

                                       Bid                        Ask
                                 ----------------         -------------------
                                 Low         High         Low            High
                                 ---         ----         ---            ----

  Calendar Quarter Ended:

  1998
  ----
          September 30          $3.90       $5.8125     $4.10         $6.65625
          December 31            4.25        6.625       4.8125        6.75


     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 one-for-ten
stock split.



                                      II-1

<PAGE>

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

         1999
         ----
                  March 31                       $ 5.625         $ 6.25
                  June 30                          5.625           6.25
                  September 30                     5.875           7.3125
                  December 31                      5.50            6.75

         1998
         ----
                  March 31                       $ 3.75          $ 6.875
                  June 30                          4.375           5.625


     On September 29, 1998, the Board of Directors  authorized the redemption of
all  outstanding  preferred  share purchase rights issued pursuant to the Rights
Agreement,  dated  as of  June  13,  1995,  between  the  Company  and  American
Securities  Transfer,  Inc.,  as  Rights  Agent,  effective  as of the  close of
business on October 13, 1998, with the redemption price of $.01 ($.10 on a split
adjusted  basis) per right to be paid in cash on October 14, 1998 to the holders
of record of Common  Stock of the Company as of the close of business on October
13, 1998.

     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.

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.



                                      II-2

<PAGE>



General
-------

     Cortech was 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 over the
past five years which reduced the number of full time, regular employees to zero
at February 29, 2000 and  effectively  discontinued  all  internal  research and
development  activities.  In addition,  Cortech decommissioned its laboratories,
and sold all  scientific,  technical  and office  equipment.  As of December 31,
1998,  all fixed  assets  had been  written-off.  As a result of these  actions,
Cortech no longer had 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, 1999 were  $3,225,000  compared to
revenues of $1,347,000 for the year ended December 31, 1998.

     In 1999, the Company recorded  $2,000,000 in license revenues in connection
with an Agreement to license to Ono the  worldwide  rights to the oral  elastase
inhibitor program on which the two companies have been collaborating.

     During 1998,  the Company  recorded  $250,000 in license  revenues  from an
unrelated  third  party,  UT, in  connection  with the  signing of an  exclusive
worldwide  product  development  and license  agreement for  Cortech's  elastase
inhibitor, CE-1037, for the potential treatment of emphysema and other diseases.
The agreement  provided for certain milestone payments in the event the compound
is  successfully  advanced and a royalty on product sales should the compound be
successfully commercialized.  This agreement did not result in revenues in 1999,


                                      II-3

<PAGE>


nor is it expected to result in significant revenues in 2000.

     Interest income  decreased from $695,000 in 1998 to $574,000 in 1999. Lower
yields on investments accounted for this decrease.

     The  disposition of property and equipment  relating to the sale of certain
leasehold  improvements and equipment  resulted in gains of $435,000 during 1999
and $380,000 during 1998.

     Research and development  related expenses  decreased from $436,000 in 1998
to zero in 1999.  The decrease was due to the cessation of on-site  research and
development activities by the Company in late 1997.

     General and administrative  expenses decreased from $5.6 million in 1998 to
$342,000 in 1999.  This  decrease was due to the  cessation of activities by the
Company.  General and administrative expenses of $342,000 in 1999 include: legal
expenses of $159,000  relating  primarily  to the  Company's  patent  portfolio;
Directors  and Officers  liability  insurance  premiums of $82,000 and all other
general  expenses of $101,000.  General and  administrative  expenses in 1998 of
$5,565,000 include:  severance payment for former employees and officers of $1.1
million  (including  $605,000 to the Company's former Chief Executive  Officer);
certain costs related to the proposed  combination  with BioStar,  Inc. that was
terminated on May 7, 1998 of $328,000;  costs related to stockholder  litigation
of $185,000;  Directors and Officers  liability run-off policy,  approved by the
prior Board of Directors of $198,000; $258,000 in expenses incurred by the prior
Board of Directors for the solicitation of proxies in connection with the Annual
Meeting of  Stockholders;  legal fees of $987,000;  consulting fees of $236,000;
general insurance of $281,000;  utilities  expense of $265,000;  rent expense of
$314,000;  depreciation  and  amortization of $622,000 and all other expenses of
$791,000.

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

     At December 31,  1999,  the Company had cash and cash  equivalents  of $6.6
million.  Cash  equivalents  consisted  of U.S.  Treasury  Bills  with  original
maturities  of three  months or less and yields  ranging  from  4.918% to 5.39%.
Working capital at December 31, 1999 was approximately $13.2 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.
The Company also had short-term  investments,  consisting of U.S. Treasury Bills
with original maturities of six months of $6.6 million at December 31, 1999.



                                      II-4

<PAGE>



     Net cash of  approximately  $816,000 was used in operations  in 1999.  Cash
flows from net income of $2.6 million were  partially  offset by the decrease in
accrued  liabilities of $820,000;  gains on disposition of equipment of $435,000
which is classified as an investing activity and the sale of licensing rights of
$2 million,  also  classified  as an investing  activity.  In 1998,  net cash of
approximately  $4.1 million was used in operations due primarily to the net loss
of $4.7  million and the  decrease in accounts  payable of  $549,000,  partially
offset by depreciation  and  amortization of $623,000 and an increase in accrued
liabilities of $656,000.

     Net cash  used in  investing  activities  was  $4.1  million  in 1999,  due
primarily to the purchase of short-term  investments  of $6.6 million  offset by
the sale of  licensing  rights of $2 million and the  proceeds  from the sale of
property and equipment of $435,000.  Net cash  provided by investing  activities
was approximately $4.3 million in 1998, primarily due to the sales of short-term
investments  of $3.8  million and the  proceeds  from the sale of  property  and
equipment of $491,000.

     Net cash used in  financing  activities  was  $189,000 in 1998,  due to the
redemption of the preferred share purchase rights. See Part II, Item 5. - Market
for Common Equity and Related  Stockholder  Matters for more  information on the
redemption.

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

     Net Operating Loss Carryforwards and Tax Credits:  As of December 31, 1999,
Cortech had  approximately  $78 million of net operating loss carry forwards for
income tax purposes  which expire from 2000 through 2013.  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.  Cortech's  use of  operating  loss
carryforwards and tax credit  carryforwards is subject to limitations imposed by
the Internal Revenue Code.


                                      II-5

<PAGE>



Year 2000 Issue
---------------

     The Year 2000 Issue is the result of computer  programs being written using
two digits rather than four to define the applicable  year. Any of the Company's
computer programs that have  time-sensitive  software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could  result in a system
failure or miscalculations causing disruptions of operations,  including,  among
other things, a temporary inability to process transactions or engage in similar
normal business activities.

     The Company has not experienced  any Year 2000 issues  subsequent to 1999's
fiscal  year end.  Although  the Company  believes it has taken the  appropriate
steps to address Year 2000  readiness,  there is no guarantee that the Company's
efforts will prevent a material  adverse impact on the results of operations and
financial condition.

New Accounting Standards
------------------------

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 133,  "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and for hedging activities.  SFAS
No. 133 requires that an entity  recognize all  derivatives  as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning  after June 15,  1999.  In July 1999,  the FASB  issued  SFAS No. 137,
"Accounting for Derivative  Instruments and Hedging Activities - Deferral of the
Effective  Date for FASB  Statement No. 133, an Amendment of FASB  Statement No.
133",  which defers the  effective  date of SFAS No. 133 to be effective for all
fiscal  quarters of fiscal  years  beginning  after June 15,  2000.  The Company
currently holds no derivative instruments,  nor is it currently participating in
hedging activities.  Management does not expect adoption of SFAS No. 133 to have
a material effect on the Company's financial condition, results of operations or
liquidity.


                                      II-6

<PAGE>



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

         The financial statements filed with this item are listed below:

         Report of Independent Accountant

         Financial Statements:

                  Balance Sheet as of December 31, 1999

                  Statements of Operations for the Years ended December 31, 1999
                  and 1998

                  Statements of Stockholders' Equity for the Years ended
                  December 31, 1999 and 1998

                  Statements of Cash Flows for the Years ended December 31, 1999
                  and 1998

                  Notes to Financial Statements



                                                        II-7

<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 the 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, 1999,
and the  results  of its  operations  and its cash  flows  for the  years  ended
December 31, 1999 and 1998, in conformity with accounting  principles  generally
accepted in the United States. 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  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 the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

February 15, 2000



                                       F-1

<PAGE>



                                  CORTECH, INC.
                                  BALANCE SHEET

                                December 31, 1999
                                    (in 000's)

ASSETS

Current assets:
   Cash and cash equivalents                                    $ 6,648
   Short-term investments                                         6,568
   Prepaid expenses and other                                       154
                                                                -------
       Total current assets                                     $13,370
                                                                =======


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                             $    17
   Accrued liabilities                                              162
                                                                -------
       Total current liabilities                                    179
                                                                -------

Commitments and contingencies (Note 8)


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;
     1,852,209 shares issued and outstanding                          4
   Additional paid-in capital                                    99,830
   Accumulated deficit                                         ( 86,643)
                                                                -------
       Total stockholders' equity                                13,191
                                                                -------
       Total liabilities and stockholders' equity               $13,370
                                                                =======







                 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,
                                                   --------------------------
                                                    1999                1998
                                                   ------              ------

Revenues:
  Interest income                                  $  574              $  695
  Gain on disposition of property
    and equipment                                     435                 380
  Technology license revenue                        2,000                 250
  Sponsored research and development                    -                  22
  Other income                                        216                   -
                                                   ------              ------
         Total revenues                             3,225               1,347
                                                   ------              ------

Expenses:
  Research and development                              -                 436
  General and administrative                          342               5,565
                                                   ------              ------
         Total expenses                               342               6,001
                                                   ------              ------

Income (loss) before income taxes                   2,883             ( 4,654)
Provision for income taxes                            233                   -
                                                   ------              ------
Net income (loss)                                  $2,650             ($4,654)
                                                   ======              ======

Basic net income (loss) per share                  $ 1.43             ($ 2.51)
                                                   ======              ======

Diluted net income (loss) per share                $ 1.43             ($ 2.51)
                                                   ======              ======

Weighted average common shares
  outstanding                                       1,852               1,852
                                                   ======              ======



                 See accompanying notes to financial statements.

                                       F-3

<PAGE>

<TABLE>
<CAPTION>


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




                                       Common Stock                      Additional
                                       ------------                       Paid-In          Deferred        Accumulated
                                  Shares      Amount     Warrants         Capital       Compensation         Deficit         Total
                                  ------      ------     --------       -----------    --------------     ------------       ------
<S>                                <C>        <C>        <C>             <C>               <C>              <C>            <C>
Balance, December 31, 1997         1,852      $   4       $1,077          $98,942          ($   1)          ($84,639)       $15,383

Amortization of deferred
  compensation                         -          -            -                -               1                  -              1

Redemption of preferred share
  purchase rights                      -          -            -         (    189)              -                  -       (    189)

Expiration of CDC Warrants             -          -      ( 1,077)           1,077               -                  -              -

Net loss                               -          -            -                -               -           (  4,654)      (  4,654)
                                   -----       ----       ------          -------            ----            -------        -------

Balance, December 31, 1998         1,852          4            -           99,830               -           ( 89,293)        10,541

Net income                             -          -            -                -               -              2,650          2,650
                                   -----       ----       ------          -------            ----            -------        -------

Balance, December 31, 1999         1,852       $  4            -          $99,830               -           ($86,643)       $13,191
                                   =====       ====       ======          =======            ====            =======        =======





                                               See accompanying notes to financial statements.
</TABLE>

                                                                     F-4


<PAGE>



                                  CORTECH, INC.

                            STATEMENTS OF CASH FLOWS

                                   (in 000's)

<TABLE>
<CAPTION>

                                                               Year Ended December 31,
                                                                1999             1998
                                                               ------           ------

Cash flows from operating activities:
<S>                                                         <C>              <C>
   Net income (loss)                                         $ 2,650         ($ 4,654)
   Adjustments:
      Depreciation and amortization                                -              623
      Gains on disposition of equipment                     (    435)        (    380)
      Gain on sale of licensing rights                      (  2,000)               -
      (Increase) decrease in prepaid expenses and
         other assets                                       (     77)             231
      Decrease in accounts payable                          (    134)        (    549)
      Increase (decrease)in accrued liabilities             (    820)             656
      Other, net                                                   -         (     35)
                                                             -------          -------
      Net cash used in operating activities                 (    816)        (  4,108)
                                                             -------          -------

Cash flows from investing activities:

   Gain on sale of licensing rights                             2,000                -
   Proceeds from sale of property and equipment                   435              491
   Purchases of short-term investments                       (  6,568)        (      9)
   Sales of short-term investments                                  -            3,850
                                                              -------          -------
      Net cash provided by (used in) investing
        activities                                           (  4,133)           4,332
                                                              -------          -------

Cash flows from financing activities:
   Redemption of preferred share purchase rights                    -         (    189)
                                                              -------          -------
       Net cash used in financing activities                        -         (    189)
                                                              -------          -------

Net increase (decrease) in cash and cash
   equivalents                                               (  4,949)              35
Cash and cash equivalents, beginning of period                 11,597           11,562
                                                              -------          -------
Cash and cash equivalents, end of period                      $ 6,648          $11,597
                                                              =======          =======

Supplemental disclosure cash flow information:
   Cash paid for taxes                                        $   231          $     -
                                                              =======          =======


</TABLE>






                 See accompanying notes to financial statements.

                                       F-5


<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


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

          Cortech,  Inc.  ("Cortech" or the "Company")  was 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 over the past five years  (which  reduced the number of full time,
     regular  employees  from  more  than  200  down to  zero)  and  effectively
     discontinued all internal research and development activities. In addition,
     Cortech  has  decommissioned  its  laboratories,  and sold its  scientific,
     technical office equipment and leasehold  improvements.  As of December 31,
     1998,  all fixed assets had been written off. 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 generally
     accepted  accounting  principles  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.  Prior years  financial  statements  have been  reclassified  to
     conform to the current year's presentation.

     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, 1999 and 1998



     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 currently
     intends to hold these investments until maturity.

     Research and Development Expenses
     ---------------------------------

          Costs incurred in connection with research and development  activities
     were expensed as incurred. These costs consist of direct and indirect costs
     associated with specific  projects as well as fees paid to various entities
     that perform certain  research on behalf of the Company.  On-site  research
     and  development  activities  were  terminated by the Company in the fourth
     quarter of 1997.

     Sponsored Research and Development Revenue
     ------------------------------------------

          The Company recognizes revenue from sponsored research and development
     as research  activities  are  performed or as  development  milestones  are
     completed under the terms of the research and development agreements. Costs
     incurred in  connection  with the  performance  of  sponsored  research and
     development  are  expensed as incurred.  There were no costs in  connection
     with these activities in 1999 or 1998.

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

          Basic net  income  (loss)  per share is  computed  using the  weighted
     average number of shares of common stock  outstanding  during the period as
     adjusted for the  one-for-ten  reverse  stock split which was  effective on
     September 22, 1998.  Excluded from the calculation of the net income (loss)
     per share are 98,077 and 117,149  common  stock  options,  in 1999 and 1998
     respectively  which, if included,  would have an antidilutive  effect. (See
     Note 4.)

     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, 1999 and 1998


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. 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 has been expensed in the
     accompanying  financial statements.  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.




                                       F-8


<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998



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.

          On June 2,  1995,  the  Company's  Board  of  Directors  approved  the
     adoption of a Preferred Share Rights Plan under which stockholders received
     one Right to purchase  one  one-hundredth  (one-tenth  on a split  adjusted
     basis  -  see  "Common  Stock"  below)  of  a  share  of  Series  A  Junior
     Participating   Preferred  Stock  ("Junior   Preferred   Stock")  for  each
     outstanding  share of Cortech  common  stock of record held at the close of
     business on June 26, 1995.  These rights were  distributed as a non-taxable
     dividend  and were set to expire in June 2005.  The rights  would  separate
     from shares of Cortech  common stock and become  exercisable at $20.00 each
     ($200 on a split adjusted  basis - see "Common  Stock"  below),  subject to
     future adjustment, only if a person or group acquired 15 percent or more of
     the Cortech common stock.  Cortech's Board of Directors could terminate the
     plan or redeem the rights, at a nominal redemption price, prior to the time
     a person  acquires more than 15 percent of the Cortech  common  stock.  The
     Company had  designated  500,000  shares of its  Preferred  Stock as Junior
     Preferred Stock.

          On  September  29,  1998,  the  Board  of  Directors   authorized  the
     redemption of all outstanding rights, effective as of the close of business
     on October 13,  1998,  with the  redemption  price of $.01 ($.10 on a split
     adjusted  basis - see  "Common  Stock"  below)  per  right  paid in cash on
     October 14, 1998 to the holders of record of Common Stock of the Company as
     of the close of business on October 13, 1998.

                                       F-9


<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


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

          The stockholders of the Company  approved a one-for-ten  reverse stock
     split which was  effective  as of the close of business  on  September  22,
     1998. Also on this date, the Company's  authorized shares were reduced from
     50,000,000 to 5,000,000. Accordingly, all common share information has been
     adjusted to reflect this reverse stock split.

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

          On September  22, 1998,  the Company  effected a  one-for-ten  reverse
     stock split. All stock option information has been adjusted to reflect this
     reverse stock split.

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

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

          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  (loss) and net income  (loss) per




                                      F-10

<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998



     share  would  have been  increased  (decreased)  to the pro  forma  amounts
     indicated below (In 000's, except per share amounts):

                                                            1999        1998
                                                            ----        ----

          Net income (loss) - as reported                 $ 2,650     ($ 4,654)

          Net income (loss) - pro forma                   $ 2,650     ($ 5,053)

          Net income (loss) per share - as reported       $  1.43     ($  2.51)

          Net income (loss) per share - pro forma         $  1.43     ($  2.73)


          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 150,000 shares of common stock. Although 40,710 shares were
     available  under the 1986 Plan as of December  19,  1997,  on such date the
     Board of Directors effectively suspended future grants of options under the
     1986 Plan to the  extent  that any such  grant  would  increase  the shares
     subject to outstanding grants above the figure as of such date.

          The Company's 1993 Equity  Incentive  Plan ("1993 Plan"),  approved by
     the stockholders on May 10, 1994, authorizes the issuance of 170,000 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 37,085 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.



                                      F-11


<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


          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, 1999,  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.

          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, 1999.

          During 1991, a Nonemployee  Directors'  Stock Option Plan was approved
     which authorized the grant of stock options to purchase up to 15,000 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.  As of
     December 31, 1999,  options to purchase  10,800  shares of common stock had
     been granted and were fully  vested.  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.


                                      F-12


<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998



          The Company's 1992 Nonemployee Directors' Stock Option Plan authorizes
     the granting of options to purchase up to 40,000  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 1999 or 1998. During 1994, in order to effect a repricing of certain
     of these  options,  options to purchase  16,225 shares of common stock were
     amended to become  options to purchase  14,854 shares of common stock at an
     exercise price of $17.50 per share.  The amended options  generally  become
     exercisable  from one to two years later than as  originally  granted.  The
     Company recorded  deferred  compensation in 1993 of approximately  $114,000
     based on the amount  that the fair  market  value of the  Company's  common
     stock  exceeded the exercise price on the date the options were approved by
     the stockholders.  The Company began in July 1993 to amortize such deferred
     compensation over  approximately  five years and has recorded  compensation
     expense of approximately $1,000 in 1998. By December 31, 1998, all deferred
     compensation  had been  expensed.  By its  terms,  the plan  terminated  on
     December 31, 1997 (although such event does not affect outstanding  options
     granted under the plan).

          A summary of the  status of the  Company's  1986  Plan,  1993 Plan and
     nonemployee  directors' stock option plans as of December 31, 1999 and 1998
     and changes during the years ended on those dates is presented below:

<TABLE>
<CAPTION>

                                                 1999                             1998
                                     ----------------------------      ----------------------------
                                                 Weighted-Average                  Weighted-Average
       Options                       Shares       Exercise Price       Shares       Exercise Price
       -------                       ------      ----------------      ------      ----------------
       <S>                          <C>               <C>            <C>                 <C>
       Options
          outstanding
          at beginning
          of year                    103,823          $20.20           199,951           $20.60
       Forfeited/canceled           ( 16,547)         $18.39         (  96,128)          $21.30
                                     -------                          --------
       Outstanding at
          year end                    87,276          $20.59           103,823           $20.20
                                     =======                          ========
       Options exercisable
          at year end                 83,396          $20.65            93,608           $20.30
                                     =======                          ========



</TABLE>



                                                    F-13


<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998



          The  Company   granted   other   options  to  certain   directors  and
     consultants:

<TABLE>
<CAPTION>

                                           1999                               1998
                               ----------------------------      ----------------------------
                                           Weighted-Average                  Weighted-Average
Options                        Shares       Exercise Price       Shares       Exercise Price
-------                        ------      ----------------      ------      ----------------
<S>                          <C>                <C>             <C>               <C>
Options outstanding
  at beginning
  of year                      13,326           $38.40           14,559           $37.10
Forfeited/canceled           (  2,525)          $29.88          ( 1,233)          $21.50
                              -------                            ------
Outstanding at
  year end                     10,801           $40.36           13,326           $38.40
                              =======                            ======
Options exercisable
  at year end                  10,801           $40.36           13,326           $38.40
                              =======                            ======

</TABLE>


          The  following  table  summarizes   information  about  stock  options
     outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                                     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, 1999    (in years)     Exercise Price      December 31, 1999      (in years)     Exercise Price
    ----------------------------------------------------------------------     ----------------------------------------------------

    <S>                    <C>                 <C>             <C>                  <C>                  <C>             <C>
    $10 - $20               61,900             5.03            $17.00                59,901              4.96            $17.10
    $20.01 - $30            29,718             4.58            $25.30                27,837              4.44            $25.40
    $30.01 - $40             2,000             4.79            $35.00                 2,000              4.79            $35.00
    $80 - $87.50             4,459             2.31            $80.60                 4,459              2.00            $80.60
                           -------                                                  -------
                            98,077                                                   94,197
                           =======                                                  =======

</TABLE>

          During 1992, the Company  granted  options to purchase 5,000 shares of
     the Company's  common stock at $26.00 per share to the former  president of
     the Company.  These options  began  vesting upon the  occurrence of certain
     events. The Company recorded $170,000 in deferred compensation based on the
     difference  between the fair value of the  underlying  common  stock on the
     date the  specified  event  incurred and the  exercise  price of $26.00 per
     share.  Deferred  compensation  was amortized over the  applicable  vesting
     periods.



                                      F-14

<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998

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


          As of December 31, 1999, the Company has  approximately $78 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 2000 through 2013.

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

                                                   1999         1998
                                                   ----         ----

                       Federal-current             $  5         $  -
                       State-current                 28            -
                       Foreign-current              200            -
                                                   ----         ----
                                                   $233         $  -
                                                   ====         ====

          The income tax expense for the year ended  December  31, 1999 and 1998
     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):

                                                            1999        1998
                                                           ------      ------

          Income (loss) before income taxes                $2,883     ($4,654)
          Statutory federal income tax rate                    34%         34%
                                                           ------      ------
          Expected income tax (benefit)                       980     ( 1,582)
          State tax                                            18           -
          Change in valuation allowance, net
            of operating losses                           (   842)      1,578
          Expiring research credit carryforwards               15           -
          Other, net                                           62           4
                                                           ------      ------
          Provision for income tax                         $  233      $    -
                                                           ======      ======

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

                                      F-15

<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998

          The tax effect of  significant  items  comprising  the  Company's  net
     deferred tax asset as of December 31, 1999 are as follows (in 000's):

            Net operating loss carryforwards                    $26,390
            Research and development and other credits            3,062
            Other, net                                            2,430
                                                                -------
                                                                 31,882

            Valuation allowance                                ( 31,882)
                                                                -------
            Net deferred tax asset                              $     -
                                                                =======


          Management believes the deferred tax assets as of December 31, 1999 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. The difference between the Company's
     recorded  income tax benefit and that  computed by applying  the  statutory
     Federal income tax rate to its loss before income taxes is due primarily to
     the valuation  allowance  established  to offset the Company's net deferred
     tax asset.

          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-16

<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998


6.  CP-0127 Development Corporation
     -------------------------------

          In February 1992, the Company completed a private placement of 709,687
     units (as discussed  below) to unrelated third parties  representing  total
     subscriptions of approximately  $8,516,000.  Each unit was comprised of one
     share of CDC common stock and three warrants for Cortech  common stock,  of
     which one warrant  expired each on December  31, 1998,  1997 and 1996 (Note
     4). The net proceeds received by CDC were allocated to CDC as consideration
     for its common stock and to the Company for the issuance of the warrants in
     the amounts of approximately $5,284,000 and $3,232,000,  respectively. Such
     allocation  was based on the relative  fair market  value of the  Company's
     warrants and the CDC common stock.

          In connection  with the formation of CDC, the Company  granted to CDC,
     under the terms of a technology license agreement,  an exclusive license to
     certain  technology for human  pharmaceutical use within the United States,
     Canada  and  Europe  for  $1,000,000.  CDC,  in turn,  granted to Cortech a
     worldwide  exclusive  right and license to the technology that is developed
     by Cortech.

          In connection with the technology license agreement referred to above,
     the Company  entered into a research and  development  agreement  with CDC.
     Since December 31, 1997, the Company was not engaged in active  development
     of any compounds covered by the license agreement.

          The Company was granted an option by the  purchasers of the CDC common
     stock to purchase all, but not less than all, of the 709,687  shares of CDC
     common stock  outstanding.  The purchase option was exercisable at any date
     before December 31, 1998, based on an exercise price of $75.40 per share of
     CDC common stock in 1998. The option has expired unexercised.

7.   Employee Retirement Plan
     ------------------------

          The Company provided a defined  contribution  401(k) plan for eligible
     employees  which was  discontinued  effective  December 31, 1999.  Employee
     contribution  to the plan was voluntary.  In 1994, the Company  voluntarily
     began  contributing  an  amount  equal  to  25%  of  a  covered  employee's
     contribution   to  a  maximum  of  1%  of   compensation.   The   Company's
     contributions to the plan totaled  approximately $200 in 1999 and $6,000 in
     1998.

                                      F-17

<PAGE>



                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 1999 and 1998

8.   Legal Proceedings
     -----------------

          On February 27,  1998, a complaint  was filed in the Court of Chancery
     of the State of Delaware,  naming the Company,  the Company's  then current
     directors and BioStar as defendants.  The complaint, filed by a stockholder
     of the  Company,  claims to be on  behalf  of a class of all the  Company's
     stockholders  and contends  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  shall be made to Cortech on
     behalf of Defendants by Cortech's directors and officers insurance carrier.
     If the Court approves the settlement, Plaintiff's counsel intend to ask the
     Court for an award of  attorneys'  fees and  expenses  in an amount  not to
     exceed  $160,000.  Defendants have agreed that they will not oppose such an
     application  up to  $160,000  and  Cortech  has  agreed  to pay,  from  the
     settlement proceeds, the fees and expenses actually awarded by the Court up
     to $160,000.  Such settlement will be presented to the Court of Chancery at
     a hearing scheduled for April 6, 2000. Copies of the Notice to Shareholders
     relating to the settlement are available upon request from the Company.









                                      F-18

<PAGE>



ITEM 8. - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
-------   ON ACCOUNTING AND FINANCIAL DISCLOSURE
          --------------------------------------------

     On January 14, 1999,  Arthur Andersen LLP ("Arthur  Andersen")  resigned as
independent  auditors  of  the  financial  statements  of  Cortech,   Inc.  (the
"Company") as of and for the year ended  December 31, 1998. On January 14, 1999,
the  Board of  Directors  of the  Company  retained  PricewaterhouseCoopers  LLP
("PwC"),  Certified  Public  Accountants,  as its certifying  accountant for the
fiscal year ended December 31, 1998.

     No report  on the  financial  statements  of the  Company  issued by Arthur
Andersen during the last two fiscal years prior to their  resignation  contained
an adverse opinion or disclaimer of opinion,  or was qualified or modified as to
uncertainty,   audit  scope  or  accounting  principles,   nor  were  there  any
disagreements  during the last two fiscal  years and through  January 14,  1999,
between  Arthur  Andersen and the Company  concerning  any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which  disagreements  if not  resolved  would have  required  Arthur
Andersen to make reference to the subject matter thereof in connection  with its
report.  During the last two fiscal years prior to their resignation and through
January  14,  1999,  none of the events  listed in items (1) through (3) of Item
304(b) of Regulation S-K have  occurred;  and during such period the Company has
not consulted with PwC concerning any matter referred to under paragraphs (i) or
(ii) of Item 304(a)(2) of Regulation S-K.













                                      II-8

<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 2000 Proxy Statement.

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

     The  information  required under this item is  incorporated by reference to
Cortech's 2000 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 2000 Proxy Statement.

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

     The  information  required under this item is  incorporated by reference to
Cortech's 2000 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)**

   27.1                    Financial Data Schedule.(12)


   Reports on Form 8-K

         On February 17, 2000,  the Company filed a Form 8-K  reporting  that on
         February 15, 2000, the Vice  Chancellor of the Court of Chancery of the
         State of Delaware  in and for New Castle  County,  signed a  Scheduling
         Order For  Approval of  Settlement  of a  previously  filed and amended
         complaint. The complaint was brought by a stockholder of the Company as
         (i) a proposed class action on behalf of all the Company's stockholders
         and (ii) derivative in the right of the Company, against the members of
         Cortech's former board of directors.

                                      IV-1

<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.

(12)     Filed herewith.

*        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 30, 2000                                     By: /s/ Paul O. Koether
                                                   -----------------------
                                                   Paul O. Koether
                                                   Chairman and Chief
                                                   Executive Officer

March 30, 2000                                     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 30, 2000
  -------------------
  Paul O. Koether                   (Principal Executive
                                    Officer)

  /s/ John W. Galuchie, Jr.         President and Director        March 30, 2000
  -------------------------
  John W. Galuchie, Jr.

  /s/ James L. Bicksler             Director                      March 30, 2000
  ---------------------
  James L. Bicksler

  /s/ Sheri Perge                   Director                      March 30, 2000
  ---------------
  Sheri Perge

  /s/ Leonard M. Tannenbaum         Director                      March 30, 2000
  -------------------------
  Leonard M. Tannenbaum

                                      IV-4