FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (x) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 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 at May 14, 1996 is 4,740,766.
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 --------- --------- See accompanying notes to summary consolidated financial statements.
Item 1. Financial Statements CRYOLIFE, INC. AND SUBSIDIARIES SUMMARY CONSOLIDATED BALANCE SHEETS March 31, December 31, 1996 1995 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 1,273,142 $ 166,931 Marketable securities 4,485,974 6,015,158 Receivables (net) 6,309,778 5,369,205 Deferred preservation costs (net) 6,121,787 5,996,201 Inventories (net) 333,884 424,200 Prepaid expenses 728,322 369,594 Deferred income taxes 22,798 -- ---------- ---------- Total current assets 19,275,685 18,341,289 ---------- ---------- Property and equipment (net) 3,523,390 3,279,168 Patents and other intangibles (net) 1,932,885 1,728,262 Other assets 366,553 240,897 ---------- ---------- TOTAL ASSETS $ 25,098,513 $ 23,589,616 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,296,334 $ 1,372,862 Accrued expenses 1,865,681 1,474,365 Accrued compensation 372,179 260,709 Income taxes payable 189,311 -- --------- --------- Total current liabilities 3,723,505 3,107,936 --------- --------- Deferred income taxes -- 16,486 --------- --------- Total liabilities 3,723,505 3,124,422 --------- --------- Shareholders' Equity: Preferred stock -- -- Common stock (issued 5,005,866 shares in 1996 and 4,951,386 shares in 1995) 50,059 49,872 Additional paid-in capital 16,750,987 16,618,184 Retained earnings 4,757,035 3,974,538 Unrealized gain on investments 17,419 28,092 Less: Treasury stock (271,500 shares) (179,625) (179,625) Notes receivable from shareholders (20,867) (25,867) ---------- ---------- Total shareholders' equity 21,375,008 20,465,194 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $25,098,513 $23,589,616 ---------- ---------- See accompanying notes to summary consolidate statements.
Item 1. Financial Statements CRYOLIFE, INC. AND SUBSIDIARIES SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, -------------------- 1996 1995 -------------------- (Unaudited) Net cash flows from operating activities: Net income $ 782,497 $ 390,130 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 318,810 226,069 Provision for doubtful accounts 15,000 17,000 Deferred income taxes (39,284) (23,000) Increase in receivables (1,037,860) (550,042) (Increase) decrease in deferred preservation costs and inventory (35,270) 134,723 Increase in prepaid expenses and other assets (752,817) (362,681) Increase (decrease) in accounts payable and accrued expenses 697,857 275,595 ------- ------- Net cash flows provided by (used in) operating activities (51,067) 107,794 -------- ------- Net cash flows used in investing activities: Capital expenditures (499,223) (192,043) Proceeds from the sale of marketable securities 1,523,511 -- Purchase of marketable securities -- (1,343,832) --------- ---------- Net cash flows provided by (used in) investing activities 1,024,288 (1,535,875) --------- ---------- Net cash flow from financing activities: Proceeds from issuance of common stock and from notes receivable from shareholders 132,990 75,432 --------- -------- Net cash provided by financing activities 132,990 75,432 --------- -------- Increase (decrease) in cash 1,106,211 (1,352,649) Cash at beginning of period 166,931 2,592,799 --------- --------- Cash at end of period $ 1,273,142 $ 1,240,150 --------- --------- 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, 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 months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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.
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 million for the three months ended March 31, 1996, a 28% increase compared to $6.60 million for the same period in 1995. Revenue increases are primarily attributable to an increase in the number of allograft shipments. Revenues from human heart valve preservation increased 24% to $5.55 million for the three months ended March 31, 1996 from $4.46 million for the three months ended March 31, 1995, representing 66% and 68%, respectively, of total revenues during such periods. Shipments rose 27% for the first three months of 1996 compared to the same period in 1995. Revenues from vein preservation increased 10% to $1.80 million for the three months ended March 31, 1996 from $1.63 million for the three months ended March 31, 1995, representing 22% and 25%, respectively, of total revenues for those periods. Vein shipments increased 6% for the first three months of 1996 compared to the same period in 1995. Revenues from orthopaedic preservation increased 182% to $755,000 for the three months ended March 31, 1996 from $268,000 for the three months ended March 31, 1995, representing 9% and 4%, respectively, of total revenues for those periods. Orthopaedic shipments increased 254% for the first three months of 1996 compared to the same period in 1995. The Company also received research grant award revenues aggregating $113,000 for the three months ended March 31, 1996, compared to $90,000 for the same period in 1995. Research grant award revenues for the first three months of 1996 are primarily related to the bioadhesive and synergraft projects. Preservation costs aggregated $2.88 million for the three months ended March 31, 1996, representing 34% of total revenues, compared to $2.41 million for the three months ended March 31, 1995, representing 37% of total revenues. Preservation costs as a percentage of revenues decreased 3% for first quarter 1996 compared to first quarter 1995. The decrease relates to increased shipments of tissues and efficiencies in the preservation service operations. General, administrative, and marketing expenses increased 24% to $3.63 million for the three months ended March 31, 1996, compared to $2.93 million for the corresponding period in 1995. This increase reflects the general overhead growth trends, including personnel related expenses, and increased marketing expenses resulting from higher revenues. Research and development expenses were $690,000 for the three months ended March 31, 1996, or 8% of total revenues, compared to $686,000, or 10% of total revenues for the corresponding period in 1995. Research and development spending relates principally to the Company's focus on bioadhesives. 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, 1996 net working capital was $15.6 million, compared to $15.2 million at December 31, 1995, with a current ratio of 5.2 to 1. Shareholders' equity at March 31, 1996 was $21.4 million. The Company's primary capital requirements arise out of working capital needs, including receivables and deferred preservation costs, capital expenditures for facilities and equipment, and funding of research and development projects. The increase in receivables results from the increase in revenue. The increase in prepaid expenses and other assets relates primarily to prepaid insurance premiums. The increase in accrued expenses is primarily attributed to costs associated with increased procurement of allografts. The Company believes that available cash, cash equivalents, 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 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. 11.1 Statement re: computation of earnings per share (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, 1996 EDWIN B. CORDELL, JR. - ------------------ --------------------------- DATE EDWIN B. CORDELL, JR. Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)