864307v1
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, 1999
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.)

1655 Roberts Boulevard, NW
Kennesaw, Georgia 30144
(Address of principal executive offices)
(zip code)

(770) 419-3355
(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 19, 1999 was 12,276,144.

Part I - FINANCIAL INFORMATION
Item 1. Financial statements

CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended              Six Months Ended
June 30,                       June 30,        
---------------------------- ----------------------------
1999         1998            1999         1998    
---------------------------- ----------------------------
(Unaudited)                    (Unaudited)

Revenues:
Preservation services and products              $      17,268  $     15,477  $     33,327   $     29,978
Research grants and licenses                              127            77           393            137
---------------------------  ---------------------------
17,395        15,554        33,720         30,115
Costs and expenses:
Preservation services and products                      8,235         6,345        15,611         11,826
General, administrative and marketing                   5,937         5,841        12,102         11,707
Research and development                                  883         1,256         1,957          2,267
Interest expense                                           89           118           208            509
Interest income                                          (367)         (399)         (792)          (399)
Other income, net                                          40          (708)           (4)          (772)
---------------------------- ----------------------------
14,817        12,453        29,082         25,138
---------------------------  ---------------------------
Income before income taxes                               2,578         3,101         4,638          4,977
Income tax expense                                         851         1,053         1,531          1,757
---------------------------  ---------------------------
Net income                                       $       1,727  $      2,048  $      3,107   $      3,220
===========================  ===========================

Earnings per share:
Basic                                   $        0.14  $       0.16  $       0.25   $       0.29
===========================  ===========================
Diluted                                 $        0.14  $       0.16  $       0.25   $       0.28
===========================  ===========================
Weighted average shares outstanding:
Basic                                          12,344        12,709        12,422         11,219
===========================  ===========================
Diluted                                        12,527        13,033        12,606         11,577
===========================  ===========================

See accompanying notes to summary consolidated financial statements.

Item 1. Financial Statements
CRYOLIFE, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

June 30,      December 31,
1999          1998      
(Unaudited) 

ASSETS
Current Assets:
Cash and cash equivalents                                           $         5,141  $         12,885
Marketable securities, at market                                             26,224            26,713
Receivables (net)                                                            15,420            11,187
Deferred preservation costs (net)                                            15,053            14,239
Inventories                                                                   4,388             3,385
Prepaid expenses                                                              2,577             1,945
Deferred income taxes                                                         1,522             1,348
---------------------------------
Total current assets                                                       70,325            71,702
---------------------------------
Property and equipment (net)                                                      21,704            21,460
Goodwill (net)                                                                     1,637             1,685
Patents (net)                                                                      2,340             2,216
Other (net)                                                                        1,487             1,327
---------------------------------
TOTAL ASSETS                                                        $        97,493  $         98,390
=================================

LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Accounts payable                                                    $           930  $          1,655
Accrued expenses                                                              2,612             2,968
Accrued procurement fees                                                      2,524             1,806
Accrued compensation                                                          1,091             1,185
Current maturities of capital lease obligations                                 213               224
Current maturities of long-term debt                                            287               516
Deferred income                                                               1,042             1,038
---------------------------------
Total current liabilities                                                   8,699             9,392
---------------------------------
Deferred income, less current portion                                                645             1,525
Deferred income taxes                                                                717               410
Capital lease obligations, less current maturities                                 1,616             1,714
Convertible debenture                                                              4,393             4,393
Other long-term debt                                                                 500               535
---------------------------------
Total liabilities                                                            16,570            17,969
---------------------------------
Shareholders' equity:
Preferred stock                                                                 ---               ---
Common stock (issued 13,361 shares in 1999 and
1998)                                                                         134               134
Additional paid-in capital                                                   64,347            64,347
Retained earnings                                                            22,219            19,113
Unrealized gain (loss) on marketable securities                                (189)              139
Less:  Treasury stock (1,045 shares in 1999 and
845 shares in 1998)                                                         (5,588)           (3,312)
---------------------------------
Total shareholders' equity                                              80,923            80,421
---------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $        97,493  $         98,390
=================================

See accompanying notes to summary consolidated financial statements.

Item 1. Financial Statements

CRYOLIFE, INC.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Six Months Ended
June 30,              
1999             1998       
(Unaudited)

Net cash flows (used in) provided by operating activities:
Net income                                                        $         3,107    $          3,220
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income recognized                                                 (876)                ---
Depreciation and amortization                                             1,482               1,808
Provision for doubtful accounts                                              48                  53
Deferred income taxes                                                       301                  57
Changes in operating assets and liabilities:
Receivables                                                           (4,281)               (608)
Deferred preservation costs and inventories                           (1,817)             (2,754)
Prepaid expenses and other assets                                       (632)               (843)
Accounts payable and accrued expenses                                   (454)                113
-----------------------------------
Net cash flows (used in) provided by operating activities                (3,122)              1,046
-----------------------------------

Net cash flows used in investing activities:
Capital expenditures                                                       (1,592)             (2,090)
Other assets                                                                 (371)               (724)
Purchases of marketable securities                                        (11,582)                ---
Sales of marketable securities                                             12,071                 ---
Gross unrealized gain on marketable equity securities                        (496)                ---
-----------------------------------
Net cash flows used in investing activities                                (1,970)             (2,814)
-----------------------------------

Net cash flows (used in) provided by financing activities:
Principal payments of debt                                                   (264)            (13,732)
Proceeds from borrowings on revolving term loan                               ---               1,680
Payment of obligations under capital leases                                  (109)                (97)
Purchase of treasury stock                                                 (2,508)                ---
Proceeds from issuance of common stock and
from notes receivable from shareholders                                   229              45,912
-----------------------------------
Net cash (used in) provided by financing activities                        (2,652)             33,763
-----------------------------------
(Decrease) Increase in cash                                                     (7,744)             31,995
Cash and cash equivalents, beginning of period                                  12,885                 111
-----------------------------------
Cash and cash equivalents, end of period                               $         5,141    $         32,106
===================================

Supplemental cash flow information 
Non-cash investing and financing activities:
Establishing capital lease obligations                            $           ---    $          2,141
===================================
Debt conversion into common stock                                 $           ---    $            607
===================================

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  presentations.   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, 1999 are not  necessarily  indicative  of the results that may be
expected for the year ending December 31, 1999. 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, 1998.

NOTE 2 - INVESTMENTS

The  Company  maintains  cash  equivalents  and  investments  in  several  large
well-capitalized  financial  institutions,  and the Company's  policy  disallows
investment  in any  securities  rated less than  "investment-grade"  by national
rating services.

Management  determines the appropriate  classification of debt securities at the
time of purchase and  reevaluates  such  designations  as of each balance  sheet
date.  Debt securities are classified as  held-to-maturity  when the Company has
the  positive   intent  and  ability  to  hold  the   securities   to  maturity.
Held-to-maturity  securities are stated at amortized  cost.  Debt securities not
classified as held-to-maturity or trading,  and marketable equity securities not
classified as trading, are classified as available-for-sale.  Available-for-sale
securities  are  stated at their  fair  values,  with the  unrealized  gains and
losses,  net of tax, reported in a separate  component of shareholders'  equity.
The  amortized  cost of debt  securities  classified  as  available-for-sale  is
adjusted for  amortization  of premiums and  accretion of discounts to maturity.
Such  amortization is included in investment  income.  Realized gains and losses
and  declines in value judged to be other than  temporary on  available-for-sale
securities  are included in investment  income.  The cost of securities  sold is
based  on  the  specific   identification  method.  Interest  and  dividends  on
securities classified as available-for-sale  are included in interest income. At
June 30, 1999 all marketable  equity  securities and debt securities held by the
Company were designated as available-for-sale.

Total  gross  realized  gains  on sales of  available-for-sale  securities  were
$39,000 and $0 for the three months ended June 30, 1999 and 1998,  respectively.
Total  gross  realized  gains  on sales of  available-for-sale  securities  were
$116,000 and $0 for the six months  ended June 30, 1999 and 1998,  respectively.
As of June 30,  1999  differences  between  cost and  market of  $286,000  (less
deferred taxes of $97,000) are included as a separate component of shareholders'
equity.

At June 30, 1999 and  December  31,  1998  approximately  $4.1  million and $8.9
million, respectively, of debt securities with original maturities of 90 days or
less at their acquisition  dates were included in cash and cash equivalents.  At
June 30, 1999 and December 31, 1998 no  investments  had a maturity date between
90 days  and 1 year  and  approximately  $17.1  million  and  $16.1  million  of
investments matured between one and five years, respectively.  The market values
of these securities approximate cost.

NOTE 3 - INVENTORY

Inventories are comprised of the following:

(Unaudited)
June 30,        December 31,
1999              1998      
-----------------------------------

Raw materials                                                          $     1,739,000    $      1,296,000
Work-in-process                                                                978,000           1,037,000
Finished goods                                                               1,671,000           1,052,000
-----------------------------------
$     4,388,000    $      3,385,000
===================================

NOTE 4 - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

(Unaudited)                   (Unaudited)
Three Months Ended              Six Months Ended
June 30,                       June 30,       
------------------------      ------------------------
1999         1998            1999         1998   
------------------------      ------------------------

Numerator for basic and diluted earnings
per share - net income                        $ 1,727,000  $ 2,048,000     $ 3,107,000   $ 3,220,000
========================     ========================

Denominator for basic earnings per share -
weighted-average basis                         12,344,000   12,709,000       12,422,000   11,219,000
Effect of dilutive stock options                       183,000      324,000          184,000      358,000
------------------------      ------------------------
Denominator for diluted earnings per share -
adjusted weighted-average shares               12,527,000   13,033,000       12,606,000   11,577,000
========================     ========================

Earnings per share:
Basic                                         $       .14  $       .16     $        .25  $       .29
========================     ========================
Diluted                                       $       .14  $       .16     $.25       $  .28
========================     ========================

NOTE 5 - COMPREHENSIVE INCOME

During the six months ended June 30, 1999 and 1998, net comprehensive income was
less than net income by  approximately  $328,000  and $0,  respectively,  due to
unrealized losses on marketable equity securities.

PART I - FINANCIAL INFORMATION

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

Results of Operations

Preservation and product  revenues  increased 12% to $17.3 million for the three
months  ended June 30,  1999 from  $15.5  million  for the same  period in 1998.
Preservation  and product  revenues  increased  11% to $33.3 million for the six
months ended June 30, 1999 from $30.0  million for the same period in 1998.  The
increase in revenues was primarily due to the growing  acceptance in the medical
community of  cryopreserved  tissues which has resulted in increased  demand for
the  Company's  cryopreservation  services,  the  Company's  ability  to procure
greater  amounts of tissue,  price increases for certain  preservation  services
during  the  third  quarter  of 1998,  revenues  attributable  to the  Company's
introduction of BioGlue surgical adhesive in international markets in April 1998
and revenues attributable to the Company's introduction of osteoarticular grafts
in January of 1999.

Revenues from human heart valve and conduit cryopreservation  services decreased
1% to $7.8  million for the three  months  ended June 30, 1999 from $7.9 million
for  the  three  months  ended  June  30,  1998,   representing   45%  and  51%,
respectively,  of total revenues during such periods.  Revenues from human heart
valve and conduit  cryopreservation  services  decreased 5% to $14.6 million for
the six months  ended June 30, 1999 from $15.3  million for the six months ended
June 30, 1998, representing 43% and 51%, respectively,  of total revenues during
such periods. This decrease in revenues results from a 3% decrease in the number
of heart  allograft  shipments  for the six  months  ended  June 30,  1999.  The
decrease in the number of heart allograft shipments primarily results from fewer
pulmonary heart valve  allografts  being shipped due to a decrease in the number
of Ross  procedures  being  performed.  The Company has attempted to promote the
positive clinical results of the Ross procedure by hosting science forums around
the country with its cardiovascular  surgeon customers.  While the response from
the surgeons has been positive we are  currently  unable to predict the trend in
pulmonary heart valve shipments.

Revenues from human vascular tissue  cryopreservation  services increased 26% to
$4.5  million for the three months ended June 30, 1999 from $3.6 million for the
three months ended June 30, 1998,  representing  26% and 23%,  respectively,  of
total  revenues  during  such  periods.  Revenues  from  human  vascular  tissue
cryopreservation services increased 33% to $9.4 million for the six months ended
June 30,  1999  from  $7.1  million  for the six  months  ended  June 30,  1998,
representing 28% and 24%,  respectively,  of total revenues during such periods.
This  increase in revenues was  primarily due to a 15% and a 22% increase in the
number of vascular allograft shipments for the three months and six months ended
June 30,  1999,  respectively,  due to an  increased  demand  and the  Company's
ability to procure greater amounts of tissue.  The increase in revenues was also
due to the  Company's  focus on procuring  and  distributing  long segment veins
which have a higher per unit revenue than the short segment veins.

Revenues from human connective tissue cryopreservation services increased 31% to
$2.5  million for the three months ended June 30, 1999 from $1.9 million for the
three months ended June 30, 1998,  representing  15% and 12%,  respectively,  of
total  revenues  during such  periods.  Revenues  from human  connective  tissue
cryopreservation services increased 32% to $4.9 million for the six months ended
June 30,  1999  from  $3.7  million  for the six  months  ended  June 30,  1998,
representing 15% and 12%,  respectively,  of total revenues during such periods.
This  increase in revenues was  primarily due to a 16% and a 19% increase in the
number of allograft shipments for the three months and six months ended June 30,
1999,  respectively,  due to increased demand,  the Company's ability to procure
greater  amounts  of tissue and the  introduction  of  osteoarticular  grafts in
January  1999.  Additional  revenue  increases  have  resulted  from  a  greater
proportion of the 1999 shipments consisting of cryopreserved menisci, which have
a significantly higher per unit revenue than the Company's cryopreserved tendons
and price increases for the  cryopreservation  of menisci and tendons during the
third quarter of 1998.

Revenues from Ideas for Medicine,  Inc.  ("IFM") were $1.6 million for the three
months ended June 30, 1999 and 1998,  representing 9% and 10%, respectively,  of
total  revenues  during such periods.  Revenues  from Ideas for  Medicine,  Inc.
("IFM")  were $3.2  million  for the six months  ended  June 30,  1999 and 1998,
representing  9% and 11%,  respectively,  of total revenues during such periods.
The IFM product line was sold on September 30, 1998 to Horizon Medical Products,
Inc ("HMP").  In October 1998 IFM began an OEM manufacturing  agreement with HMP
which provides for the manufacture by IFM of specified minimum dollar amounts of
IFM products to be  purchased  exclusively  by the  purchaser of the IFM product
line over each of the four years following the sale.

On June 22, 1999 IFM notified  HMP that it was in default of certain  provisions
of  the  Manufacturing  Agreement  ("the  Agreement").  Specifically,  HMP is in
violation of the payment provisions contained within the Agreement,  which calls
for inventory purchases to be paid for within 45 days of delivery. Additionally,
HMP is in  violation  due to  nonpayment  of  interest  related to such past due
accounts  receivable.  The total of accounts receivable due from HMP at June 30,
1999 was approximately $2.5 million.

HMP has 60 days from the  notification  of default to cure. If HMP does not take
corrective action within 60 days, the Company may terminate the Agreement at its
discretion.  If the Company terminates the Agreement, HMP would be liable to the
Company  for six  months  of  direct  and  indirect  labor  associated  with the
manufacturing  of the  IFM  product  line  and  manufacturing  overhead  for the
remainder of the Agreement.

HMP has  indicated  to the Company  that it will not be able to meet the minimum
purchase  requirements  outlined  in the  Agreement.  The  Company  and  HMP are
currently  negotiating  to revise the  Agreement.  Additionally,  the Company is
evaluating its alternatives,  including reacquiring the IFM product line. If the
Agreement  is  terminated,  the  Company may receive  lower  revenues  and incur
related expenses.

Revenues from bioprosthetic cardiovascular devices increased 51% to $330,000 for
the three  months  ended June 30, 1999 from  $218,000 for the three months ended
June 30, 1998,  representing 2% and 1%,  respectively,  of total revenues during
such periods.  Revenues from bioprosthetic  cardiovascular devices increased 27%
to $529,000  for the six months  ended June 30, 1999 from  $418,000  for the six
months  ended June 30,  1998,  representing  2% and 1%,  respectively,  of total
revenues  during such periods.  This increase in revenues was primarily due to a
31% and an 9%  increase  in the number of  bioprosthetic  cardiovascular  device
shipments due to increased demand for the three months and six months ended June
30, 1999, respectively, due to increased manufacturing capacity.

Revenues from  BioGlue(R)  surgical  adhesive  increased 90% to $409,000 for the
three months  ended June 30, 1999 from  $215,000 for the three months ended June
30, 1998,  representing 2% and 1%,  respectively,  of total revenues during such
periods.  Revenues from BioGlue surgical adhesive increased 208% to $663,000 for
the six months  ended June 30, 1999 from  $215,000 for the six months ended June
30, 1998,  representing 2% and 1%,  respectively,  of total revenues during such
periods.  The increase in revenues is due to increased  product  awareness since
the introduction of BioGlue in April of 1998, increased surgeon training and the
receipt of CE approval for pulmonary indications in Europe in March 1999.

Grant  revenues  increased  to $127,000 for the three months ended June 30, 1999
from $77,000 for the three months ended June 30, 1998. Grant revenues  increased
to $393,000  for the six months  ended June 30, 1999 from  $137,000  for the six
months  ended June 30,  1998.  This  increase  in grant  revenues  is  primarily
attributable to the SynerGraft(R) research and development programs.

Other  revenues and expenses  decreased to $40,000  expense for the three months
ended June 30, 1999 from  $708,000  revenue for the three  months ended June 30,
1998. Other revenues  decreased to $4,000 for the six months ended June 30, 1999
from  $772,000 for the six months ended June 30,  1998.  Other  revenues in 1998
relate primarily to proceeds from the sale of the Company's port product line.

Cost of  cryopreservation  services and products aggregated $8.2 million for the
three months ended June 30, 1999, compared to $6.3 million for the corresponding
period   in   1998,   representing   48%  and   41%,   respectively,   of  total
cryopreservation  and product revenues in each period.  Cost of cryopreservation
services and products aggregated $15.6 million for the six months ended June 30,
1999, compared to $11.8 million, respectively, for the six months ended June 30,
1998,  representing 47% and 39% of total  cryopreservation and product revenues,
respectively.  The increase in 1999 of the cost of cryopreservation services and
products as a  percentage  of  revenues  results  from a lesser  portion of 1999
revenues  being  derived  from human heart  valve and  conduit  cryopreservation
services,   which  carry  a   significantly   higher  gross  margin  than  other
cryopreservation  services,  and  from  the  switch  in  October  of 1998 to OEM
manufacturing of single-use medical devices, which generates lower gross margins
than  cryopreservation  services  and lower gross  margins than the IFM products
generated prior to the sale of the IFM product line.

General,  administrative and marketing expenses increased 2% to $5.9 million for
the  three  months  ended  June  30,  1999,  compared  to $5.8  million  for the
corresponding period in 1998,  representing 34% and 38%, respectively,  of total
cryopreservation  and product revenues in each period.  General,  administrative
and  marketing  expenses  increased 3% to $12.1 million for the six months ended
June 30, 1999,  compared to $11.7 million for the corresponding  period in 1998,
representing 36% and 39%,  respectively,  of total  cryopreservation and product
revenues in each period.  The increase in  expenditures  in 1999  resulted  from
expenses  incurred to support  the  increase in  revenues,  partially  offset by
increased  absorption of overhead expenses associated with increased  production
of new products.

Research and development expenses decreased 30% to $883,000 for the three months
ended June 30, 1999,  compared to $1.3 million for the  corresponding  period in
1998,  representing  5% and 8%,  respectively,  of  total  cryopreservation  and
product revenues for each period.  Research and development  expenses  decreased
14% to $2.0  million for the six months  ended June 30,  1999,  compared to $2.3
million  for  the  corresponding  period  in  1998,   representing  6%  and  8%,
respectively,  of total  cryopreservation  and product revenues for each period.
The decrease in expenses was  primarily due to the delayed start date of certain
outside  consulting  projects  until the third  quarter  of 1999.  Research  and
development   spending  relates  principally  to  the  Company's  focus  on  its
bioadhesives and SynerGraft technologies.

Net  interest  income was  $278,000  for the three  months  ended June 30,  1999
compared to net  interest  income of $281,000  for the  corresponding  period in
1998.  Net  interest  income was $584,000 for the six months ended June 30, 1999
compared to net  interest  expense of $110,000 for the  corresponding  period in
1998. This increase in interest income and decrease in interest  expense for the
six months ended June 30, 1999 was due to the receipt of interest  income on the
invested proceeds from the follow-on equity offering (the "Offering")  completed
in April 1998 and  reduction of interest  expense from the  repayment of certain
indebtedness with the proceeds from the Offering, as well as the conversion of a
portion of a convertible debenture into common stock of the Company.

The  decline  in the  effective  income  tax rate to 33% from 34% for the  three
months ended June 30, 1999 and 1998,  respectively,  and to 33% from 35% for the
six months ended June 30, 1999 and 1998, respectively, is due to lower effective
state tax rates.

SEASONALITY

The demand for the  Company's  human heart  valve and  conduit  cryopreservation
services is  seasonal,  with peak demand  generally  occurring in the second and
third quarters.  Management believes this demand trend for human heart valve and
conduit  cryopreservation  services  is  primarily  due to the  high  number  of
surgeries  scheduled  during the summer months.  Management  believes the trends
experienced by the Company to date for its human connective  tissue for the knee
cryopreservation services indicate this business may also be seasonal because it
is an elective  procedure  which may be  performed  less  frequently  during the
fourth quarter holiday months.  However,  the demand for the Company's  vascular
tissue  cryopreservation  services,  bioprosthetic  cardiovascular  devices, and
BioGlue surgical  adhesive does not appear to experience this seasonal trend. As
an OEM manufacturer of single-use  medical  devices,  the sale of those products
are dictated by a  manufacturing  agreement  which is not affected by a seasonal
trend.

LIQUIDITY AND CAPITAL RESOURCES

At June 30,  1999,  net  working  capital was $61.6  million,  compared to $62.3
million at December 31, 1998,  with a current  ratio of 8 to 1 at June 30, 1999.
The Company's primary capital  requirements arise out of general working capital
needs, capital expenditures for facilities and equipment and funding of research
and  development  projects and a common stock  repurchase  plan  approved by the
Board of directors in October of 1998. The Company historically has funded these
requirements  through bank credit  facilities,  cash generated by operations and
equity offerings.

Net cash used in operating  activities was $3.1 million for the six months ended
June 30, 1999, as compared to net cash provided by operating  activities of $1.0
million for the six months ended June 30, 1998. This increase primarily resulted
from an increase in the accounts  receivables due to increased  revenues and the
increase in the accounts  receivable  due from Horizon  Medical  Products,  Inc.
Additional increases resulted from an increase in the amount of accounts payable
liquidated  in the first  quarter of 1999 due to the  expansion  of the  BioGlue
manufacturing  laboratory  at corporate  headquarters,  partially  offset by the
reduction in the increase of deferred preservation costs and inventories between
the first half of 1999 as compared to the first half of 1998.

Net cash used in investing  activities was $2.0 million for the six months ended
June 30,  1999,  as compared to $2.8  million for the six months  ended June 30,
1998.  This decrease was primarily  attributable  to the decrease in the capital
expenditures  in the first half on 1999,  the  decrease in the addition of other
assets  during the first  quarter of 1999,  and the sales of  marketable  equity
securities  during  the first half of 1999,  partially  offset by  purchases  of
marketable equity securities.

Net cash used in financing  activities was $2.6 million for the six months ended
June 30, 1999, as compared to net cash provided by financing activities of $33.8
million for the six months ended June 30,  1998.  This  decrease  was  primarily
attributable  to a follow-on  equity  offering  in March of 1998 that  generated
proceeds of $45.4  million,  partially  offset by the repayment of borrowings on
the Company's bank loans, and accrued interest thereon,  totaling $13.3 million.
Additional  decreases  resulted from the repurchase of treasury stock during the
first half of 1999.

In October 1998 the Company entered into an agreement with an investment banking
firm to provide  financial  advisory  services  related to a  potential  private
placement of equity or equity-oriented securities to form a separate company for
the commercial  development of its serine proteinase light activation (FibRx(R))
technologies.  This strategy, if successful,  will allow an affiliated entity to
fund the FibRx technology and should expedite the commercial  development of its
blood  clot  dissolving  and  surgical  sealant  product   applications  without
additional  R&D  expenditures  by the Company (other than through the affiliated
company).  This  strategy,  if  successful,  should  also  favorably  impact the
Company's liquidity going forward.

The Company  anticipates  that the  remaining net proceeds from the Offering and
cash  generated  from  operations  will be  sufficient to meet its operating and
development  needs  for the  next  12  months.  However,  the  Company's  future
liquidity and capital  requirements beyond that period will depend upon numerous
factors, including the timing of the Company's receipt of FDA approvals to begin
clinical  trials  for its  products  currently  in  development,  the  resources
required to further develop its marketing and sales  capabilities  if, and when,
those products gain  approval,  the resources  required to expand  manufacturing
capacity  and the  extent  to  which  the  Company's  products  generate  market
acceptance  and demand.  There can be no  assurance  that the  Company  will not
require additional  financing or will not seek to raise additional funds through
bank  facilities,  debt or equity  offerings or other sources of capital to meet
future requirements.  These additional funds may not be available when needed or
on terms acceptable to the Company,  which  unavailability could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

YEAR 2000

The  Company is aware of the issues  that many  companies  will face as the year
2000 approaches.  In order to become year 2000 compliant, the Company has set up
a project team to address the issue and has taken the following steps:

IMPACT ASSESSMENT: The Company has identified potential year 2000 issues and the
associated potential risks. The Company has assessed the impact of the year 2000
issue  and  believes  that  its  business  products  and  services  will  not be
significantly impacted.  Additionally, the Company has determined that, with the
exception of the  Company's  clinical  tracking  database,  all of the Company's
financial and  operational  applications  have been upgraded to or replaced with
year 2000 compliant software.

THIRD PARTY IMPACT  ASSESSMENTS:  The Company has verified the  readiness of its
significant  suppliers through the distribution of a questionnaire which was 90%
returned  by the  suppliers  by January 1, 1999  indicating  compliance  or that
compliance  would be achieved by June 30, 1999.  The Company does not anticipate
that a lack of compliance of the vendors will significantly affect the Company's
daily operations.

PROJECT PLAN:  The Company began its compliance  strategy in October 1998.  With
the  exception of the  clinical  tracking  database,  all of the "off the shelf"
software  packages have been upgraded to compliant  releases.  Older  internally
developed  software  has been  replaced  with  new  systems  that are year  2000
compliant.  The remaining clinical tracking system will be internally rewritten,
and implemented by July 31, 1999. The Company  estimates that all  modifications
and  testing  for year  2000  issues  will be  completed  at a cost of less than
$50,000 including expenditures to date.

CONTINGENCY  PLAN:.  With the exception of the clinical tracking  database,  the
Company  believes it is year 2000  compliant.  However,  as of June 30, 1999 the
Company  completed its  contingency  plan which provides for manual paper record
keeping based on standard operating procedures currently documented. The Company
anticipates  its current  personnel  will be sufficient  to accomplish  the task
manually  although  additional  time and effort will be  required.  Although the
clinical  tracking  system is not critical to the  day-to-day  operations of the
Company, it is important for FDA compliance regarding follow-up procedures after
transplant.  A delay in the  implementation  of the new clinical tracking system
would result in the Company having to rely on its paper support for required FDA
data. As a part of other emergency  procedures,  the Company  maintains  limited
power generation and other emergency backup facilities.  Although the Company is
uncertain what the costs associated with a disruption in its business activities
would be or the related impact on operations, liquidity and financial condition,
the Company does not expect the impact to be material.

The Company  believes that it is diligently  addressing  the year 2000 issue and
expects that through its actions,  year 2000 problems are not reasonably  likely
to have a material  adverse effect on its operations.  However,  there can be no
assurance that such problems will not arise.

FORWARD-LOOKING STATEMENTS

Statements made in this Form 10-Q for the quarter ended June 30, 1999 that state
the  Company's or  management's  intentions,  hopes,  beliefs,  expectations  or
predictions of the future are  forward-looking  statements within the meaning of
the Private  Securities  Litigation  Reform Act of 1995. It is important to note
that the Company's  actual results could differ  materially from those contained
in such  forward-looking  statements as a result of adverse  changes in any of a
number  of  factors  that  affect  the  Company's  business,  including  without
limitation,  changes  in (1) the  effects  on the  Company  of year 2000  issues
including  unanticipated  expenses in  connection  therewith,  (2) the Company's
ability to find an equity  investor  in the FibRx  technology  and the impact of
such an investment on the Company's liquidity, (3) the adequacy of the Company's
financing  arrangements over the next twelve months, (4) the ongoing discussions
with HMP, and (5) governmental or third-party  reimbursement  policies.  See the
"Business-Risk  Factors" section of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 for a more detailed discussion of factors which
might affect the Company's future performance.

Item 3.   Qualitative and Quantitative Discussion About Market Risk.

The Company's  interest  income and expense are most sensitive to changes in the
general level of U.S.  interest rates. In this regard,  changes in U.S. interest
rates affect the  interest  earned on the  Company's  cash  equivalents  of $4.1
million and short-term  investments of $17.1 million in municipal obligations as
of June 30, 1999 as well as interest paid on its debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company generally  maintains 80% to 90%
of its debt as fixed rate in nature.  As a result,  the  Company is subject to a
risk  that  interest  rates  will  decrease  and the  Company  may be  unable to
refinance its debt.

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 27, 1999.

(b)  Management's nominees for director were elected at the meeting by
the holders of common stock. The election was uncontested.

The  following  table  shows  the  results  of voting  in the  election  of
Directors:

Shares Voted For        Authority Withheld
Steven G. Anderson                    11,694,180                      78,455
Ronald C. Elkins, M.D.                11,679,812                      92,823
Benjamin H. Gray                      11,694,180                      78,455
Virginia C. Lacy                      11,679,812                      92,823
Ronald D. McCall, Esq.                11,679,812                      92,823

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,
1995.  (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the fiscal three months 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.  (Incorporated  by  reference  to  Exhibit  3.3 to the  Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.)

3.4  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, 1995.)

4.1  Form of  Certificate  for the  Company's  Common  Stock.  (Incorporated  by
reference to Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1 (No. 33-56388).)

4.2  Form of  Certificate  for the  Company's  Common  Stock.  (Incorporated  by
reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).

27.1 Financial Data Schedule: Quarter Ended June 30, 1999

(b) Current Reports on Form 8-K.

The Registrant  filed a Current Report on Form 8-K with the Commission
on June 4 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)

July 20, 1999                   /s/ EDWIN B. CORDELL, JR..
------------------               ----------------------------------
DATE                             EDWIN B. CORDELL, JR.
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)

<ARTICLE>                     5
<LEGEND>
THIS SCHEDULE  CONTAINS SUMMARY  FINANCIAL DATA  INFORMATION  EXTRACTED FROM THE
COMPANY'S  UNAUDITED FINANCIAL  STATEMENTS  CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000784199                         
<NAME> CRYOLIFE, INC.                       

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