UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996 Commission File Number 0-21104
CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)
---------
Florida 59-2417093
(State or other 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: (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
on July 26, 1996 was 9,515,132.
Part I - FINANCIAL INFORMATION
Item 1. Financial statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
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
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 58,061 $ 166,931
Marketable securities 4,317,254 6,015,158
Receivables (net) 7,465,534 5,369,205
Deferred preservation costs (net) 6,522,387 5,996,201
Inventories (net) 332,885 424,200
Prepaid expenses 584,648 369,594
Deferred income taxes 80,345 --
________ _________
Total current assets 19,361,114 18,341,289
__________ __________
Property and equipment (net) 4,580,272 3,279,168
Patents and other intangibles (net) 2,549,508 1,728,262
Other assets 464,943 240,897
___________ _________
TOTAL ASSETS $26,955,837 23,589,616
___________ ___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,651,821 $1,372,862
Accrued expenses 1,866,936 1,474,365
Accrued compensation 305,163 260,709
Current portion of long term debt 198,458 --
___________ __________
Total current liabilities 4,022,378 3,107,936
___________ ___________
Deferred income taxes -- 16,486
Other long term liabilities 445,816 --
___________ ___________
Total liabilities 4,468,194 3,124,422
___________ ___________
Shareholders' Equity:
Preferred stock -- --
Common stock (issued 10,058,132 shares in 1996
and 9,974,332 shares in 1995) 100,582 99,744
Additional paid-in capital 16,837,339 6,568,312
Retained earnings 5,745,474 3,974,538
Unrealized gain on investments 4,740 28,092
Less: Treasury stock (543,000 shares) (179,625) (179,625)
Notes receivable from shareholders (20,867) (25,867)
___________ ___________
Total shareholders' equity 22,487,643 20,465,194
___________ ___________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $26,955,837 $23,589,616
See accompanying notes to summary consolidated financial statements.
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
(Unaudited)
Net cash flows from operating activities:
Net income $1,770,936 $ 949,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 637,620 459,094
Provision for doubtful accounts 28,400 38,000
Deferred income taxes (96,831) --
Increase in receivables (2,124,729) (773,221)
(Increase) decrease in deferred preservation
costs and inventory (434,871) 540,801
Increase in prepaid expenses and other
assets (1,387,966) (938,206)
Increase in accounts payable and accrued
expenses 715,984 708,226
________ __________
Net cash flows provided by (used in)
operating activities (891,457) 984,203
_________ __________
Net cash flows used in investing activities:
Capital expenditures (1,811,104) (544,754)
Proceeds from other long term liabilities 644,274 --
Proceeds from the sale of marketable
securities 4,128,622 2,176,400
Purchase of marketable securities (2,430,718) (3,584,859)
Net cash flows provided by (used in) investing
activities 531,074 1,953,213)
___________ ____________
Net cash flow from financing activities:
Proceeds from issuance of common stock and
from notes receivable from shareholders 251,513 106,846
___________ __________
Net cash provided by financing activities 251,513 106,846
___________ ___________
Decrease in cash (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 $ 58,061 $ 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, 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 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 $9.7 million and $18.1 million for the three and six months
ended June 30, 1996, respectively, compared to $7.2 million and $13.8
million for the corresponding 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 due to
greater allograft shipments resulting from increased demand.
Revenues from human heart valve preservation increased 32% to $6.6 million
for the three months ended June 30, 1996 from $5.0 million for the three
months ended June 30, 1995, representing 68% and 69% of total revenues,
respectively. 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 second quarter of 1996 compared
to the second 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 24% to $2.1 million for the three
months ended June 30, 1996 from $1.7 million for the three months ended
June 30, 1995, representing 22% and 24% of total revenues, respectively.
For the six months ended June 30, revenues from vein preservation
increased 18% to $3.9 million for 1996 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 resulting from
an increase in demand in the second quarter of 1996 compared to the second
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 150% to $896,000 for
the three months ended June 30, 1996 from $359,000 for the three months ended
June 30, 1995, representing 9% and 5% of total revenues, respectively. For
the six months ended June 30, revenues from orthopaedic tissue preservation
increased 159% to $1.7 million for 1996 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 resulting from an increase in
demand in the second quarter of 1996 compared to the second 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.
Other revenues were $77,000 for the three months ended June 30, 1996 compared
to $125,000 for the 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 in 1996 are primarily related to the bioadhesive and synergraft
projects.
Preservation costs aggregated $3.3 million and $6.2 million, respectively,
for the three and six months ended June 30, 1996, representing 34% of total
revenues for both periods, compared to $2.7 million and $5.1 million,
respectively, for the three and six months ended June 30, 1995,
representing 38% and 37% of total revenues, respectively. Preservation
costs increased 22% for second quarter 1996 compared to second quarter 1995
and increased 22% for the first half of 1996 compared to the first half of
1995 due to increased shipments of human allografts.
General, administrative, and marketing expenses aggregated $4.2 million and
$7.8 million, respectively, for the three and six months ended June 30, 1996,
representing 43% of total revenues for both periods, compared to $3.0 million
and $6.0 million, respectively, for the 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
increased marketing expensesassociated with the increase in revenues and the
switch from a predominantly independent sales force to a predominantly direct
sales force.
Research and development expenses aggregated $700,000 and $1.4 million,
respectively, for the three and six months ended June 30, 1996, representing 7%
and 8% of total revenues, respectively,
compared to $668,000 and $1.4 million, respectively, for the three and six
months ended June 30, 1995, representing 9% and 10% of total revenues,
respectively. R & D spending relates principally to the Company's focus on
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 June 30, 1996 net working capital was $15.3 million, compared to
$15.2 million at December 31, 1995, with a current ratio of 4.8 to 1.
Shareholders' equity at June 30, 1996 was $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, primarily the new corporate headquarters.
The increase in receivables relates to the increase in revenue. The
increase in prepaid expenses relates primarily to prepaid lab supplies for
the bioadhesives facility. The increase in other assets relates primarily to
the purchase of the Bioglue technology. The increase in accounts payable and
accrued expenses is due to 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 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.
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.
(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 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)
August 13, 1996
EDWIN B. CORDELL, JR.
___________________________________
DATE EDWIN B. CORDELL, JR.
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)