SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 5, 1997
CRYOLIFE, INC.
(Exact name of registrant as specified in charter)
Commission File Number - 0-21104
Florida 59-2417093
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
1655 Roberts Boulevard, N.W.
Kennesaw, Georgia 30144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (770) 419-3355
(Former name or former address, if changed since last report) Not Applicable
EXPLANATORY NOTE: On March 19, 1997, CryoLife, Inc. (the "Registrant")
filed with the Securities and Exchange Commission (the "Commission") a Report on
Form 8-K (the "Initial 8-K Report") with respect to the Registrant's merger of
Ideas for Medicine, Inc., a Florida corporation ("IFM") with and into CryoLife
Acquisition Corporation, a Florida corporation wholly-owned by the Registrant.
In accordance with Item 7(a)(4) of Form 8-K, the Initial 8-K Report did not
include the historical IFM financial statements and the condensed consolidated
pro forma financial information of the Registrant (the "Financial Information")
and instead contained an undertaking to file the Financial Information with the
Commission in an amendment to the Initial 8-K Report as soon as practicable, but
not later than 60 days after March 20, 1997. This amendment is being filed for
the purpose of satisfying the Registrant's undertaking to file the Financial
Information, and this amendment should be read in conjunction with the Initial
8-K Report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
The balance sheet of IFM as of December 31, 1996, and the related
statements of income and retained earnings, and cash flows for the year ended
December 31, 1996, together with the related notes and audit report of Ernst &
Young LLP, are included herein.
413659.6
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Report of Independent Auditors
Board of Directors and Shareholders
Ideas for Medicine, Inc.
We have audited the accompanying balance sheet of Ideas for Medicine, Inc. as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ideas for Medicine, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
February 5, 1997 ERNST & YOUNG LLP
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IDEAS FOR MEDICINE, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Current assets:
Cash $ 180,408
Accounts receivable, net of allowance for
doubtful accounts of $10,590 741,352
Inventories 651,882
Prepaid expenses 47,311
-----------
Total current assets 1,620,953
Property and equipment, net 200,065
Other assets, net 6,586
-----------
$ 1,827,604
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 220,240
Accrued liabilities 64,020
-----------
Total current liabilities 284,260
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value; 150,000 shares
authorized; 105,590 shares issued and
outstanding 1,056
Additional paid-in capital 642,768
Retained earnings 899,520
-----------
Total shareholders' equity 1,543,344
-----------
$ 1,827,604
===========
See accompanying notes.
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IDEAS FOR MEDICINE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
Net sales $ 6,344,114
Cost of sales 3,331,669
----------------
Gross profit 3,012,445
Selling, general and administrative expenses 2,660,051
----------------
Operating income 352,394
Other income, net 1,805
----------------
Net income 354,199
Retained earnings at beginning of year 1,095,321
----------------
1,449,520
Less distributions paid 550,000
----------------
Retained earnings at end of year $ 899,520
================
See accompanying notes.
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IDEAS FOR MEDICINE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
OPERATING ACTIVITIES
Net income $ 354,199
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 153,952
Provision for doubtful accounts 11,272
Loss on disposal of assets 5,181
Changes in operating assets and liabilities:
Accounts receivable 61,023
Inventories (35,856)
Other assets 16,046
Accounts payable and accrued liabilities 93,029
---------
Net cash provided by operating activities 658,846
INVESTING ACTIVITIES
Purchases of property and equipment (107,579)
Net cash used in investing activities (107,579)
FINANCING ACTIVITIES
Payments of note (12,398)
Distributions paid (550,000)
---------
Net cash used in financing activities (562,398)
---------
Net decrease in cash (11,131)
Cash at beginning of year 191,539
--------
Cash at end of year $ 180,408
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 157
==========
See accompanying notes.
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IDEAS FOR MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
1. NATURE OF BUSINESS
Ideas for Medicine, Inc. (the "Company) is a closely-held Florida corporation.
The Company designs and manufactures a variety of surgical devices. The devices
are marketed primarily to hospitals in the United States and throughout the
world through stocking and non-stocking distributors. The Company's corporate
offices and manufacturing facilities are located in Clearwater, Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Sales are recorded when the related goods are shipped.
INVENTORIES
Inventories are stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed primarily
using accelerated methods over the following useful lives:
Manufacturing Equipment 5-7 years
Office furniture and equipment 5-7 years
Leasehold improvements Life of lease
PATENTS
Patent costs are expensed in the period in which they are incurred.
INCOME TAXES
The Company operates as an "S" Corporation under the Internal Revenue Code and,
consequently, is not subject to federal income tax. The Company's shareholders
include their proportionate shares of the Company's income in their individual
income tax returns.
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IDEAS FOR MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following at December 31, 1996:
Finished Goods $ 317,757
Work-in-process 53,663
Raw Materials 280,462
-------
$ 651,882
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
Manufacturing equipment $ 450,390
Office furniture and equipment 215,334
Leasehold improvements 101,750
-------
767,474
Less accumulated depreciation
and amortization 567,409
-------
$ 200,065
=======
5. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses, aggregating $260,000 in 1996 are expensed as
incurred.
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IDEAS FOR MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CREDIT ARRANGEMENTS
Under a revolving line of credit arrangement dated September 27, 1996 with a
bank, the Company may borrow up to $250,000 with borrowings due and payable on
demand. No amounts were borrowed under such line during 1996.
7. COMMITMENTS AND CONTINGENCIES
During 1996 the Company leased its facilities under a non-cancelable operating
lease which expired December 31, 1996. Rent expense for 1996 totaled $172,000.
Effective January 1, 1997, the Company leases its manufacturing facilities on a
month-to-month basis (see Note 8) and its office facility is leased under a
non-cancelable operating lease expiring on December 31, 1997. Minimum rent
payments under this one-year lease total $20,000.
8. RELATED PARTY TRANSACTIONS
The Company leases its manufacturing facilities from shareholders of the Company
under month-to-month leases for $7,000 per month.
9. CONCENTRATION OF CREDIT RISK
The Company maintains the majority of its cash balances at one financial
institution. These balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. The uninsured balance on deposit at the financial
institution totaled $220,000 at December 31, 1996.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, and accounts payable approximate their fair values.
11. LEGAL COSTS
During 1996 the Company incurred legal expenses aggregating $117,000 relating to
the settlement of three separate lawsuits.
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IDEAS FOR MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. GEOGRAPHIC AREA
The Company produces surgical devices for hospitals in the United States and
throughout the World. All sales are to unaffiliated customers. Sales to
international distributors aggregated $1,304,000 in 1996.
13. PROPOSED MERGER
The Company is involved in negotiations with a third-party corporation for a
proposed merger of the Company with and into a wholly-owned subsidiary of
CryoLife, Inc. The accompanying financial statements do not include any
adjustments which may be required upon the successful completion of such a
merger.
14. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT
On March 5, 1997 CryoLife, Inc. acquired the stock of the Company for
consideration of approximately $4.5 million in cash and approximately $5 million
in convertible debentures plus related expenses. The acquisition was accounted
for as a purchase.
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(b) Unaudited Pro Forma Condensed Consolidated Financial Information.
Set forth below are the following unaudited pro forma condensed
consolidated financial statements:
1. Introduction to Condensed Consolidated Pro Forma Financial
Statements.
2. ProFormaCondensed Consolidated Statement of Income for the
Year Ended December 31, 1996.
3. ProForma Condensed Consolidated Balance Sheet as of December
31, 1996.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
INTRODUCTORY NOTE: The following unaudited pro forma condensed consolidated
balance sheet and statement of income reflect the financial position at December
31, 1996 and results of operations for the year ended December 31, 1996 of
CryoLife, Inc. (the "Registrant") as if the acquisition of Ideas for Medicine
(IFM) on March 5, 1997 had occurred on December 31, 1996 and January 1, 1996,
respectively.
The unaudited pro forma condensed consolidated balance sheet and statement
of income do not purport to represent the Registrant's financial position or
results of operations had the transactions actually occurred on December 31,
1996 or January 1, 1996, respectively, or to project the Registrant's
consolidated results of operations for any future periods.
The pro forma adjustments are based upon available information. These
adjustments are directly attributable to the transaction referred to above, and
are expected to have a continuing impact on the Registrant's business, results
of operations, and financial position. The following unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the historical financial statements of the Registrant, which are included in its
Form 10-K for the year ended December 31, 1996, and Ideas for Medicine, Inc.,
which are included elsewhere herein.
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CRYOLIFE, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
IDEAS FOR PRO FORMA
CRYOLIFE, INC. MEDICINE CONSOLIDATED
YEAR ENDED YEAR ENDED PRO FORMA YEAR ENDED
12/31/96 12/31/96 ADJUSTMENTS 12/31/96
------------------ ---------------- --------------- ------------------
REVENUES:
Cryopreservation and product $ 36,678,000 $ 6,344,000 $ 43,022,000
Grants, licenses and other 361,000 361,000
Interest income 189,000 2,000 191,000
----------- ---------- -----------
Total revenues 37,228,000 6,346,000 43,574,000
COST AND EXPENSES:
Preservation costs and cost of products
sold 12,593,000 3,332,000 15,925,000
General and administrative 15,673,000 2,510,000 $ 200,000 (A) 18,531,000
10,000 (B)
488,000 (C)
(350,000)(D)
Research and development 2,807,000 150,000 2,957,000
Interest expense 72,000 733,000 (E) 805,000
------------ -------------- -------- ---------
Total costs and expenses 31,145,000 5,992,000 1,081,000 38,218,000
Income before income taxes 6,083,000 354,000 (1,081,000) 5,356,000
Income tax expense (benefit) 2,156,000 (240,000) (F) 1,916,000
Net income $ 3,927,000 $ 354,000 $ (841,000) $ 3,440,000
=========== ============ ========== ============
Earnings per share of common stock $ 0.40 $ 0.35
============= ==============
Weighted average common and common
equivalent shares outstanding 9,906,000 9,906,000
=========== ============
(A) Represents consulting agreement with former principal owner of Ideas for
Medicine.
(B) Represents automobile allowance with former principal owner of Ideas for
Medicine.
(C) Represents amortization associated with intangible assets recorded in
connection with the acquisition.
(D) Adjustments for the salary of personnel who are no longer with the
Registrant.
(E) Adjustments of interest expense for borrowings and indebtedness related to
the acquisition.
(F) Income tax benefit related to additional expenses and IFM subchapter S
pretax income.
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CRYOLIFE, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
Ideas for
CryoLife, Inc. Medicine Consolidated Pro
December 31, December 31, Pro Forma Forma December
1996 1996 Adjustments 31, 1996
---------------- ----------------- -------------- -----------------
ASSETS:
Cash $ 1,370,000 $ 181,000 $ 1,551,000
Marketable Securities 43,000 43,000
Receivables, net 8,197,000 741,000 $ (23,000)(A) 8,915,000
Deferred preservation costs 7,178,000 7,178,000
Inventories 260,000 652,000 84,000 (B) 996,000
Prepaid expenses 846,000 47,000 893,000
Deferred income taxes 287,000 287,000
----------- -------------- ----------- -----------
Total current assets 18,181,000 1,621,000 61,000 19,863,000
Property and equipment 11,567,000 200,000 (100,000)(C) 11,667,000
Goodwill 1,846,000 6,873,000 (D) 8,719,000
Other intangibles 3,379,000 7,000 1,697,000 (D) 5,083,000
----------- ----------- --------- ---------
Total assets $ 34,973,000 $ 1,828,000 $ 8,531,000 $ 45,332,000
========== ========== ========= ==========
LIABILITIES
Accounts payable $ 3,696,000 $ 220,000 $ 3,916,000
Accrued expenses 934,000 64,000 $ 575,000 (E) 1,573,000
Accrued procurement fees 1,210,000 1,210,000
Current maturities of debt 527,000 527,000
Accrued compensation 878,000 878,000
----------- ------------- ------------- -----------
Total current liabilities 7,245,000 284,000 575,000 8,104,000
Bank line of credit 1,250,000 4,500,000 (F) 5,750,000
Long-term debt 1,549,000 5,000,000 (F) 6,549,000
Shareholders' equity
Common Stock 101,000 1,000 (1,000)(G) 101,000
APIC 17,128,000 643,000 (643,000)(G) 17,128,000
Retained earnings 7,902,000 900,000 (900,000)(G) 7,902,000
Treasury stock (1,000) (1,000)
Shareholder notes receivable (180,000) (180,000)
Unrealized loss (21,000) (21,000)
---------- --------- --------- -------------
Total liabilities and shareholders' equity $ 34,973,000 $ 1,828,000 $ 8,531,000 $ 45,332,000
========== ========= ========= ==========
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CRYOLIFE, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(A) To adjust accounts receivable to net realizable value.
(B) To write up finished goods inventory to net realizable value.
(C) To adjust property and equipment to net realizable value as a result of the
Registrant's intentions to replace certain equipment in connection with
construction of IFM's new office/manufacturing facilities.
(D) To record goodwill and other intangible assets resulting from the
acquisition of IFM. The expected useful lives of such assets range from 5
to 20 years.
(E) To accrue expenses associated with the acquisition.
(F) To record borrowings on the line of credit and the issuance of the
convertible subordinated debenture in connection with the acquisition of
IFM. The former stockholders of IFM received an aggregate consideration of
$9.5 million, consisting of $4.5 million in cash and a convertible
subordinated debenture in the principal amount of $5 million.
(G) To eliminate the equity of IFM.
413659.6
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(c) Exhibits.
Exhibit
Number Description
- ------ -----------
2.1*
Agreement and Plan of Merger dated as of March 5, 1997 among
the Registrant, Ideas For Medicine, Inc. ("IFM") and
Stockholders of IFM.
23.1 Consent of Ernst & Young LLP
- --------------------------
* PREVIOUSLY FILED.
413659.6
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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 hereunto duly authorized.
CRYOLIFE, INC.
Date: May 15, 1997 By: /s/ Edwin B. Cordell, Jr.
------------------------------------
Edwin B. Cordell, Jr., Vice President and
Chief Financial Officer
413659.6
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1* Agreement and Plan of Merger dated as of March 5, 1997 among the
Registrant, Ideas For Medicine, Inc. ("IFM") and Stockholders of IFM.
23.1 Consent of Ernst & Young LLP
- ------------------
* PREVIOUSLY FILED.
413659.6
EXHIBIT 23.1
413659.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
333-16581 on Form S-3 and Registration Statement Nos. 33-83996, 33-84048,
333-03513 and 333-06141 on Forms S-8 pertaining to CryoLife, Inc., of our report
dated February 5, 1997, with respect to the financial statements of Ideas for
Medicine, Inc., included in CryoLife, Inc.'s Form 8-K/A (Amendment No. 1) dated
March 5, 1997.
Ernst & Young LLP
Atlanta, Georgia
May 13, 1997
413659.6
