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)