FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,June 30, 1996 Commission File Number 0-21104
CRYOLIFE, INC.
(Exact name of Registrantregistrant as specified in its charter)
---------
Florida 59-2417093
(State or Other Jurisdictionother jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2211 New Market Parkway, Suite 142
Marietta, Georgia 30067
(Address of principal executive offices)
(zip code)
(770) 952-1660
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant:registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
___ ____
The number of shares of common stock, par value $0.01 per share, outstanding
at May 14,on July 26, 1996 is 4,740,766.was 9,515,132.
Part I - FINANCIAL INFORMATION
Item 1. Financial statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
1996 1995
(Unaudited)
Revenues:
Cryopreservation $8,259,559 $6,464,699
Research grants, licenses, lease
and interest revenue 174,248 140,166
--------- ---------
8,433,807 6,604,865
Costs and expenses:
Preservation 2,878,849 2,414,678
General, administrative and marketing 3,625,669 2,930,946
Research & development 690,096 686,111
--------- ---------
7,194,614 6,031,735
--------- ---------
Income before income taxes 1,239,193 573,130
Income tax expense 456,696 183,000
--------- ---------
Net income $ 782,497 $ 390,130
--------- ---------
Earnings per share of common stock $ 0.16 $ 0.08
Weighted average common and common --------- ---------
equivalent shares outstanding 4,877,997 4,707,191
--------- ---------
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Revenues:
Cryopreservation $9,619,346 $7,104,370 $17,878,905 $13,569,069
Research grants, licenses,
lease and interest revenue 78,524 125,390 252,772 265,556
__________ __________ ___________ ___________
9,697,870 7,229,760 18,131,677 13,834,625
Costs and expenses:
Preservation 3,289,370 2,706,257 6,168,219 5,120,935
General, administrative
and marketing 4,181,360 3,042,545 7,807,029 5,973,491
Research & development 700,423 667,923 1,390,519 1,354,034
Interest expense -- 2,620 -- 2,620
8,171,153 6,419,345 15,365,767 12,451,080
_________ __________ ___________ __________
Income before income taxes 1,526,717 810,415 2,765,910 1,383,545
Income tax expense 538,278 251,036 994,974 434,036
_________ _________ __________ __________
Net income $ 988,439 $ 559,379 $ 1,770,936 $ 949,509
__________ __________ _____________ __________
Earnings per share of
common stock $ 0.10 $ 0.06 $ 0.18 $ 0.10
Weighted average common _________ ______________ _____________ __________
and common
equivalent shares
outstanding
9,932,512 9,503,528 9,876,286 9,462,232
See accompanying notes to summary consolidated financial statements.
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED BALANCE SHEETS
March 31,June 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current Assets:assets:
Cash and cash equivalents $ 1,273,14258,061 $ 166,931
Marketable securities 4,485,9744,317,254 6,015,158
Receivables (net) 6,309,7787,465,534 5,369,205
Deferred preservation costs (net) 6,121,7876,522,387 5,996,201
Inventories (net) 333,884332,885 424,200
Prepaid expenses 728,322584,648 369,594
Deferred income taxes 22,79880,345 --
---------- ----------________ _________
Total current assets 19,275,68519,361,114 18,341,289
---------- ----------__________ __________
Property and equipment (net) 3,523,3904,580,272 3,279,168
Patents and other intangibles (net) 1,932,8852,549,508 1,728,262
Other assets 366,553464,943 240,897
---------- ----------___________ _________
TOTAL ASSETS $ 25,098,513 $$26,955,837 23,589,616
---------- ----------___________ ___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:liabilities:
Accounts payable $ 1,296,334 $ 1,372,8621,651,821 $1,372,862
Accrued expenses 1,865,6811,866,936 1,474,365
Accrued compensation 372,179305,163 260,709
Income taxes payable 189,311Current portion of long term debt 198,458 --
--------- ---------___________ __________
Total current liabilities 3,723,5054,022,378 3,107,936
--------- ---------___________ ___________
Deferred income taxes -- 16,486
--------- ---------Other long term liabilities 445,816 --
___________ ___________
Total liabilities 3,723,5054,468,194 3,124,422
--------- ---------___________ ___________
Shareholders' Equity:
Preferred stock -- --
Common stock (issued 5,005,86610,058,132 shares in 1996
and 4,951,3869,974,332 shares in 1995) 50,059 49,872100,582 99,744
Additional paid-in capital 16,750,987 16,618,18416,837,339 6,568,312
Retained earnings 4,757,0355,745,474 3,974,538
Unrealized gain on investments 17,4194,740 28,092
Less: Treasury stock (271,500(543,000 shares) (179,625) (179,625)
Notes receivable from shareholders (20,867) (25,867)
---------- ----------___________ ___________
Total shareholders' equity 21,375,00822,487,643 20,465,194
---------- ----------___________ ___________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $25,098,513$26,955,837 $23,589,616
---------- ----------
See accompanying notes to summary consolidateconsolidated financial statements.
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
ThreeSix Months Ended
March 31,
--------------------June 30,
1996 1995
--------------------
(Unaudited)
Net cash flows from operating activities:
Net income $1,770,936 $ 782,497 $ 390,130949,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 318,810 226,069637,620 459,094
Provision for doubtful accounts 15,000 17,00028,400 38,000
Deferred income taxes (39,284) (23,000)(96,831) --
Increase in receivables (1,037,860) (550,042)(2,124,729) (773,221)
(Increase) decrease in deferred preservation
costs and inventory (35,270) 134,723(434,871) 540,801
Increase in prepaid expenses and other
assets (752,817) (362,681)(1,387,966) (938,206)
Increase (decrease) in accounts payable and accrued
expenses 697,857 275,595
------- -------715,984 708,226
________ __________
Net cash flows provided by (used in)
operating activities (51,067) 107,794
-------- -------(891,457) 984,203
_________ __________
Net cash flows used in investing activities:
Capital expenditures (499,223) (192,043)(1,811,104) (544,754)
Proceeds from other long term liabilities 644,274 --
Proceeds from the sale of marketable
securities 1,523,511 --4,128,622 2,176,400
Purchase of marketable securities -- (1,343,832)
--------- ----------(2,430,718) (3,584,859)
Net cash flows provided by (used in) investing
activities 1,024,288 (1,535,875)
--------- ----------531,074 1,953,213)
___________ ____________
Net cash flow from financing activities:
Proceeds from issuance of common stock and
from notes receivable from shareholders 132,990 75,432
--------- --------251,513 106,846
___________ __________
Net cash provided by financing activities 132,990 75,432
--------- --------
Increase (decrease)251,513 106,846
___________ ___________
Decrease in cash 1,106,211 (1,352,649)(108,870) (862,164)
Cash and cash equivalents at beginning of period 166,931 2,592,799
--------- ---------___________ ___________
Cash and cash equivalents at end of period $ 1,273,14258,061 $ 1,240,150
--------- ---------1,730,635
___________ ___________
See accompanying notes to summary consolidated financial statements.
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited, condensed,summary, consolidated financial statements have
been prepared in accordance with (i) generally accepted accounting principles
for interim financial information, and (ii) the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation have been included. Operating results for the three
and six months ended March 31,June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
Note 2 below covers events occurring after the latest fiscal year end. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 1995.
Note 2 - Shareholders' equity
On May 16, 1996 the shareholders ratified and approved an amendment to the
Company's Articles of Incorporation to increase the number of authorized
shares of common stock of the Company from 20,000,000 shares to 50,000,000
shares.
On May 16, 1996 the shareholders approved the Employee Stock Purchase Plan
(the "Plan") under which employees who meet certain criteria are eligible to
purchase common stock of the Company, through payroll deductions, at 85% of
the market value of the shares, determined on either the first or
last day of a purchase period, on whichever date the market value is less.
No compensation expense is recorded in connection with the Plan. There are a
maximum of 600,000 shares eligible for issuance under the Plan.
On May 16, 1996 the shareholders approved an amendment to the Articles of
Incorporation of the Company deleting the provision on required voting rights
for preferred stock. On May 16, 1996 the Board of Directors declared a two
for one stock split, effected in the form of a stock dividend, payable on
June 28, 1996 to shareholders of record on June 7, 1996.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Revenues were $8.43$9.7 million and $18.1 million for the three and six months
ended March 31,June 30, 1996, a 28%
increaserespectively, compared to $6.60$7.2 million and $13.8
million for the same periodcorresponding periods in 1995. Revenues increased 35% and
31% for the three and six months ended June 30, 1996, respectively, compared
to the corresponding periods in 1995. Revenue increases are primarily attributabledue to
an increase in the number ofgreater allograft shipments.shipments resulting from increased demand.
Revenues from human heart valve preservation increased 24%32% to $5.55$6.6 million
for the three months ended March 31,June 30, 1996 from $4.46$5.0 million for the three
months ended March 31,June 30, 1995, representing 66%68% and 68%, respectively,69% of total revenues,
during such periods. Shipments roserespectively. For the six months ended June 30, revenues from human
heart valve preservation increased 27% to $12.1 million for 1996 from $9.5
million for 1995, representing 67% and 69% of total revenue, respectively.
Second quarter revenues increased due to a 34% increase in tissue shipments
resulting from an increase in demand in the first three monthssecond quarter of 1996 compared
to the same periodsecond quarter of 1995. Six month revenues increased due to a 31%
increase in tissue shipments resulting from an increase in demand in the
first half of 1996 compared to 1995.
Revenues from vein preservation increased 10%24% to $1.80$2.1 million for the three
months ended March 31,June 30, 1996 from $1.63$1.7 million for the three months ended
March 31,June 30, 1995, representing 22% and 25%, respectively,24% of total revenues, respectively.
For the six months ended June 30, revenues from vein preservation
increased 18% to $3.9 million for those periods. Vein1996 from $3.3 million for 1995,
representing 21% and 24% of total revenue, respectively. Second quarter
revenues increased due to a 27% increase in tissue shipments increased 6% forresulting from
an increase in demand in the first three monthssecond quarter of 1996 compared to the same periodsecond
quarter of 1995. Six month revenues increased due to a 16% increase in
tissue shipments resulting from an increase in demand in the first half of
1996 compared to 1995.
Revenues from orthopaedic tissue preservation increased 182%150% to $755,000$896,000 for
the three months ended March 31,June 30, 1996 from $268,000$359,000 for the three months ended
March 31,June 30, 1995, representing 9% and 4%, respectively,5% of total revenues, respectively. For
the six months ended June 30, revenues from orthopaedic tissue preservation
increased 159% to $1.7 million for those periods. Orthopaedic1996 from $638,000 for 1995, representing
9% and 5% of total revenue, respectively. Second quarter revenues increased
due to a 231% increase in tissue shipments increased 254% forresulting from an increase in
demand in the first three
monthssecond quarter of 1996 compared to the same periodsecond quarter of 1995.
Six month revenues increased due to a 241% increase in tissue shipments
resulting from an increase in demand in the first half of 1996 compared to
1995.
The Company also received research grant awardOther revenues aggregating $113,000were $77,000 for the three months ended March 31,June 30, 1996 compared
to $90,000$125,000 for the same
period in 1995.three months ended June 30, 1995, representing 1% and 2%
of total revenues, respectively. For the six months ended June 30, other
revenues were $253,000 for 1996 compared to $265,000 for 1995, representing
1% and 2% of total revenue, respectively. Other revenues consist primarily
of research grant award revenues and interest income. Research grant award
revenues for the first three months ofin 1996 are primarily related to the bioadhesive and synergraft
projects.
Preservation costs aggregated $2.88$3.3 million and $6.2 million, respectively,
for the three and six months ended March
31,June 30, 1996, representing 34% of total
revenues for both periods, compared to $2.41$2.7 million and $5.1 million,
respectively, for the three and six months ended March 31,June 30, 1995,
representing 38% and 37% of total revenues.revenues, respectively. Preservation
costs as a percentage of revenues decreased 3%increased 22% for firstsecond quarter 1996 compared to second quarter 1995
and increased 22% for the first quarter 1995. The decrease relateshalf of 1996 compared to the first half of
1995 due to increased shipments of tissues and efficiencies in the preservation service operations.human allografts.
General, administrative, and marketing expenses increased 24% to $3.63aggregated $4.2 million and
$7.8 million, respectively, for the three and six months ended March 31,June 30, 1996,
representing 43% of total revenues for both periods, compared to $2.93$3.0 million
and $6.0 million, respectively, for the corresponding period in 1995.three and six months ended
June 30, 1995, representing 42% and 43% of total revenues, respectively.
This increase reflects the general overhead growth trends, including
personnel related expenses, and increased marketing expenses resultingexpensesassociated with the increase in revenues and the
switch from higher revenues.a predominantly independent sales force to a predominantly direct
sales force.
Research and development expenses were $690,000aggregated $700,000 and $1.4 million,
respectively, for the three and six months ended March 31,June 30, 1996, orrepresenting 7%
and 8% of total revenues, respectively,
compared to $686,000, or$668,000 and $1.4 million, respectively, for the three and six
months ended June 30, 1995, representing 9% and 10% of total revenues,
for the corresponding period in 1995. Research and developmentrespectively. R & D spending relates principally to the Company's focus on
bioadhesives.bioadhesives and the synergraft technology.
Seasonality
The demand for the Company's human heart valve tissue preservation services
is seasonal. Management believes this demand trend for human heart valves is
primarily due to the high number of pediatric surgeries scheduled during the
summer months.
Liquidity and Capital Resources
At March 31,June 30, 1996 net working capital was $15.6$15.3 million, compared to
$15.2 million at December 31, 1995, with a current ratio of 5.24.8 to 1.
Shareholders' equity at March 31,June 30, 1996 was $21.4$22.5 million. The Company's
primary capital requirements arise out of working capital needs, including
receivables and deferred preservation costs, and capital expenditures for
facilities and equipment, and funding of research and development projects.primarily the new corporate headquarters.
The increase in receivables results fromrelates to the increase in revenue. The
increase in prepaid expenses andrelates primarily to prepaid lab supplies for
the bioadhesives facility. The increase in other assets relates primarily to
prepaid insurance premiums.the purchase of the Bioglue technology. The increase in accounts payable and
accrued expenses is primarily attributeddue to costs associated
with increased procurement fees pursuant to an increase
in tissue procured, and the increase in overhead to support the increased
revenues. Other long term liabilities relate to the acquisition of allografts.the
Bioglue technology. Fixed asset additions of $1.8 million during the first
half of 1996 related principally to the construction of the new corporate
headquarters.
The Company believes that available cash, cash equivalents, and marketable
securities, along with cash generated from operations, will be sufficient
to meet its operating and development needs for the foreseeable future.
During May 1996 the Company signed a letter of intent to acquire substantially
all of the assets and assume certain liabilities of a third party in a related
line of business. The transaction is subject to certain conditions including
appropriate due diligence and the negotiation of definitive agreements. If an
agreement is reached, the Company has committed to spend up to $2,000,000 in
connection with this acquisition, along with the assumption of certain
liabilities not to exceed $500,000.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None(a) The Annual Meeting of Shareholders was held on
May 16, 1996.
(b) Management's nominees for director were elected at the
meeting by the holders of common stock. The election was
uncontested.
(c) A proposal to approve the Company's Employee Stock
Purchase Plan was approved.
The result of the voting was as follows:
Common shares
_____________
Voting for 2,679,355
Voting against 29,245
Abstain from voting 8,788
BrokerNon-votes 930,712
___________
Total 3,648,100
_________
A proposal to amend the Company's Articles of Incorporation
to increase the number of authorized shares of common stock
from twenty million to fify million shares was approved.
The result of the voting was as follows:
Common shares
_____________
Voting for 3,478,798
Voting against 395,575
Abstain from voting 19,680
Broker Non-votes 0
____________________
Total 3,894,053
____________________
A proposal to amend the Company's Articles of Incorporation
to delete the requirement that preferred shares have voting
rights was approved. The result of the voting was as follows:
Common shares
_____________
Voting for 2,441,238
Voting against 259,984
Abstain from voting 16,166
Broker Non-votes 930,712
_______________
Total 3,648,100
_______________
The following table shows the results of voting in the
election of Directors:
Shares Voted For Authority Withheld
Steven G. Anderson 3,781,470 112,653
Ronald C. Elkins, M.D. 3,781,470 112,653
Benjamin H. Gray 3,781,470 112,653
Rodney G. Lacy 3,781,470 112,653
Ronald D. McCall, Esq. 3 781,470 112,653
Item 5. Other information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit index can be found below.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
3.2 Amendment to Articles of Incorporation of the Company dated November 29,
1985. (Incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.)
3.3 ByLaws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.)
10.1 Technology License Agreement between the Company and Colorado State
University Research Foundation dated March 28, 1996.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company, as amended. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (No.
33-56388).)
3.2 Amendment to Articles of Incorporation of the Company dated November 29, 1985.
(Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
3.3 Amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of common stock from 20 million to 50 million shares and to delete
the requirement that all preferred shares have one vote per share.
3.4 ByLaws of the Company, as amended. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report of Form 10-K for the fiscal year ended December 31, 1993.)
10.1 Research and Option Agreement between the Company and Biocompatibles Limited.
11.1 Statement re: computation of earnings per share
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K with the
Commission on April 23 with respect to a Change in the
Registrant's Certifying Accountant.
SIGNATURES
Pursuant to the requirements 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.
CRYOLIFE, INC.
(Registrant)
May 14,August 13, 1996
EDWIN B. CORDELL, JR.
- ------------------ ---------------------------___________________________________
DATE EDWIN B. CORDELL, JR.
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)