ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with Cortech's Financial Statements and Notes thereto included elsewhere in this Form 10-KSB. When used in this discussion, the word "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected and include, but are not limited to, the risks discussed below, the risks discussed in the section of this Form 10-KSB entitled "Description of Business" and risks discussed elsewhere in this Form 10-KSB.

General

Cortech was a biopharmaceutical company whose primary focus had 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).

In response to disappointing test results and its loss of collaborative partner support, Cortech implemented a series of workforce reductions which resulted in the Company having no compensated employees since 1999, and effectively discontinued all internal research and development activities. In addition, in 1998 Cortech decommissioned its laboratories, and sold all scientific, technical and office equipment. As a result of these actions, Cortech no longer has the staff or operative facilities required to recommence internal research and development activities. The Company is seeking to redeploy its assets into an operating business.

Results of Operations

Revenues

Revenues, consisting of interest income were $140,000 and $119,000 for the years ended December 31, 2004 and 2003, respectively. Higher yields on invested balances was the reason for this increase.

General and administrative expenses were $445,000 in 2004 and $447,000 in 2003. General and administrative fees consist primarily of management fees (see Other Disclosures - Related Party Transactions in this Item 6) and legal fees. Legal fees are incurred primarily in connection with the maintenance of the Company's patent portfolio. The Company anticipates lower legal fees in 2005 as it has determined not to incur any additional fees to maintain its patent portfolio.

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Liquidity and Capital Resources

At December 31, 2004, the Company had cash and cash equivalents of $11.4 million. Cash equivalents consisted of U.S. Treasury Bills with original maturities of three months or less and yields ranging from 2.1% to 2.2%. Working capital at December 31, 2004 was approximately $11.2 million. Management believes its cash and cash equivalents are sufficient for its business activities for the next twelve months and for the costs of seeking an acquisition of an operating business.

Net cash of approximately $313,000 was used in operations in 2004 due primarily to the net loss of $306,000. In 2003, net cash of approximately $364,000 was used in operations, due primarily to the net loss of $330,000.

Factors Which May Affect Future Results

Future earnings of the Company are dependent on interest rates earned on the Company's invested balances and expenses incurred.

Other Disclosures - Related Party Transactions

A management fee of $15,000 per month is paid to Asset Value Fund Limited Partnership ("AVF") for management services performed for the Company. Management services include, among other things, SEC filings, negotiation, evaluating merger and acquisition proposals, licensing, accounting and shareholder relations. AVF is the beneficial owner of approximately 50.06% of the Company's Common Stock at December 31, 2004.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Contractual Commitments

The Company has no contractual commitments.

Other Matters

Net Operating Loss Carryforwards and Tax Credits: As of December 31, 2004, Cortech had approximately $86 million of net operating loss carryforwards ("NOL") for income tax purposes. In addition, Cortech has approximately $3 million of research and development and foreign tax credit carryforwards available to offset future federal income tax, subject to limitations for alternative minimum tax. The NOL's and credit carryforwards expire in various years from 2005 through 2024. Cortech's use of operating loss carryforwards and tax credit carryforwards is subject to limitations imposed by the Internal Revenue Code.

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Management believes the deferred tax assets as of December 31, 2004 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.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses consolidation by business enterprises of variable interest entities ("VIEs"). FIN 46 is applicable immediately for VIEs created after January 31, 2003 and are effective for reporting periods ending after December 15, 2003, for VIEs created prior to February 1, 2003. In December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, public companies that have interests in VIE's that are commonly referred to as special purpose entities are required to apply the provisions of FIN 46R for periods ending after December 15, 2003. A public company that does not have any interests in special purpose entities but does have a variable interest in a VIE created before February 1, 2003, must apply the provisions of FIN 46R by the end of the first interim or annual reporting period ending after March 14, 2004. The adoption of FIN 46 did not have an effect on the consolidated financial statements.

In December 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment," ("SFAS 123(R)") which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The compensation cost will be measured based on the fair value of the equity or liability instruments issued. The Statement is effective as of the beginning of the first interim or annual period beginning after June 15, 2005. We will adopt SFAS 123(R) on July 1, 2005 using the modified prospective method. We have disclosed the pro forma impact of adopting SFAS No. 123(R) on net income and earnings per share for the year ended December 31, 2004 and 2003 in Note 1 of Notes to the Financial Statements, which includes all share-based payment transactions to date. We do not yet know the impact that any future share-based payment transactions will have on our financial position or results of operations.

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