FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996
OR
[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ___________

Commission file number 0-21104

CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)

Florida                                            59-2417093
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                           Identification No.)

1655 Roberts Boulevard N.W., Kennesaw, GA 30144
(Address of principal executive offices) (zip code)

Registrant's telephone number, including area code         (770) 419-3355

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class                                which registered

None                                                 Not applicable

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of Class)

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 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.
[X] Yes           [ ] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate  market  value  of  voting  stock  held by  nonaffiliates  of the
registrant was approximately  $77,208,000 at March 18, 1997 (7,720,772  shares).
The  number  of  common  shares  outstanding  at March  18,  1997 was  9,585,808
(exclusive of treasury shares).

PART I

ITEM 1.       BUSINESS.

OVERVIEW

CryoLife,  Inc.  (the  "Company")  is  a  leader  in  the  development  and
commercialization   of   technology   for   cryopreservation   of  viable  human
cardiovascular, vascular and orthopaedic tissues for transplant. The Company was
organized  in 1984 to address  market  opportunities  in the area of  biological
implantable  devices and  materials,  and it is today the  dominant  provider of
cryopreservation  services  for viable  human  heart  valves.  Based on clinical
studies,  management believes transplanted human tissues may offer, depending on
the particular  tissue and  application,  certain  advantages  over  mechanical,
synthetic, or animal-derived alternatives, including more natural functionality,
elimination  of  the  need  for  anticoagulant  therapy,  reduced  incidence  of
reoperation, and reduced risk of catastrophic failure, thromboembolism (stroke),
or calcification.

The Company uses proprietary or patented processes to disinfect,  preserve,
store, and transport human heart valves,  veins, and connective  tissues for use
in cardiac,  vascular,  and orthopaedic  surgeries.  Tissue  preserved using the
Company's  proprietary cryogenic processes can be stored for extended periods of
time and retains cell viability when properly thawed for implantation into human
recipients.  Tissue is procured from deceased human donors by organ  procurement
agencies and tissue banks (most of which are not-for-profit),  which consign the
tissue to the Company  for  processing  and  preservation.  After  preservation,
tissue is stored by the  Company  or  delivered  directly  to  hospitals  at the
implanting  physician's  request.  The Company  charges a fee for performing its
services but does not buy or sell human tissue.

STRATEGY

The Company is becoming  active in the  development  and acquisition of new
technologies  that do not require  donated  human tissue and are  therefore  not
dependent upon the  availability of human tissue.  The Company's  acquisition in
1992 of  distribution  rights for  certain  porcine  heart  valves was the first
addition of a product that did not require donated human tissue.  In March 1997,
the Company  acquired  Ideas for  Medicine  ("IFM"),  a medical  device  company
specializing  in  the  manufacture   and  design  of   endarterectomy   surgical
instruments,  intravascular  shunts,  infusion  ports,  accessories  utilized in
laparoscopic  procedures  and a wide  range of  single  and dual  lumen  balloon
catherters. Products and applications currently under development, some of which
are based on  acquired  or licensed  technologies,  are a surgical  bio-adhesive
based  on a  derivative  of  the  human  blood  factor  fibrinogen,  a  surgical
bio-adhesive based on blood protein and a cross linking agent, and a process for
transplanting human cells onto the structure of non-viable animal tissue.

RECENT DEVELOPMENTS

On  September   12,  1996  the  Company   acquired  the  assets  of  United
Cryopreservation  Foundation,  Inc.  (UCFI),  a  processor  and  distributor  of
cryopreserved  human  heart  valves  and  saphenous  vein  for  transplant.  The
acquisition  provided  the  tissue  bank  clients  of UCFI  with  access  to the
Company's advanced cryopreservation technology for human tissue.

On October 30, 1996 the Company purchased the patent for an advanced-design
stentless  pulmonary  porcine heart valve  developed by English  heart  surgeon,
Donald N. Ross,  D.Sc.,  F.R.C.S.  (Doctor of Science,  Fellow Royal  College of
Surgeons).  The Ross  pulmonary  porcine  valve was  designed  for  heart  valve
replacement surgery for correcting cardiac valve anomalies in children.

As noted above,  the Company  acquired IFM in March 1997.  The Company will
apply its comprehensive  quality assurance program to the manufacturing  process
of IFM and will  endeavor to follow good  manufacturing  processes  based on FDA
standards.  The Company  intends to use its  existing  distribution  channels to
market  IFM's  vascular  access  products  while   maintaining   IFM's  existing
distribution  channels for IFM's  non-vascular  products.  The Company contracts
with third parties to sterilize  products connected with the IFM acquisition and
believes  that  it  is  in  compliance  with  the  United  States  Environmental
Protection Agency and its regulations.  IFM currently employs  approximately 100
individuals,  none of which are represented by unions.  Management believes that
its relations with its employees are good.

MARKETS

Cardiac   Surgery.   Based  on  clinical   studies,   management   believes
cryopreserved human heart valves have  characteristics that make them one of the
preferred  replacement  alternatives  for children.  They are also indicated for
patients with bacterial  endocarditis  and women in their  child-bearing  years.
Cryopreserved  human  heart  valves do not require  postoperative  anticoagulant
therapy,  which could interfere with a normal pregnancy,  or have a catastrophic
failure,  as do some mechanical valves. In addition,  based on clinical studies,
management  believes  human heart valves are more  durable than porcine  valves.
Cryopreserved  human  heart  valves also have good flow  characteristics,  which
provide an advantage when treating children.

Vascular  Surgery.  The vascular  surgery  market  addressed by the Company
involves  coronary bypass and peripheral  revascularization  surgeries,  both of
which  require  small  diameter  (4 to 6 mm)  conduits.  Failure  to  bypass  or
revascularize  an obstruction in such cases may result in death or the loss of a
limb.

The Company  cryopreserves  saphenous  veins for use in coronary bypass and
revascularization  surgeries.  In such surgeries,  physicians  prefer to use the
patient's own vein tissue and consider  using  cryopreserved  veins or synthetic
veins  only when the  patient  does not have  suitable  vein  tissue  available.
Synthetic   veins  in  such  small   diameters  are  currently  not  a  suitable
alternative.  The patient may not have suitable vein tissue available because of
a previous  coronary  bypass or other  vascular  surgery,  or such tissue may be
unsuitable due to injury or disease.  Based on a market report  commissioned  by
the Company, management believes that the patient's own vein tissue is available
in all but a very small  percentage of these  surgeries  and that  cryopreserved
veins may provide an alternative  treatment when the patient's own veins are not
available.

In analyzing  alternative  treatments,  physicians  generally  focus on the
patency  (openness  to the flow of blood) of available  vein  tissue,  given the
position  of  implantation,  flow  characteristics,  and  other  factors.  If  a
physician  believes that a vein graft will retain patency for a relatively short
period,  the  physician  may  conclude  that the risks of surgery  outweigh  any
potential   benefits.   Thus,   physicians   may   recommend   amputation   over
revascularization  using  cryopreserved  veins.  At  this  time,  there  are  no
long-term  clinical  data that  establish a reliable  minimum  patency  rate for
cryopreserved  veins,  and  patency  is  not  easily  measured  in  asymptomatic
patients.  In order to achieve wider acceptance of its cryopreserved  veins, the
Company  believes that clinical  data  establishing  the efficacy and patency of
cryopreserved  veins must be generated and that  physicians  must be educated to
consider  the use of  cryopreserved  veins to save limbs even in the  absence of
definitive  patency  data.  There can be no assurance  that  clinical  data will
establish  acceptable  patency rates for cryopreserved  veins sufficient to make
the use of such vein tissue an accepted alternative to amputation.  In addition,
Medicare patients account for most below-the-knee vascular procedures, and fixed
fee payments for these patients do not  specifically  incorporate  cryopreserved
veins.

Also,  in  1996,   the  Company  began  a  program  for  the  recovery  and
cryopreservation  of human superficial  femoral veins. This program is important
for patients suffering from chronic venous insufficiency,  a condition where the
blood  supply  through the  superficial  veins in the legs is severely  reduced.
Prior to the introduction of CryoLife's  cryopreserved veins, patients suffering
with this ailment were restricted to drug or compression therapy.

Orthopaedic  Surgery  (Sports  Medicine).  The  orthopaedic  surgery market
addressed by the Company involves surgical  replacements of the meniscus and the
anterior and posterior cruciate ligaments. The Company is currently focusing its
cryopreservation  efforts in this area to menisci,  anterior cruciate ligaments,
and patellar  tendons,  which are  available  for use as  replacement  tissue in
surgeries involving the knee.

Meniscal  insufficiency  increases the risk of premature knee  degeneration
and  arthritis.  Management  believes  the  Company  is  the  only  provider  of
cryopreserved  menisci  tissue  and that there are no  synthetic  menisci on the
market. When a patient has a damaged meniscus, the present surgical alternatives
are to repair,  partially remove,  or completely remove the patient's  meniscus,
with partial removal being the most common  procedure.  Management  believes its
cryopreserved  menisci offer physicians an alternative  treatment option in such
surgeries.

SERVICES AND PRODUCTS

Preservation  Services.  The  transplant  of human tissue that has not been
preserved  must be  accomplished  in extremely  short time frames (not to exceed
eight hours for transplants of the human heart).  The application by the Company
of its  preservation and other processes to donated tissue expands the amount of
human tissue  available to physicians for  transplantation.  It also expands the
treatment  options  available  to  physicians  and their  patients  by  offering
alternatives to implantable  mechanical devices and animal tissues.  The tissues
presently  cryopreserved  by the Company include human heart valves,  veins, and
connective  tissues  of the knee,  and,  outside  the United  States,  processed
porcine heart valves.

Human Heart Valves. The Company's primary business is the  cryopreservation
of human heart valves for use in cardiac  reconstructive surgery and heart valve
replacement.  Based on its  discussions  with  physicians  and data contained in
published  reports of clinical studies,  management  believes that the Company's
success  in the  allograft  heart  valve  market  is due in part to  physicians'
recognition  of the  durability  and  good  blood  flow  characteristics  of the
Company's  cryopreserved  tissues.  The  Company  first  made its  cryogenically
preserved human heart valves  available to physicians in 1984.  Company revenues
attributable  to human heart valve  preservation  in 1994,  1995,  and 1996 were
$16.7 million,  $19.7 million, and $24.8 million,  respectively,  accounting for
70%, 67%, and 67%  respectively,  of the Company's  total revenues  during those
years.

Veins. The Company  cryopreserves  human saphenous and superficial  femoral
veins for use in vascular surgeries that require small diameter  conduits,  such
as coronary  bypass surgery and  below-the-knee  vascular  reconstructions.  The
Company first made its  cryogenically  preserved  saphenous  veins  available to
physicians in 1986,  utilizing  technology licensed from a third party.  Company
revenues  attributable to vein  preservation  in 1994,  1995, and 1996 were $5.5
million, $6.8 million, and $8.2 million, respectively,  accounting for 23%, 23%,
and 22% respectively, of the Company's total revenues during those years.

Connective Tissue. The Company entered the growing field of sports medicine
in 1990 with the introduction of cryopreserved  orthopaedic  tissues,  including
the meniscus,  anterior and posterior cruciate  ligaments,  and patellar tendon,
which are connective tissues critical to the proper operation of the human knee.
Human menisci  cryopreserved by the Company provide orthopaedic  surgeons with a
new alternative treatment in cases where a patient's meniscus must be completely
removed.  Ligaments  and tendons  cryopreserved  by the Company are used for the
reconstruction  of the ligaments and tendons  within and about the knee in cases
where such ligaments and tendons must be completely removed.

Company revenues  attributable to connective  tissue  preservation in 1994,
1995,  and 1996 were  $593,000,  $1.5 million,  and $3.4 million,  respectively,
accounting  for 2%, 5%, and 9%,  respectively,  of the Company's  total revenues
during each of those years.  Based on its  experience  with human heart  valves,
management  believes  that,  as the body of clinical  data builds  regarding the
efficacy of using  cryopreserved  orthopaedic  tissues,  the use of such tissues
will increase, although there can be no assurance that this will be the case.

Porcine Heart Valves.  In July,  1992, in order to improve its  competitive
position in the cardiac  reconstructive  surgery  market,  the Company  acquired
exclusive, worldwide distributor rights to certain low pressure,  gluteraldehyde
fixed porcine aortic and mitral heart valves processed by Bravo  Cardiovascular,
Inc.  ("Bravo").  Marketing  efforts for the porcine  heart valves were hindered
during 1994 and 1995 by legal actions between the Company and Bravo. In February
1995,  the Company and Bravo  reached an agreement  to settle their  differences
whereby the Company  obtained  ownership of the trademarks,  trade secrets,  and
technology of the stentless porcine heart valves and Bravo retained the same for
the stented porcine heart valves. Sales of the stentless porcine valves in 1994,
1995,  and 1996 were  $268,000  $263,000,  and $385,000,  respectively.  Stented
porcine  valve  sales  totaled  $146,000  in 1994.  Accordingly,  total  Company
revenues  attributable to porcine heart valve sales in 1994, 1995, and 1996 were
$414,000,  $263,000, and $385,000  respectively,  accounting for 2%, 1%, and 1%,
respectively, of the Company's total revenues during those years.

The Company will concentrate  marketing  efforts for the stentless  porcine
heart valve in Europe where it has been approved for sale in certain  countries.
During  December  1995,  the  Company  obtained  CE Mark  Certification  for the
stentless  porcine heart valves and ISO 9001  Certification,  a European quality
standards system, for its tissue processing laboratory. Management believes that
CE Mark  Certification  and ISO 9001  Certification  will help the Company  gain
entry and approval for its porcine heart valves in the European  community.  The
Company will also  investigate the process for IDE and PMA approval of stentless
porcine heart valves in the United States in 1998.

OPERATIONS

The Company's  cryopreservation  process involves the procurement of tissue
from deceased human donors, the timely and controlled delivery of such tissue to
the Company, the screening,  disinfection,  dissection,  and cryopreservation of
the tissue by the Company, the storage and shipment of the cryopreserved tissue,
and the controlled thawing of the tissue.  Thereafter,  the tissue is surgically
implanted into a human recipient.

Procurement  of Tissue.  Tissue is procured from  deceased  human donors by
organ procurement agencies. After procurement, the tissue is packed and shipped,
together with certain information about the tissue and its donor, to the Company
in accordance with the Company's  protocols.  The procurement  agency receives a
fee for its  services,  which is paid by the Company.  The  procurement  fee and
related shipping costs are ultimately  reimbursed to the Company by the hospital
with which the implanting physician is associated.

Each  procurement  agency  procuring  tissue  for the  Company  is  given a
protocol that  describes the  techniques  required by the Company for dissection
and  packaging  of the  tissue.  The  tissue  is  transported  to the  Company's
laboratory  in  Kennesaw,  Georgia,  in  containers  provided by the Company via
commercial  airlines  pursuant to arrangements  with qualified courier services.
Timely receipt of procured  tissue is important,  as tissue that is not received
promptly cannot be cryopreserved successfully.

Although the Company is developing or has acquired  rights to some products
that are not supply  constrained,  such as the stentless  Bravo porcine  valves,
SynerGraft(R)  and  the  product  line  acquired  in the  IFM  acquisition,  the
Company's  business  depends on the  availability  of  sufficient  quantities of
tissue from human donors.  Over the past several years, the procurement of human
tissue by the Company has been increasing;  however,  there is no assurance that
the trend will continue. The Company must rely primarily on the efforts of third
party  procurement  agencies  (most of which are  not-for-profit)  and others to
educate the public and foster an increased  willingness  to donate  tissue.  The
inability  to obtain  sufficient  supplies of human tissue could have a material
adverse effect on the Company's business.

Preservation  of Tissue.  Upon receiving the tissue,  a Company  technician
completes the  documentation  control for the tissue prepared by the procurement
agency and gives it a  control/inventory  number. The documentation  identifies,
among  other  things,  donor  age,  blood  type,  and cause of death.  A trained
technician then removes from the delivered tissue the portion or portions of the
tissue that will be cryopreserved.  These procedures are conducted under aseptic
conditions in clean rooms. At the same time,  additional  samples are taken from
the  donated  tissue  and  subjected  to  the  Company's  comprehensive  quality
assurance  program.  This  program  may  identify  characteristics  which  would
disqualify the tissue for cryopreservation.

Preserved human heart valves, veins, and connective tissues are then frozen
in  a  controlled   freezing  process  conducted  according  to  strict  Company
protocols.  After the freezing process,  the specimens are transferred to liquid
nitrogen freezers for long-term storage at temperatures below -190 C. The entire
cryopreservation  process is rigidly controlled by guidelines established by the
Company.

Shipment of Tissue to Implanting Physicians. After preservation,  tissue is
stored by the Company or is delivered  directly to  hospitals at the  implanting
physician's  request.  Cryopreserved  tissue is packaged for shipping  using the
Company's proprietary processes. At the hospital, the tissue is held in a liquid
nitrogen  freezer  according  to Company  protocols  pending  implantation.  The
Company provides a detailed protocol for thawing the cryopreserved  tissue.  The
Company also makes its  technical  personnel  available by phone or in person to
answer questions.  The Company will store tissue for up to 90 days at no charge.
Thereafter,  there is a nominal  monthly  charge.  After the  Company  ships the
tissue to the hospital,  the Company  invoices the institution for its services,
the procurement fee, and shipping costs.

The Company  encourages  hospitals to accept the cryopreserved  tissue back
quickly by providing  Company-owned liquid nitrogen freezers to client hospitals
without  charge.  Participating  hospitals  pay the cost of liquid  nitrogen and
regular maintenance.  The availability of on-site freezers makes it easier for a
hospital's  physicians  to utilize the  Company's  cryopreservation  services by
making the  cryopreserved  tissue more readily  available.  Because fees for the
Company's  cryopreservation  services  become due upon the delivery of tissue to
the hospital,  the use of such on-site freezers also improves the Company's cash
flow.

QUALITY ASSURANCE

The Company employs a comprehensive quality assurance program in all of its
tissue processing activities. The Company endeavors to follow good manufacturing
processes  ("GMPs"),  based on FDA standards,  to assure the  consistency of the
Company's  processing and  cryopreservation  operations.  The Company's  quality
assurance  program begins with the  development and  implementation  of training
courses for the  employees of  procurement  agencies.  To assure  uniformity  of
procurement  practices  among the tissue recovery  teams,  the Company  provides
procurement  protocols,  transport packages, and tissue transport liquids to the
donor sites.

Upon  receipt by the  Company,  each  tissue is  assigned a unique  control
number  that  provides  traceability  of tissue  from  procurement,  through the
processing and preservation processes, and ultimately to the tissue recipient. A
trained  technician  then removes  samples from the delivered  tissue upon which
serial  cultures are performed to identify any disease or fungal  growth.  Blood
samples from each tissue donor are subjected to a variety of tests to screen for
infectious  diseases.  Samples of certain  tissues are also sent to  independent
laboratories  for  pathology  testing.  Following  removal  of the  tissue to be
preserved,  a separate disinfection  procedure is begun during which the removed
tissue is treated with proprietary antibiotic solutions.

The materials and  solutions  used by the Company in processing  tissue are
pre-screened  to determine if they are of desired  quality as defined by Company
protocols. Only materials and solutions that meet the Company's requirements are
approved by quality assurance personnel for use in processing. Throughout tissue
processing,  detailed  records are maintained and reviewed by quality  assurance
personnel.

The Company's quality assurance staff is comprised primarily of experienced
professionals   from  the  medical  device  and   pharmaceutical   manufacturing
industries.  The quality assurance department, in conjunction with the Company's
research  and  development  and select  university  research  staffs,  routinely
evaluates the Company's processes and procedures.

RESEARCH AND DEVELOPMENT

The Company's preservation service efforts have been directed toward tissue
transplant  opportunities  in the medical  specialties of cardiac,  vascular and
orthopaedic surgery. The company seeks to identify medical market areas that can
benefit from its expertise in biochemistry  and cell biology in order to develop
innovative  techniques  and  biological  products for the cardiac,  vascular and
orthopaedic reconstructive surgery fields.

Additionally, the Company seeks to expand the Company's implantable product
lines and laboratory  service business to include  biological  products that are
not dependent upon the availability of human tissue. The Company is currently in
the  process  of  developing  or   investigating   the  development  of  several
technologies and products, several of which are licensed by the Company pursuant
to exclusive  license  agreements  from third  parties,  to expand the Company's
service and product offerings, including the following:

o FibRx(R) - The Company is developing a surgical bio-adhesive
based on a  derivative  of the  human  blood  factor  fibrinogen.  This
technology  creates a stable  and  unique  delivery  method  for fibrin
adhesive to be used in a variety of surgical  applications,  which,  if
successful,  may control  bleeding and assist in positioning  tissue at
wound sites  during and after  surgery.  FibRx is  progressing  through
animal  trials  and  is  presently   undergoing  toxicology  validation
procedures mandated by the FDA prior to the approval for human clinical
trials.

o BioGlue(R) - Surgical bio-adhesive.  This technology creates
a surgical  bio-adhesive  based on a derivative  of blood protein and a
cross  linking  agent.  Management  believes  that this adhesive may be
stronger than FibRx.  BioGlue is currently preparing through animal and
toxicity evaluation.  In addition,  the Company's emphasis with respect
to its BioGlue  product  continues  to undergo  modification  regarding
delivery  mechanism and  evaluation of its key  components and intended
application.  During March 1996,  the Company  acquired the  technology
underlying the BioGlue.

o  SynerGraft(R)  - The  Company is  developing  a process for
transplanting  human cells onto the  structure of a  non-viable  animal
tissue. This technology,  which has demonstrated  feasibility in animal
trials,  may avoid  donor  supply  constraints  associated  with  human
tissue.  The technology  underlying the SynerGraft project was licensed
by the Company pursuant to an exclusive,  worldwide license  agreement.
Under the agreement,  the licensor retains title to such technology and
any patents and patent applications relating thereto.

Research on these and other projects is conducted in the Company's research
and  development  laboratory  or at  universities  or clinics  where the Company
sponsors  research   projects.   Historically,   the  Company  has  allocated  a
significant  portion of its revenues to research and development.  In 1994, 1995
and 1996 the Company expended  approximately $2.0 million, $2.6 million and $2.8
million,  respectively,  on  research  and  development  activities  on new  and
existing  products.  These amounts  represented  approximately  8%, 9% and 7.5%,
respectively,  of the Company's revenues for those years. The Company's research
and  development  program is overseen by its  medical  and  scientific  advisory
boards.  The Company's  animal studies are conducted at  universities  and other
locations outside the Company's  facilities by third parties under contract with
the  Company.  In addition to these  efforts,  the  Company  may, as  situations
develop, pursue other research and development activities.

DISTRIBUTION

Cryopreserved  tissues do not lend  themselves to the  traditional  medical
products  distribution systems and are subject to governmental  regulations that
forbid the purchase or sale of human organs. Also,  cryopreserved tissue must be
transported under stringent  handling  conditions and maintained within specific
temperature  tolerances at all times. The Company utilizes  proprietary shipping
containers for transporting tissue to implanting surgeons.

Trained field support  personnel  provide back-up and support to implanting
institutions  and  surgeons.   The  Company   currently  has   approximately  98
independent technical service representatives and  sub-representatives,  as well
as 23 technical service  representatives who are Company employees,  who provide
field support.  Some of these  representatives  are independent  contractors who
visit physicians to explain the use of the Company's  cryopreserved  tissues and
to answer  questions that doctors may have regarding the Company's  products and
services.  These representatives  receive fees based on service fees received by
the Company that are attributable to physicians in their territory.

GOVERNMENT REGULATION

FDA Regulation--General.  Because human heart valves are, and other Company
products may be, medical devices,  the Company and these products are subject to
the  provisions  of  the  Federal  Food,   Drug  and  Cosmetic  Act  "FDCA"  and
implementing regulations.  Pursuant to the FDCA, the United States Food and Drug
Administration  ("FDA") regulates the distribution,  manufacture,  labeling, and
promotion of medical devices in the United States. In addition,  various foreign
countries  in which the  Company's  products  are or may be  distributed  impose
additional regulatory requirements.

The FDCA provides that, unless exempted by regulation,  medical devices may
not be  commercially  distributed  in the United  States  unless  they have been
approved or cleared for marketing by the FDA. There are two review procedures by
which medical devices can receive such approval or clearance.  Some products may
qualify  for  clearance  to  be  marketed  under  a  Section  510(k)  ("510(k)")
procedure,  in which the manufacturer provides a premarket  notification that it
intends  to  begin  marketing  the  product,  and  shows  that  the  product  is
substantially  equivalent to another legally marketed product (i.e., that it has
the same intended use and that it is as safe and effective as a legally marketed
device and does not raise different  questions of safety and effectiveness  than
does a legally marketed device). In some cases, the submission must include data
from  clinical  studies.  Marketing may commence when the FDA issues a clearance
letter finding such substantial equivalence.

If the product does not qualify for the 510(k) procedure (either because it
is not substantially  equivalent to a legally marketed device or because it is a
Class III device  required by the FDCA and  implementing  regulations to have an
approved application for premarket approval ("PMA")), the FDA must approve a PMA
application before marketing can begin. PMA applications must demonstrate, among
other matters, that the medical device is safe and effective.  A PMA application
is  typically  a complex  submission,  usually  including  the  results of human
clinical studies,  and preparing an application is a detailed and time-consuming
process.  Once a PMA  application  has been  submitted,  the FDA's review may be
lengthy and may include requests for additional data. By statute and regulation,
the FDA may take 180 days to review a PMA application  although such time may be
extended.  Furthermore, there can be no assurance that a PMA application will be
reviewed within 180 days or that a PMA application will be approved by the FDA.

The FDCA also provides for exemptions from the premarket  approval  process
for investigational devices ("IDEs"),  which authorize distribution for clinical
evaluation of devices that lack a PMA or 510(k).  Devices  subject to an IDE are
subject to various  restrictions imposed by the FDA. The number of patients that
may be treated with the device is limited,  as are the number of institutions at
which the device may be used.  Patients must give informed consent to be treated
with an investigational  device. The device may not be advertised,  or otherwise
promoted,  and the  charges  that may be made  for the  device  may be  limited.
Unexpected adverse experiences must be reported to the FDA.

The FDCA requires all medical  device  manufacturers  and  distributors  to
register  with  the FDA  annually  and to  provide  the FDA with a list of those
medical  devices  which they  distribute  commercially.  The FDCA also  requires
manufacturers  of medical  devices to comply with labeling  requirements  and to
manufacture  devices in  accordance  with GMPs,  which  require  that  companies
manufacture  their products and maintain their documents in a prescribed  manner
with respect to  manufacturing,  testing,  and quality control  activities.  The
FDA's medical device reporting  regulation  requires that a device  manufacturer
provide information to the FDA on death or serious injuries alleged to have been
associated with the use of its products,  as well as product  malfunctions  that
would likely cause or contribute to death or serious  injury if the  malfunction
were to  recur.  The FDA's  medical  device  tracking  regulation  requires  the
adoption of a method of device tracking by manufacturers of  life-sustaining  or
implantable  devices,  the failure of which would be  reasonably  likely to have
serious  adverse health  consequences.  The  manufacturer  must adopt methods to
ensure that such  devices can be traced from the  manufacturing  facility to the
ultimate  user,  the patient.  The FDA further  requires  that  certain  medical
devices not cleared for marketing in the United States have FDA approval  before
they are exported.

The FDA inspects medical device  manufacturers  and  distributors,  and has
broad  authority  to order  recalls of medical  devices,  to seize  noncomplying
medical devices, to enjoin and/or to impose civil penalties on manufacturers and
distributors   marketing   non-complying  medical  devices,  and  to  criminally
prosecute violators.

FDA Regulation--Human Heart Valves. The Company's human heart valves became
subject to regulation by the FDA in June,  1991, when the FDA published a notice
stating that human heart valves are "medical  devices" under the FDCA. The June,
1991 notice provided that distribution of human heart valves for transplantation
would violate the FDCA unless they were the subject of an approved PMA or IDE on
or before August 26, 1991.

On October 14, 1994, the FDA announced in the Federal Register that neither
an  approved  application  for PMA nor an IDE is  required  for  processors  and
distributors who had marketed heart valve allografts  before June 26, 1991. This
action by the FDA has resulted in the allograft heart valves being classified as
a Class II Medical  Device and has removed them from clinical  trial status.  It
also allows the Company to  distribute  such valves to  cardiovascular  surgeons
throughout the United States.

FDA  Regulation--Other  Tissue.  Other than human and porcine heart valves,
none of the  Company's  other  products  or  services  is  currently  subject to
regulation as a medical  device under the FDCA or FDA  regulation.  Heart valves
are one of a small  number of  processed  human  tissues  over which the FDA has
asserted medical device  jurisdiction.  On December 14, 1993 the FDA promulgated
an interim rule to require certain infectious disease testing,  donor screening,
and  record  keeping  with  respect  to human  tissue  held by tissue  banks and
establishments engaged in the recovery,  processing,  storage or distribution of
banked  human  tissue.  There  are  certain  exemptions  to this  interim  rule,
including  an  exemption  for human  tissue that is  regulated  as a human drug,
biological  product  or  medical  device.  This  rule  applies  to the veins and
connective  tissue that are  currently  processed by the Company.  It is likely,
moreover,  that the FDA will expand its regulation of processed  human tissue in
the future.  For example,  the FDA may determine  that the veins and  connective
tissue that are currently processed by the Company are medical devices,  but the
FDA has not done so at this time. Complying with FDA regulatory  requirements or
obtaining  required FDA  approvals or  clearances  may entail  significant  time
delays and  expenses  or may not be  possible,  any of which may have a material
adverse  effect on the Company.  In  addition,  Congress is expected to consider
legislation  that would regulate human tissue for transplant.  Such  legislation
could have a material adverse effect on the Company.

FDA Regulation--Porcine  Valves. Porcine heart valves are Class III medical
devices,  and FDA approval is required prior to commercial  distribution of such
valves in the United  States.  The porcine  heart valves  currently  held by the
Company have not been  approved by the FDA for  commercial  distribution  in the
United States and may be distributed from the United States to foreign countries
only if FDA export approval is obtained.

FDA  Regulation--IFM.  The products offered by IFM are regulated as Class I
and Class II medical devices by the FDA.

Possible  Other  FDA   Regulation.   Other  products  and  processes  under
development  by the  Company are likely to be subject to  regulation  by the FDA
(e.g.,  SynerGraft,  FibRx, BioGlue). Some may be medical devices; others may be
drugs or biological  products.  Regulation of drugs and  biological  products is
substantially similar to medical device regulation as described above. Obtaining
FDA  approval  or  clearance  to market  these  products  is likely to be a time
consuming and expensive process, and there can be no assurance that any of these
products will ever receive FDA approval, if required, to be marketed.

NOTA  Regulation.  The Company's  activities in processing and transporting
human hearts and certain  other  organs are also  subject to federal  regulation
under the National Organ  Transplant  Act ("NOTA"),  which makes it unlawful for
any person to knowingly acquire,  receive, or otherwise transfer any human organ
for  valuable  consideration  for use in human  transplantation  if the transfer
affects  interstate  commerce.  NOTA excludes  from the  definition of "valuable
consideration" reasonable payments associated with the removal,  transportation,
implantation,  processing, preservation, quality control, and storage of a human
organ. The purpose of this statutory  provision is to allow for compensation for
legitimate services.  The Company believes that to the extent its activities are
subject  to  NOTA,   it  meets  this   statutory   provision   relating  to  the
reasonableness  of its  charges.  There  can  be no  assurances,  however,  that
restrictive interpretations of NOTA will not be adopted in the future that would
call into question one or more aspects of the Company's  methods of charging for
its preservation services.

State  Licensing  Requirements.  Some  states  have  enacted  statutes  and
regulations  governing  the  processing,  transportation,  and  storage of human
organs and tissue.  The  activities  engaged in by the Company  require it to be
licensed as a clinical  laboratory  under  Georgia  law.  The Company has such a
license,  and the Company  believes it is in compliance with applicable  Georgia
regulations relating to clinical  laboratories which procure,  store, or process
human tissue designed to be used for medical purposes in human beings. There can
be no assurances,  however, that more restrictive state laws or regulations will
not be  adopted  in  the  future  that  could  adversely  affect  the  Company's
operations.  Certain  employees of the Company have obtained certain licenses as
required.

COMPETITION

The  Company  faces   competition   from   non-profit   tissue  banks  that
cryopreserve  human tissue,  as well as companies that market  mechanical valves
and synthetic and animal tissue for  implantation.  Many established  companies,
some  with  resources  greater  than  those  of  the  Company,  are  engaged  in
manufacturing  alternatives to preserved  human tissue.  Based on its interviews
with  physicians  and its  experience  to date,  management  believes  that,  as
compared to other entities that cryopreserve  human tissue, the Company competes
on the basis of technology,  customer service and quality assurance. As compared
to mechanical valves or synthetic or animal tissue, management believes that the
Company's  cryopreserved  human  heart  valves  compete on the factors set forth
above, as well as by providing a tissue that is one of the preferred replacement
alternatives  with  respect to certain  medical  conditions,  such as  pediatric
cardiac  reconstruction,  valve  replacements  for women in their  child-bearing
years, and valve replacements for patients with bacterial endocarditis. Although
tissue  cryopreserved by the Company is initially higher priced than are porcine
and mechanical alternatives,  the mechanical alternatives typically require that
the patient take daily doses of anticoagulants  for the lifetime of the implant.
As a result of the costs associated with  anticoagulants,  mechanical valves are
generally,  over the life of the  implant,  more  expensive  than the  Company's
cryopreserved tissue.  Notwithstanding the foregoing,  management believes that,
to date, price has not been a significant competitive factor.

For  each  procedure  that may  utilize  other  human  tissue  the  Company
preserves, there generally are alternative treatments.  Often, as in the case of
veins and ligaments,  these alternatives include the repair, partial removal, or
complete  removal of the damaged  tissue and may utilize  other tissues from the
patients  themselves for  reimplantation.  The selection of treatment choices is
made by the  attending  physician in  consultation  with the patient.  Any newly
developed  treatments will also compete with the use of tissue  preserved by the
Company.

Heart  Valves.  Alternatives  to the  Company's  cryopreserved  human heart
valves include  mechanical valves and processed porcine and bovine (cow) valves.
St. Jude Medical,  Inc. is dominant in the mechanical heart valve market,  and a
division of Baxter  International  Inc.  is dominant in the porcine  heart valve
market. In addition,  management  believes that at least four tissue banks offer
cryopreservation  services  for  human  heart  valves  in  competition  with the
Company.

Veins.  Synthetic  alternatives  to the Company's  cryopreserved  veins are
available  primarily in medium and large diameters.  Synthetic conduits in small
diameters  are not a suitable  alternative  because  they tend to  occlude  when
implanted. At present,  management believes that one other tissue bank processes
human veins in  competition  with the Company.  Other  companies  may enter this
market and compete with the Company in the future.

Connective  Tissue.  The  Company's  competition  in the area of connective
tissue varies  according to the tissue  involved.  Freeze dried and fresh frozen
human  connective  tissues and the  Company's  preserved  ligaments  and tendons
constitute the principal  treatment  alternatives  to complete  removal when the
repair or partial removal of damaged tissue is not possible.  These  alternative
allografts are distributed by distributors of Osteotech, Inc. and various tissue
banks,  among others.  Synthetic  alternatives  also exist for anterior cruciate
ligaments  and patellar  tendons.  There are presently no processed or synthetic
alternatives to the Company's preserved menisci.

Porcine  Heart  Valves.  The Company  presently  distributes  its stentless
porcine heart valves only outside the United States.  These porcine heart valves
compete with mechanical valves, human heart valves, and processed bovine valves.
The  Company is aware of at least  three other  companies  that offer  stentless
porcine heart valves.

EDUCATION AND TECHNICAL SUPPORT

An  important  aspect  of  increasing  the  distribution  of the  Company's
cryopreservation  services is educating  physicians on the use of  cryopreserved
tissue and on proper  implantation  techniques.  The Company sponsors  physician
training  seminars where  physicians teach other physicians the proper technique
for handling and  implanting  cryopreserved  tissue.  The Company also  produces
educational  videotapes for use by the physicians.  The Company coordinates live
surgery  demonstrations at various medical schools with patients selected by the
medical school.  The medical  facilities chosen for live surgery  demonstrations
are  selected  in part based on their  ability to  broadcast  the  surgery to an
amphitheater of medical personnel by closed circuit television. The Company also
coordinates  laboratory  sessions  that utilize  animal  tissue to duplicate the
respective surgical techniques.  Members of the Company's Medical Advisory Board
often  lead the  surgery  demonstrations  and  laboratory  sessions.  Management
believes that these activities improve the medical community's acceptance of the
cryopreserved tissue processed by the Company.

In  order  to  increase   the   Company's   supply  of  human   tissue  for
cryopreservation,  the Company educates and trains  procurement agency personnel
in procurement,  dissection,  packaging,  and shipping  techniques.  As with the
education  of  physicians,  the  Company  produces  educational  videotapes  and
coordinates laboratory sessions on procurement techniques for procurement agency
personnel.  To  supplement  its  educational  activities,  the  Company  employs
in-house technical specialists that provide technical information and assistance
and maintains a 24-hour telephone support service.

ENVIRONMENTAL MATTERS

The Company's tissue processing  activities generate some biomedical wastes
consisting  primarily of human  pathological  and biological  wastes,  including
human  tissue  and  body  fluids  removed  during  laboratory  procedures.   The
biomedical   wastes  generated  by  the  Company  are  placed  in  appropriately
constructed  and  labeled  containers  and  are  segregated  from  other  wastes
generated  by  the  Company.  The  Company  contracts  with  third  parties  for
transport,  treatment,  and disposal of biomedical  waste.  Although the Company
believes it is in compliance with applicable laws and regulations promulgated by
the United States Environmental  Protection Agency and the Georgia Department of
Natural Resources, Environmental Protection Division, the failure by the Company
to comply  fully with any such  regulations  could  result in an  imposition  of
penalties, fines, or sanctions which could have a material adverse effect on the
Company's business.

PATENTS AND OTHER PROPRIETARY RIGHTS

The Company  believes  that its  patents,  trade  secrets,  and  technology
licensing rights provide it with important competitive  advantages.  The Company
owns United States  patents  relating to its  technology  for human heart valve,
vein,  and  connective  tissue  preservation;  tissue  revitalization  prior  to
freezing;  tissue  transport;  fibrin  adhesive;  organ  storage  solution;  and
packaging.  The  Company  has  United  States  patents  pending  that  relate to
alternative human heart valve processing methods,  fibrin adhesive  preparation,
stabilization  of proteins for freeze  drying,  and vein and  connective  tissue
preservation.  The Company also has exclusive  licensing  rights for  technology
relating to  light-sensitive  enzyme  inhibitors.  The remaining duration of the
Company's patents ranges from 4 to 15 years, exclusive of any renewals thereof.

In 1985, the Company  entered into an agreement with Medical  University of
South  Carolina  and one of its  employees,  pursuant  to  which  it  agreed  to
co-sponsor   research   regarding   certain   technologies   relating   to   the
cryopreservation  of  vein  tissue  and  acquired  an  option  to  license  such
technologies.  The University  subsequently waived any rights it may have had in
respect  of  such   technologies,   and  the  Company  and  such  employee  (who
subsequently  left the employ of the  university)  are now  co-owners of certain
patents relating to such technologies.  The Company pays such co-owner royalties
on "net revenues" derived from the cryopreservation of vein tissue.

ALT,  the  Company's  logo,   CryoGraft,   CryoKids,   CryoLife,   CryoLife
International,  CryoPak, CryoSafe, CryoValve, CryoValve-ALT,  CryoVein, BioGlue,
FibRx  and   SynerGraft   are   registered   trademarks  of  the  Company,   and
CryoLife-O'Brien is a trademark of the Company.

EMPLOYEES

The Company  presently has  approximately  315 employees,  including  those
employed  at IFM.  These  employees  include  13 persons  with Ph.D.  degrees or
higher.  None of the Company's  employees is represented by a labor organization
or covered by a  collective  bargaining  agreement,  and the  Company  has never
experienced a work stoppage or interruption  due to labor  disputes.  Management
believes its relations with its employees are good.

RISK FACTORS

GOVERNMENT REGULATION

The processing  and  distribution  of the Company's  human heart valves are
currently  regulated  as  Class II  medical  devices  by the U.S.  Food and Drug
Administration ("FDA"), and are subject to significant regulatory  requirements,
including  current  good  manufacturing  regulations  (GMP)  and  record-keeping
requirements.  There can be no assurance that changes in regulatory treatment or
the adoption of new statutory or regulatory  requirements will not occur,  which
could impact the  marketing of these  products or could affect market demand for
these products.

Other  allograft  tissues  processed  and  distributed  by the  Company are
currently  regulated as "banked human tissue" under an interim rule  promulgated
by the FDA  pursuant  to the Public  Health  Services  Act.  This  interim  rule
establishes  requirements  for donor  testing and screening for human tissue and
record-keeping relating to these activities.  Although the Company's other human
tissue  allografts are not currently  regulated as medical devices,  such tissue
may in the future become subject to more extensive FDA  regulation,  which could
include premarket approval or product licensing requirements.

The  Company's  porcine  heart valve  products are  classified as Class III
medical  devices and have not been approved for  distribution  within the United
States.  Distribution  of these porcine heart valves within the European  common
market  is  dependent  upon  the  Company  maintaining  its CE Mark and ISO 9001
status.  There can be no  assurance  that the Company will be able to obtain the
FDA  approval  which will be required  to  distribute  its  porcine  heart valve
products in the United States or that it will be able to maintain its CE Mark or
ISO 9001 status.

Most of the Company's products in development,  if successfully  developed,
will require  regulatory  approvals  from the FDA and perhaps  other  regulatory
authorities  before  they  may  be  commercially  distributed.  The  process  of
obtaining  required  regulatory  approvals  from  the FDA and  other  regulatory
authorities  normally  involves clinical trials in humans and the preparation of
an extensive  premarket  approval  application  and often takes many years.  The
process is expensive and can vary  significantly  based on the type,  complexity
and  novelty  of the  product.  There  can be no  assurance  that  any  products
developed by the Company,  independently or in collaboration  with others,  will
meet  applicable  regulatory  criteria to receive  the  required  approvals  for
manufacturing  and  marketing.  Delays in  obtaining  United  States or  foreign
approvals  could  result  in  substantial  additional  cost to the  Company  and
adversely affect the Company's competitive position.

The FDA may  also  place  conditions  on  clearances  that  could  restrict
commercial  applications  of  such  products.  Product  marketing  approvals  or
clearances  may be  withdrawn if  compliance  with  regulatory  standards is not
maintained or if problems occur following initial  marketing.  Delays imposed by
the governmental clearance process may materially reduce the period during which
the Company has the exclusive right to commercialize patented products.

Products  marketed by the Company  pursuant to FDA or foreign  oversight or
approval  are subject to  pervasive  and  continuing  regulation.  In the United
States,  devices and biologics must be  manufactured  in registered,  and in the
case of biologics,  licensed  establishments  and must be produced in accordance
with GMP  regulations.  Manufacturing  facilities  and  processes are subject to
periodic FDA inspection. Labeling and promotional activities are also subject to
scrutiny by the FDA and, in certain instances,  by the Federal Trade Commission.
The export of devices  and  biologics  is also  subject  to  regulation  and may
require FDA  approval.  From time to time the FDA may modify  such  regulations,
imposing  additional  or  different  requirements.  Failure  to comply  with any
applicable FDA requirements,  which may be ambiguous,  could result in civil and
criminal enforcement actions, product recalls or detentions and other penalties.

In addition,  the National  Organ  Transplant  Act ("NOTA")  prohibits  the
acquisition or transfer of human organs for "valuable  consideration" for use in
human   transplantation.   NOTA  permits  the  payment  of  reasonable  expenses
associated with the removal, transportation,  processing,  preservation, quality
control and storage of human organs.  There can be no assurance,  however,  that
restrictive  interpretations of NOTA will not be adopted in the future that will
call into question one or more aspects of the Company's  methods of charging for
its preservation  services.  The Company's laboratory  operations are subject to
the U.S. Department of Labor,  Occupational Safety and Health Administration and
Environmental  Protection  Agency  requirements  for prevention of  occupational
exposure to  infectious  agents and hazardous  chemicals  and  protection of the
environment.  Some states have enacted  statutes and  regulations  governing the
processing,   transportation  and  storage  of  human  organs  and  tissue,  and
management  believes that the Company is presently in compliance in all material
respects  with all such  applicable  statutes and  regulations.  There can be no
assurance that more restrictive state laws or regulations will not be adopted in
the future that could adversely affect the Company's operations.

COMPETITION

The Company faces competition from other companies that cryopreserve  human
tissue,  as well as companies  that market  mechanical  valves and synthetic and
animal tissue for  implantation.  Management  believes that at least four tissue
banks offer cryopreservation  services for human heart valves and many companies
offer  processed  porcine  heart  valves  and  mechanical  heart  valves.  A few
companies  dominate  portions of the mechanical and porcine heart valve markets,
including St. Jude Medical Inc. and  Medtronic  Inc.  (mechanical  valves) and a
division of Baxter  International  Inc. (porcine valves).  Many of the Company's
competitors have greater financial,  technical and marketing  resources than the
Company and are well  established  in their  markets.  There can be no assurance
that the  Company's  products and  services  will be able to continue to compete
successfully with the products of these or other companies.

Any products  developed by the Company  that gain  regulatory  clearance or
approval  will have to  compete  for market  acceptance  and  market  share.  An
important factor in such competition may be the timing of market introduction of
competitive products. Accordingly, the relative speed with which the Company can
develop  products,  gain regulatory  approval and  reimbursement  acceptance and
supply  commercial  quantities  of the product to the market are  expected to be
important  competitive  factors.  In  addition,  the Company  believes  that the
primary competitive factors for its products include safety,  efficacy,  ease of
use, reliability, suitability for their specified uses in service and price. The
Company also believes that  physician  relationships  are important  competitive
factors.

LIMITED AVAILABILITY OF TISSUE

Although the Company is pursuing the  development  of products and services
that would not be constrained by tissue availability,  such as its porcine heart
valves,  biological  glues,  and the product line acquired from IFM, much of the
Company's   current   business  depends  upon  the  availability  of  sufficient
quantities of tissue from human donors. In particular,  continuing limits on the
supply of donated  heart  tissue could  restrict the Company to modest,  if any,
growth  in the  number  of  human  heart  valves  preserved  by the  Company.  A
significant  reduction in supplies of human tissue could have a material adverse
effect on the Company's business.  The Company relies primarily upon the efforts
of third party procurement agencies (all of which are not for profit) and others
to educate  the public and foster an  increased  willingness  to donate  tissue.
Based on the Company's  experience with human heart valves,  management believes
that once the use by physicians of a particular tissue gains acceptance,  demand
for transplantable  tissue will exceed the amount of tissue available from human
donors.  While tissue  availability  is not currently a limiting factor for most
vein tissue and orthopedic tissues, rapid growth in these areas could ultimately
be limited by tissue availability, in addition to other factors.

UNCERTAINTIES REGARDING PRODUCTS IN DEVELOPMENT

The Company's  porcine heart valve  products are currently only offered for
sale outside of the United  States.  The porcine heart valves are subject to the
risk that the Company may be unable to obtain governmental approval necessary to
permit commercial distribution of these valves in the United States.

The  Company's  research and  development  efforts are time  consuming  and
expensive  and  there  can be no  assurance  that  these  efforts  will  lead to
commercially    successful   products   or   services.   Even   the   successful
commercialization  of a new  service or product in the medical  industry  can be
characterized   by  slow  growth  and  high  cost   associated  with  marketing,
under-utilized  production capacity, and continuing research and development and
education  costs.  Generally,  the  introduction  of new human  tissue  products
requires  significant  physician training and years of clinical evidence derived
from human implants in order to gain community  acceptance.  With respect to the
Company's  major products  under  development,  FibRx(R) is progressing  through
animal  trials and is  presently  undergoing  toxicology  validation  procedures
mandated by the FDA prior to the approval for human clinical trials,  BioGlue(R)
is progressing  through animal and toxicity  evaluations,  and SynerGraft(R) has
begun initial animal testing.  In addition,  the Company's emphasis with respect
to  its  BioGlue  product  in  development  continues  to  undergo  modification
regarding  delivery  mechanisms  and  evaluation of its key components and their
intended  applications.  As  a  result  of  the  foregoing,   management  cannot
effectively  predict the duration or extent of, or whether any newly  introduced
products will  successfully  complete,  these initial  stages,  and as a result,
there is no guaranty that any of these products will  ultimately be approved for
use on human tissue.

DEVELOPMENT PARTNERS

The Company's strategy for developing,  testing and commercializing certain
of its  products in  development  includes  entering  into  collaborations  with
academic  institutions,  corporate  partners,  licensors,  licensees and others.
These collaborations potentially will provide access to technologies,  technical
expertise and financial and other  resources that might otherwise be unavailable
to the  Company.  The Company  has  entered  into  collaborations  with  various
institutions  related to the development and testing of its tissue technologies.
Although  the Company  believes  that its partners in these  collaborations  are
motivated to succeed in performing  their  contractual  responsibilities,  their
actual and timely success cannot be assured.

Furthermore,   the  Company   anticipates  that  its  future  research  and
development projects, including those with respect to its Synergraft and Bioglue
products  under   development,   may  require  the  assistance  of  third  party
collaborators  with respect to the provision of capital and know-how.  There can
be no assurance,  however, that the Company will be able to negotiate additional
collaborative  agreements in the future on acceptable  terms, if at all, or that
such  collaborative  arrangements  will be  successful.  Failure  to obtain  and
successfully  execute  such  arrangements  in  the  future  could  increase  the
Company's capital requirements to undertake research,  development and marketing
of its  proposed  products.  In addition the Company may  encounter  significant
delays in introducing  its proposed  products into certain  markets or find that
the development, manufacture or sale of its proposed products in certain markets
is adversely  affected by the absence of such  collaborative  agreements  or the
failure of  collaborative  partners  to perform  their  obligations  in a timely
fashion.

PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY

The  Company  owns  several  patents,  patent  applications,  and  licenses
relating to its technologies,  which it believes provide  important  competitive
advantages.  There  can  be no  assurance  that  the  Company's  pending  patent
applications  will issue as patents or that  challenges  will not be  instituted
concerning  the validity or  enforceability  of any patent owned by the Company,
or, if instituted,  that such  challenges  will not be  successful.  The cost of
litigation to uphold the validity and prevent  infringement of a patent would be
substantial.  Furthermore,  there can be no assurance that  competitors will not
independently   develop   similar   technologies   or  duplicate  the  Company's
technologies   or  design   around  the  patented   aspects  of  the   Company's
technologies. There can be no assurance that the Company's proposed technologies
will not infringe patents or other rights owned by others, licenses to which may
not be available to the Company.  In addition,  under  certain of the  Company's
license   agreements,   if  the  Company  fails  to  meet  certain   contractual
obligations, including the payment of minimum royalty amounts, such licenses may
become  nonexclusive  or terminable by the licensor.  Additionally,  the Company
protects its  proprietary  technology  and processes in part by  confidentiality
agreements with its collaborative partners, employees and consultants. There can
be no assurance  that these  agreements  will not be breached,  that the Company
will have adequate  remedies for any breach, or that the Company's trade secrets
will not otherwise become known or independently discovered by competitors.

UNCERTAINTIES REGARDING FUTURE HEALTH CARE REIMBURSEMENTS

Even though the Company does not receive payments directly from third party
healthcare  payers,  their  reimbursement  methods  may  impact  demand  for the
Company's  cryopreserved  tissue.  The Company is unable to predict what changes
will be made in the  reimbursement  methods  utilized by third party  healthcare
payers or their  effect on the  Company.  Changes in the  reimbursement  methods
utilized by third party healthcare payers,  including Medicare,  with respect to
cryopreserved  tissues  provided  for implant by the  Company and other  Company
services  and  products,  could have a material  adverse  effect on the Company.
Significant  uncertainty exists as to the reimbursement status of newly approved
health care  products and services and there can be no assurance  that  adequate
third party  coverage will be available for the Company to maintain price levels
sufficient  for  realization  of an  appropriate  return  on its  investment  in
developing   new  products.   Government   and  other  third  party  payers  are
increasingly attempting to contain healthcare cost by limiting both coverage and
the level of  reimbursement  for new products  approved for marketing by the FDA
and by  refusing  in some cases to provide  any  coverage  for uses of  approved
products for indications for which the FDA has not granted  marketing  approval.
If adequate coverage and reimbursement levels are not provided by government and
other third party payers for uses of the  Company's  new products and  services,
market acceptance of these products could be adversely affected.

DEPENDENCE ON KEY PERSONNEL

The Company's  business and future operating  results depend in significant
part upon the continued  contributions of its key technical personnel and senior
management,  many of whom would be difficult to replace.  The Company's business
and future operating results also depend in significant part upon its ability to
attract  and retain  qualified  management,  processing,  technical,  marketing,
sales, and support  personnel for its operation.  Competition for such personnel
is intense and there can be no assurance  that the Company will be successful in
attracting and retaining such personnel.  The loss of key employees, the failure
of any key employee to perform adequately or the Company's  inability to attract
and retain skilled  employees as needed could  materially  adversely  affect the
Company's business, financial condition and results of operations.

ACQUISITIONS

The  Company's  growth  strategy  includes  the  consummation  of strategic
acquisitions  of  other   companies  and  products.   The  integration  of  such
acquisitions can require  substantial  efforts on the part of management and can
distract  attention from the Company's core business.  There can be no assurance
that the Company will be able to  succesfully  integrate  the  operations of any
such  business,  including  IFM, nor can there be any assurance that the Company
will be able to successfully market IFM's medical devices, which represent a new
product line for the Company.

PRODUCT LIABILITY AND INSURANCE

The Company  faces the  inherent  business  risk of  financial  exposure to
product  liability  claims  in the  event  that  the  use of  tissue  processed,
preserved  or  distributed  by the  Company  results in  personal  injury or the
transmission of infectious  disease.  Although the Company has incurred  minimal
losses due to product  liability  claims to date, there can be no assurance that
it will not incur such losses in the future.  The  Company  currently  maintains
product  liability  insurance  in  the  aggregate  amount  of  $14  million  per
occurrence per year.  There can be no assurance that such coverage will continue
to be available on terms  acceptable to the Company or will be adequate to cover
any losses due to product claims if actually incurred.  Furthermore, if any such
claim is successful,  it could have a material  adverse effect on the demand for
the Company's services.

USE AND DISPOSAL OF HAZARDOUS MATERIAL

The Company's research,  development and processing  activities involve the
controlled use of small quantities of radioactive  compounds,  chemical solvents
and other  hazardous  materials.  The  Company's  activities  also  include  the
preservation  and  growth of human  cells and the  processing  of human  tissue.
Although  the  Company  believes  that  its  safety   procedures  for  handling,
processing and disposing of hazardous materials and human tissue comply with the
standards  prescribed  by  federal,  state  and local  regulations,  the risk of
accidental  contamination,  injury or disease  transmission from these materials
cannot  be  completely  eliminated.   In  the  event  of  such  an  accident  or
transmission,  the Company  could be held liable for  resulting  damages and any
liability  could have a material  adverse effect on the Company.  Any failure to
comply with such regulations could result in the imposition of penalties,  fines
and  sanctions  which  could have a  material  adverse  effect on the  Company's
business.

VOLATILITY OF SECURITIES PRICES

The trading  price of the  Company's  Common Stock has been subject to wide
fluctuations from time to time and may continue to be subject to such volatility
in the future. Trading price fluctuations can be caused by a variety of factors,
including quarter to quarter  variations in operating  results,  announcement of
technological  innovations  or new  products by the Company or its  competitors,
governmental   regulatory  acts,   developments   with  respect  to  patents  or
proprietary rights,  general conditions in the medical or cardiovascular  device
or  service  industries,  actions  taken by  government  regulators,  changes in
earnings estimates by securities analysts,  or other events or factors,  many of
which are beyond the Company's  control.  If the Company's revenues or operating
results in future quarters fall below the  expectations  of securities  analysts
and  investors,  the price of the Company's  Common Stock would likely  decline,
perhaps  substantially.  Changes in the trading  price of the  Company's  Common
Stock may bear no relation to the  Company's  actual  operational  or  financial
results.

ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation and By-laws contain provisions that
may discourage or make more difficult any attempt by a person or group to obtain
control  of the  Company,  including  provisions  authorizing  the  issuance  of
preferred stock without  shareholder  approval,  restricting the persons who may
call a special meeting of the  shareholders,  and prohibiting  shareholders from
taking action by written consent. In addition, the Company is subject to certain
provisions of Florida law that may  discourage or make more  difficult  takeover
attempts or acquisitions of substantial  amounts of the Company's  Common Stock.
Further, pursuant to the terms of a stockholder rights plan adopted in 1995, the
Company has  distributed a dividend of one right for each  outstanding  share of
Common Stock. The rights will cause  substantial  dilution of the ownership of a
person or group that  attempts to acquire  the Company on terms not  approved by
the Board and may have the effect of deterring hostile takeover attempts.

SHARES ELIGIBLE FOR FUTURE SALE

Substantially  all of the Company's  outstanding  Common Stock is available
for sale in the public marketplace.  There are also outstanding stock options to
purchase an aggregate of approximately 708,000 shares of Common Stock at various
exercise  prices per share.  The  majority  of the  shares to be  received  upon
exercise of these options will be available  for immediate  resale in the public
markets.  No  prediction  can be made as to the  effect,  if any,  that sales of
shares of Common Stock or the  availability of such shares for sale will have on
the market prices  prevailing  from time to time.  The  possibility  exists that
substantial amounts of Common Stock may be sold in the public market,  which may
adversely effect  prevailing market prices for the Common Stock and could impair
the  Company's  ability  to  raise  capital  through  the  sale  of  its  equity
securities.

ABSENCE OF DIVIDENDS

The  Company  has not  paid  and  does  not  presently  intend  to pay cash
dividends.  It is not  likely  that  any  cash  dividends  will  be  paid in the
foreseeable future.

ITEM 2.  PROPERTIES.

The Company's  facilities  are located in suburban  Atlanta,  Georgia,  and
consist of three facilities totaling approximately 130,000 square feet of leased
office and laboratory space.  Approximately  17,500 square feet are dedicated to
laboratory space. The primary laboratory  facilities (excluding the Bio-Adhesive
laboratory)  currently contain three main operating areas:  Cryopreserved Tissue
Processing, Research and Development, and Microbiology. Each laboratory consists
of a general work area and adjoining "clean rooms" for work with human tissue or
in sterile  processing.  The clean rooms are  designed to provide a near sterile
environment.  The Cryopreserved  Tissue Laboratory contains  approximately 7,700
square feet with a suite of seven clean  rooms.  The  Research  and  Development
Laboratory is approximately  5,500 square feet with a suite of five clean rooms.
The Microbiology  Laboratory is approximately  3,200 square feet with a suite of
three clean rooms.  The  Bio-Adhesive  facility  contains  approximately  11,000
square feet, including  approximately 4,000 square feet of laboratory space with
a suite of eight clean rooms.The Company's Porcine heart valves are manufactured
in the Company's bioprosthesis  laboratory,  which contains approximately 13,000
square feet, with a suite of three clean rooms.

ITEM 3.  LEGAL PROCEEDINGS.

Inapplicable.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.

Inapplicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

Each of the executive  officers of the  Registrant was elected by the Board
of  Directors  to serve  until  the  Board  of  Directors'  meeting  immediately
following the next annual meeting of  stockholders  or until his earlier removal
by the Board of  Directors or his  resignation.  The  following  table lists the
executive   officers  of  the  Registrant  and  their  ages,  offices  with  the
Registrant,  and the dates  from  which  they have  continually  served in their
present offices with the Registrant.

Date First Elected to
Present Office
Name              Age                 Office With Registrant

Steven G. Anderson                 58         Chairman of the Board of Directors, President   February, 1984
and Chief Executive Officer
Robert T. McNally, Ph.D.           49         Senior Vice President, Clinical Research        June, 1984
Albert E. Heacox, Ph.D.            46         Vice President, Laboratory Operations           June, 1985
Gerald B. Seery                    40         Vice President, Marketing                       August, 1995
Ronald D. McCall, Esq.             60         Director, Secretary and Treasurer               January, 1984
Edwin B. Cordell, Jr., CPA         38         Vice President and Chief Financial Officer      December, 1994
James C. Vander Wyk, Ph.D.         52         Vice President, Regulatory Affairs and          February, 1996
Quality Assurance
Kirby S. Black, Ph.D.              42         Vice President, Research and Development        July, 1995

Steven G. Anderson,  a founder of the Company,  has served as the Company's
President,  Chairman  of the  Board,  and  Chief  Executive  Officer  since  its
inception.  Mr. Anderson has 30 years of experience in the  implantable  medical
device industry. Prior to joining the Company, Mr. Anderson was Senior Executive
Vice  President  of  Intermedics,   Inc.,  a  manufacturer  and  distributor  of
pacemakers  and  other  medical  devices.  Mr.  Anderson  has a  B.A.  from  the
University of Minnesota.

Robert  T.  McNally,  Ph.D.,  a  founder  of the  Company,  served  as Vice
President, Clinical Research from June, 1984, until September, 1991, when he was
promoted to his current position, Senior Vice President,  Clinical Research. Dr.
McNally has been  responsible  for  clinical  research  and  development,  which
includes all testing of the Company's processes and services, supervision of new
product development,  and oversight of all regulatory affairs.  Prior to joining
the Company, Dr. McNally was employed as Regional  Manager-Europe by Intermedics
International,  Inc., which markets  pacemakers and other medical  devices.  Dr.
McNally has a Ph.D. in  bioengineering  from the University of Pennsylvania,  an
M.S.E. in biomedical electronic engineering from the University of Pennsylvania,
and a B.E.E. in electrical engineering from Villanova University.

Albert E. Heacox, Ph.D. has served as Vice President, Laboratory Operations
since June, 1985. Dr. Heacox has been  responsible for developing  protocols and
procedures for both cardiovascular and connective tissues, implementing upgrades
in procedures in conjunction with the Company's quality assurance programs,  and
overseeing all  production  activities of the Company's  laboratories.  Prior to
joining the  Company,  he worked as a  researcher  with the U.S.  Department  of
Agriculture  and North  Dakota  State  University,  developing  methods  for the
cryopreservation of cells and animal germ plasm storage. Dr. Heacox received his
Ph.D.  in Biology from  Washington  State  University  in 1980. He completed his
post-doctorate  training in cell  biology at the  University  of  Cologne,  West
Germany in 1981.

Gerald B. Seery joined the Company in 1993 as Director, Vascular Marketing.
In August,  1995 he was promoted to the position of Vice President of Marketing.
Mr. Seery is responsible for developing and implementing the Company's marketing
plans and supervising all tissue  procurement  activities.  Prior to joining the
Company,  Mr.  Seery held  senior  marketing  management  positions  with Meadox
Medical,  Electro Catheter  Corporation and Daig Corporation,  accumulating some
sixteen  years  specialized  marketing  experience  in  cardiovascular   medical
devices. Mr. Seery received a Bachelor of Arts degree in international economics
at The Catholic  University of America in Washington  D.C. in 1978 and completed
his Masters of Business  Administration  at Columbia  University  in New York in
1980.

Ronald  D.  McCall  has  served as a  director  of the  Company  and as the
Secretary  and Treasurer of the Company since  January,  1984.  From 1985 to the
present, Mr. McCall has been the proprietor of the law firm of Ronald D. McCall,
Attorney At Law, Tampa,  Florida. Mr. McCall was admitted to the practice of law
in Florida in 1961. He has a juris doctor degree from the University of Florida.

Edwin B.  Cordell,  Jr.,  CPA was  appointed  as Vice  President  and Chief
Financial  Officer of the  Company  in  November,  1994.  From  August,  1987 to
November,  1994, he served as Controller  and Chief  Financial  Officer of Video
Display  Corporation,  a  cathode  ray  tube  remanufacturing  and  distribution
company.  Mr. Cordell  graduated from the University of Tennessee with a B.S. in
Accounting.

James C. Vander Wyk,  Ph.D.  was  appointed as Vice  President,  Regulatory
Affairs and Quality Assurance of the Company in February 1996. Prior to that, he
held senior  management  positions at Schneider (USA),  Inc.,  Pharmacia Deltec,
Inc. and Delmed,  Inc.  gaining  some sixteen  years  experience  in  Regulatory
Affairs and Quality Assurance. Dr. Vander Wyk received his B.S. in Pharmacy from
the  Massachusetts  College of Pharmacy and his Ph.D. in  Microbiology  from the
University of Massachusetts. He performed his NIH Postdoctoral Fellowship at the
University of Illinois.

Kirby S. Black was appointed as Vice President of Research and  Development
in July 1995. Dr. Black is responsible for new product research and development.
Prior to joining the Company,  Dr. Black was Director,  Medical  Information and
Project Leader at Advanced Tissue Sciences, La Jolla, California.  Dr. Black has
also held a number of  positions  at the  University  of  California  at Irvine,
including Director,  Transplantation and Immunology Laboratories,  Department of
Surgery.  Dr. Black holds a B.S.  degree from the University of California,  Los
Angeles, and a Ph.D. degree from the University of California at Irvine.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The  following   information   contained  in  the  1996  Annual  Report  to
Stockholders is incorporated herein by reference:  information  concerning stock
prices on page 22.  CryoLife,  Inc.  common  stock is traded on The Nasdaq Stock
Market  under  the  Symbol  CRYL.  As of  March  14,  1997 the  Company  had 384
shareholders  of record and  approximately  6,000  benficial  owners,  including
shares  held in  brokerage  accounts.  CryoLife,  Inc.  has not  paid  any  cash
dividends on its common stock and has no present plans to pay cash  dividends in
the near future.

ITEM 6.  SELECTED FINANCIAL DATA.

Selected   Financial  Data  on  page  23  of  the  1996  Annual  Report  to
Stockholders are incorporated herein by reference.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. 

Management's  Discussion and Analysis of Financial Condition and Results of
Operations  included  on  pages  4  through  9 of  the  1996  Annual  Report  to
Stockholders is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The following  consolidated  financial statements and supplementary data of
the Company included in the 1996 Annual Report to Stockholders, are incorporated
herein by reference.

Financial Statements:

Consolidated  Statements of Income for each of the three years
in the period ended December 31, 1996, page 12.

Consolidated  Statements of  Shareholders'  Equity for each of
the three years in the period ended  December  31, 1996,  page
14.

Consolidated  Balance Sheets as of December 31, 1996 and 1995,
pages 10 through 11.

Consolidated  Statements  of Cash  Flows for each of the three
years in the period ended December 31, 1996, page 13.

Notes to Consolidated  Financial Statements,  pages 15 through
21.

Independent Auditors' Report, page 22.

Supplementary Data:

Selected   Financial   Information  and  Selected   Quarterly
Financial Information, page 23.

ITEM 9.           CHANGES IN  AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

Effective  April 17, 1996, the Audit Committee of the Board of Directors of
Registrant  engaged  the  accounting  firm of Ernst & Young  LLP as  independent
auditors for the  Registrant to replace the firm of KPMG Peat Marwick LLP, which
was terminated by Registrant's Audit Committee effective that date.

There were no disagreements between Registrant and KPMG Peat Marwick LLP in
connection  with the audits of the two most recent  fiscal years ended  December
31,  1995,  or any  subsequent  interim  period,  on any  matter  of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused KPMG Peat Marwick LLP to make reference in connection  with their reports
to the subject matter of the disagreement.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The response to Item 10,  applicable  to the  Directors of the Company,  is
incorporated  herein by reference to the information set forth under the caption
"Election  of  Directors"  in the Proxy  Statement  for the  Annual  Meeting  of
Stockholders to be held May 15, 1997.  Information concerning executive officers
is included in Part I, Item 4.A of this Form 10-K.

The  response to item 10,  applicable  to Section  16(a) of the  Securities
Exchange Act of 1934,  as amended,  is  incorporated  herein by reference to the
information  set forth under the caption  "Section  16(a)  Beneficial  Ownership
Reporting  Compliance"  in  the  Proxy  Statement  for  the  Annual  meeting  of
Stockholders to be held May 15, 1997.

ITEM 11. EXECUTIVE COMPENSATION.

The  response  to  Item  11 is  incorporated  herein  by  reference  to the
information set forth under the captions  "Report of the  Compensation  Advisory
Committee  on  Executive  Compensation,"   "Performance  Graph"  and  "Executive
Compensation"  in the Proxy  Statement for the Annual Meeting of Stockholders to
be held May 15, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The  response  to  Item  12 is  incorporated  herein  by  reference  to the
information  set forth under the captions  "Ownership of Principal  Shareholders
and  Certain  Executive  Officers"  and  "Election  of  Directors"  in the Proxy
Statement for the Annual Meeting of Stockholders to be held May 15, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The  response  to  Item  13 is  incorporated  herein  by  reference  to the
information set forth under the caption  "Executive  Compensation"  in the Proxy
Statement for the Annual Meeting of Stockholders to be held May 15, 1997.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

The following are filed as part of this report:

(a)      1.       Financial Statements

The   following    consolidated   financial   statements   are
incorporated   herein  by  reference  to  the  1996  Annual  Report  to
Stockholders,  portions  of which are filed as an  exhibit to this Form
10-K.

Consolidated  Statements of Income for each of the three years
in the period ended December 31, 1996, page 12.

Consolidated  Statements of  Shareholders'  Equity for each of
the three years in the period ended  December  31, 1996,  page
14.

Consolidated  Balance Sheets as of December 31, 1996 and 1995,
pages 10 through 11.

Consolidated  Statements  of Cash  Flows for each of the three
years in the period ended December 31, 1996, page 13.

Notes to Consolidated  Financial Statements,  pages 15 through
21.

Independent Auditors' Report, page 22.

2.       Financial Statement Schedule

Independent Auditors' Report on Schedule

Schedule II       -       Valuation and Qualifying Accounts

All other  financial  statement  schedules not listed above are omitted,  as the
required  information is not  applicable or the  information is presented in the
consolidated financial statements or related notes.

3.       A.      Exhibits

The following exhibits are filed herewith or incorporated herein by reference:

Exhibit
Number                                      Description

2.1            Sale  Agreement  dated  August 16,  1996  between the Company and
Donald Nixon Ross.  (Incorporated  by reference to Exhibit 2.1 to
the  Registrant's  Quarterly  report on form 10-Q for the quarter
ended September 30, 1996.)

2.2            Asset   Purchase   Agreement   among  the   Company   and  United
Cryopreservation  Foundation, Inc., United Transplant Foundation,
Inc. and QV, Inc.  dated  September  11, 1996.  (Incorporated  by
reference to Exhibit 2.2 to the Registrant's  Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.)

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 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.  (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).)

10.1           Lease, by and between New Market Partners III, Laing  Properties,
Inc., General Partner,  as Landlord,  and the Company, as Tenant,
dated  February 13, 1986, as amended by that  Amendment to Lease,
by and between the  parties,  dated April 7, 1986,  as amended by
that  Amendment to Lease,  by and between the parties,  dated May
15, 1987,  as amended by that Second  Amendment to Lease,  by and
between  the  parties,  dated June 22,  1988,  as amended by that
Third Amendment to Lease, by and between the parties, dated April
4, 1989,  as amended by that Fourth  Amendment  to Lease,  by and
between the parties, dated April 4, 1989 as amended by that Fifth
Amendment to Lease, by and between the parties, dated October 15,
1990.   (Incorporated   by  reference  to  Exhibit  10.1  to  the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)

10.1(a)        Seventh  Amendment  to Lease  dated  February  13,  1986,  by and
between New Market Partners III, Laing Properties,  Inc., General
Partner,  as Landlord,  and the Company as tenant,  dated May 15,
1996.

10.2           Lease by and between Newmarket Partners I, Laing Properties, Inc.
and Laing Management Company,  General Partner, as Landlord,  and
the  Company as Tenant,  dated July 23,  1993.  (Incorporated  by
reference to Exhibit 10.2 to the  Registrant's  Annual  Report on
Form 10-K for the fiscal year ended December 31, 1993.)

10.3           1993  Employee  Stock  Incentive  Plan  adopted  on July 6, 1993.
(Incorporated  by reference  to Exhibit 10.3 to the  Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)

10.4           1989  Incentive  Stock  Option Plan for the  Company,  adopted on
March 23, 1989. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)

10.5           Incentive  Stock  Option  Plan,   dated  as  of  April  5,  1984.
(Incorporated  by reference  to Exhibit 10.3 to the  Registrant's
Registration Statement on Form S-1 (No. 33-56388).)

10.6           Form of Stock  Option  Agreement  and Grant  under the  Incentive
Stock Option and Employee Stock Incentive Plans. (Incorporated by
reference  to  Exhibit  10.4  to  the  Registrant's  Registration
Statement on Form S-1 (No. 33-56388).)

10.7           CryoLife, Inc. Profit Sharing 401(k) Plan, as adopted on December
17,  1991.  (Incorporated  by  reference  to Exhibit  10.5 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)

10.8           Form of Supplemental  Retirement Plan, by and between the Company
and its  Officers -- Parties to  Supplemental  Retirement  Plans:
Steven G. Anderson,  Robert T. McNally, Gerald B. Seery, James C.
Vander  Wyk,  Albert  E.  Heacox,  Kirby S.  Black,  and Edwin B.
Cordell,  Jr.  (Incorporated  by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)

10.9(a)        Employment  Agreement,  by and  between the Company and Steven G.
Anderson.  (Incorporated  by reference to Exhibit  10.9(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)

10.9(b)        Employment  Agreement,  by and  between the Company and Robert T.
McNally.  (Incorporated  by reference  to Exhibit  10.7(b) to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)

10.9(c)        Employment  Agreement,  by and  between the Company and Albert E.
Heacox.  (Incorporated  by  reference  to Exhibit  10.7(c) to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)

10.9(d)        Employment  Agreement,  by and  between  the Company and Edwin B.
Cordell, Jr. (Incorporated by reference to Exhibit 10.9(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)

10.9(e)        Employment  Agreement,  by and  between the Company and Gerald B.
Seery.  (Incorporated  by  reference  to  Exhibit  10.9(e) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)

10.9(f)        Employment  Agreement,  by and  between  the Company and James C.
Vander Wyk, Ph.D.  (Incorporated  by reference to Exhibit 10.9(f)
to the  Registrant's  Annual  Report on Form 10-K for the  fiscal
year ended December 31, 1995.)

10.9(g)        Employment  Agreement,  by and  between  the Company and Kirby S.
Black, Ph.D.

10.10          Form of Secrecy  and  Noncompete  Agreement,  by and  between the
Company and its Officers.  (Incorporated  by reference to Exhibit
10.9 to the Registrant's  Registration Statement on Form S-1 (No.
33-56388).)

10.11          Registration  Rights Agreement,  by and among the Company,  Galen
Partners,  L.P., and Galen  Partners  International,  L.P.,  both
Delaware   limited   partnerships,   dated   August   22,   1991.
(Incorporated  by reference to Exhibit 10.13 to the  Registrant's
Registration Statement on Form S-1 (No. 33-56388).)

10.12          Technology Acquisition Agreement between the Company and Nicholas
Kowanko, Ph.D., dated March 14, 1996.  (Incorporated by reference
to Exhibit 10.14 to the  Registrant's  Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.)

10.13          Option Agreement, by and between the Company and Duke University,
dated  July  9,  1990,  as  amended  by  that  Option   Agreement
Extension,  by and  between  the  parties,  dated  July 9,  1991.
(Incorporated  by reference to Exhibit 10.20 to the  Registrant's
Registration Statement on Form S-1 (No. 33-56388).)

10.14          Research and License Agreement by and between Medical  University
of South  Carolina and  CryoLife  dated  November  15,  1985,  as
amended by Amendment to the Research and License  Agreement dated
February  25,  1986 by and between the parties and an Addendum to
Research and License Agreement by and between the parties,  dated
March 4, 1986. (Incorporated by reference to Exhibit 10.23 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)

10.15          Technical  Services  Agreement  by and  between  the  Company and
Validation   Systems,   Inc.,   dated  as  of  January  1,  1994.
(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.)

10.16          CryoLife,  Inc. Non-Employee  Directors Stock Option Plan adopted
on March 27, 1995. (Incorporated by reference to Exhibit 10.26 to
the  Registrant's  Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)

10.17          Settlement    Agreement    between    the   Company   and   Bravo
Cardiovascular,  Inc., dated February 14, 1995.  (Incorporated by
reference to Exhibit 10.27 to the  Registrant's  Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.)

10.18          Sale Agreement between the Company and Bravo Cardiovascular, Inc.
dated  February 14, 1995.  (Incorporated  by reference to Exhibit
10.28 to the  Registrant's  Annual  Report  on Form  10-K for the
fiscal year ended December 31, 1994.)

10.19          Private   Label   Agreement   between   the   Company  and  Bravo
Cardiovascular,  Inc. dated February 14, 1995.  (Incorporated  by
reference to Exhibit 10.29 to the  Registrant's  Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.)

10.20          Consignment    Agreement    between   the   Company   and   Bravo
Cardiovascular,  Inc. dated February 14, 1995.  (Incorporated  by
reference to Exhibit 10.30 to the  Registrant's  Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.)

10.21          Sale and Assignment  Agreement between the Company and Osteotech,
Inc. dated July 17, 1995.  (Incorporated  by reference to Exhibit
10.24 to the  Registrant's  Annual  Report  on Form  10-K for the
fiscal year ended December 31, 1995.)

10.22          Lease Agreement between the Company and Amli Land Development - I
Limited  Partnership,  dated  April 18,  1995.  (Incorporated  by
reference to Exhibit 10.26 to the  Registrant's  Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.)

10.23          Preoccupancy and Construction  Agreement  between the Company and
Amli Land  Development  - I Limited  Partnership  dated April 18,
1995.   (Incorporated  by  reference  to  Exhibit  10.27  to  the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)

10.24          Funding Agreement between the Company and Amli Land Development -
I Limited  Partnership  dated April 18,  1995.  (Incorporated  by
reference to Exhibit 10.28 to the  Registrant's  Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.)

10.25          Employee Stock Purchase Plan dated May 22, 1995. (Incorporated by
reference to Exhibit 10.29 to the  Registrant's  Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.)

10.26          Noncompetition   Agreement   between   the   Company  and  United
Cryopreservation   Foundation,   Inc.  dated  September  11,1996.
(Incorporated  by reference  to Exhibit 10.1 to the  Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.)

10.27          Noncompetition  Agreement  between the Company and QV, Inc. dated
September 11, 1996. (Incorporated by reference to Exhibit 10.3 to
the  Registrant's  Quarterly  Report on Form 10-Q for the quarter
ended September 30, 1996.)

10.28          Revolving\Term  Loan Facility between the Company and NationsBank
N.A.,  dated  August 30,  1996.  (Incorporated  by  reference  to
Exhibit 10.4 to the  Registrant's  Quarterly  Report on Form 10-Q
for the quarter ended September 30, 1996.)

10.29          Research   and  Option   Agreement   between   the   Company  and
Biocompatibles  Limited  dated July 29,  1996.  (Incorporated  by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996.)

10.30          Technology  License  Agreement  between the Company and  Colorado
State  University  Research  Foundation  dated  March  28,  1996.
(Incorporated  by reference  to Exhibit 10.1 to the  Registrant's
Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,
1996.)

10.31          Noncompetition   Agreement   between   the   Company  and  United
Transplant   Foundation,   Inc.   dated   September   11,   1996.
(Incorporated  by reference  to Exhibit 10.2 to the  Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.)

11.1           Statement re: Computation of Per Share Earnings.

13.1           1996 Annual  Report to  Stockholders.  The portions of the Annual
Report  which  are  not  specifically   incorporated   herein  by
reference are provided for informational purposes only.

21.1           Subsidiaries of CryoLife, Inc.

23.1           Consent of Independent Auditors.

23.2           Consent of Independent Auditors.

27.1           Financial Data Schedule

3.             B. Executive Compensation Plans and Arrangements.

1.             1993  Employee  Stock  Incentive  Plan  adopted  on July 6, 1993.
(Exhibit 10.2 to the Registrant's  Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.)

2.             1989  Incentive  Stock  Option Plan for the  Company,  adopted on
March 23, 1989  (Exhibit  10.2 to the  Registrant's  Registration
Statement on Form S-1 (No. 33-56388).)

3.             Incentive  Stock Option Plan,  dated as of April 5, 1984 (Exhibit
10.3 to the Registrant's  Registration Statement on Form S-1 (No.
33-56388).)

4.             Form of Stock  Option  Agreement  and Grant  under the  Incentive
Stock Option and Employee Stock  Incentive Plans (Exhibit 10.4 to
the  Registrant's   Registration   Statement  on  Form  S-1  (No.
33-56388).)

5.             CryoLife, Inc. Profit Sharing 401(k) Plan, as adopted on December
17, 1991 (Exhibit 10.5 to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)

6.             Form of Supplemental  Retirement Plan, by and between the Company
and its  Officers -- Parties to  Supplemental  Retirement  Plans:
Steven G. Anderson,  Robert T. McNally, Gerald B. Seery, James C.
Vander  Wyk,  Albert  E.  Heacox,  Kirby S.  Black  and  Edwin B.
Cordell,  Jr.  (Exhibit  10.6  to the  Registrant's  Registration
Statement on Form S-1 (No. 33-56388).)

7.             Employment  Agreement,  by and  between the Company and Steven G.
Anderson.  (Exhibit  10.7(a)  to  the  Registrant's  Registration
Statement on Form S-1 (No. 33-56388).)

8.             Employment  Agreement,  by and  between the Company and Robert T.
McNally.   (Exhibit  10.7(b)  to  the  Registrant's  Registration
Statement on Form S-1 (No. 33-56388).)

9.             Employment  Agreement,  by and  between the Company and Albert E.
Heacox.   (Exhibit  10.7(c)  to  the  Registrant's   Registration
Statement on Form S-1 (No. 33-56388).)

10.            Employment  Agreement,  by and  between the Company and Gerald B.
Seery.  (Incorporated  by  reference  to  Exhibit  10.9(e) to the
Registrant's  Annual  Report  on Form  10-K  for the  year  ended
December 31, 1995.)

11.            Employment  Agreement,  by and  between  the Company and James C.
Vander Wyk, Ph.D.  (Incorporated  by reference to Exhibit 10.9(f)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995.)

12.            Employment  Agreement,  by and  between  the Company and Edwin B.
Cordell, Jr. (Incorporated by reference to Exhibit 10.9(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)

13.            CryoLife,  Inc. Non-Employee  Directors Stock Option Plan adopted
on March 27, 1995. (Incorporated by reference to Exhibit 10.26 to
the  Registrant's  Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)

14.            Employee  Stock  Purchase  Plan.  (Incorporated  by  reference to
Exhibit 10.30 to the Registrant's  Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.)

15.            Employment  Aggrement  by and  between  the  Company and Kirby S.
Black (Exhibit 10.9(g) to this Form 10-K.)

(b)           Reports on Form 8-K

The  Registrant  did not file a report on Form 8-K during the fourth  quarter of
the recently completed fiscal year.

SIGNATURES

Pursuant to the  requirements  of Section 13 or 15(d) 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.

March 29, 1997                              By:  Steven G. Anderson
------------------
Steven G. Anderson,
President, Chief Executive
Officer and Chairman of
the Board of Directors

Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature                       Title                              Date
- ---------                       -----                              ----

Steven G. Anderson              President,                        March 29, 1997
- ------------------
Steven G. Anderson              Chief Executive Officer
and Chairman of the
Board of Directors
(Principal Executive Officer)

Edwin B. Cordell, Jr.           Vice President and                March 29, 1997
- ---------------------
Edwin B. Cordell, Jr.           Chief Financial Officer
(Principal Financial and
Accounting Officer)

Ronald D. McCall                Director                          March 29, 1997
- ----------------
Ronald D. McCall

Director                          March 28, 1997
- ----------------
Benjamin H. Gray

Rodney G. Lacy                  Director                          March 28, 1997
- --------------
Rodney G. Lacy

Ronald Charles Elkins, M.D.     Director                          March 31, 1997
- ---------------------------
Ronald Charles Elkins, M.D.

Independent Auditors' Report

The Board of Directors and Shareholders
CryoLife, Inc.

We have audited the accompanying  consolidated balance sheet of CryoLife,  Inc.,
and  subsidiaries  as  of  December  31,  1995,  and  the  related  consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the two-year  period ended December 31, 1995.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  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 audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of CryoLife,  Inc., and
subsidiaries  as of December  31, 1995 and the results of their  operations  and
their cash flows for each of the years in the two-year period ended December 31,
1995 in conformity with generally accepted accounting principles.

KPMG PEAT MAKWICK LLP

KPMG PEAT MARWICK LLP

Atlanta, Georgia
February 14, 1996

Independent Auditors' Report

The Board of Directors and Shareholders
CryoLife, Inc.

Under date of February 14, 1996, we reported on the  consolidated  balance sheet
of CryoLife,  Inc.  and  subsidiaries  as of December 31, 1995,  and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the two-year period ended December 31, 1995, as contained in the
annual report on Form 10-K for the year 1996.  In connection  with our audits of
the  aforementioned  consolidated  financial  statements,  we also  audited  the
related consolidated  financial statement schedule as listed in the accompanying
index, This financial  statement  schedule is the responsibiity of the Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
statement schedule based on our audits.

In our opinion,  such financial statement schedule,  when considered in relation
to the  basic  consolidated  financial  statements  taken as a  whole,  presents
fairly, in all material respects, the information set forth therein.

KPMG PEAT MARWICK LLP

KPMG PEAT MARWICK LLP

Atlanta, Georgia
March 28, 1997

CRYOLIFE, INC.

Index to Financial Statement Schedule

Page No.
------- 

Schedule II       -        Valuation and Qualifying Accounts              S-1

SCHEDULE II
CRYOLIFE, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 1996, 1995, and 1994

Balance beginning                                         Balance end of
of period                                                  period
Description                                       Additions        Deductions

Year ended December 31, 1996
Allowance for doubtful            
accounts                                   $ 30,000          $88,400            $24,113         $ 94,287
Allowance for doubtful
note receivable                             225,000               --            225,000               --
Deferred preservation
costs                                       247,484          140,000            109,085          278,399

Year ended December 31, 1995
Allowance for doubtful
accounts                                    $24,938          $41,433            $36,371          $30,000
Allowance for doubtful
note receivable                                  --          225,000                 --          225,000
Deferred preservation
costs                                       242,883          740,000            735,399          247,484
Inventory                                     150,000               --            150,000               --

Year ended December 31, 1994
Allowance for doubtful
accounts                                   $ 10,000        $ 150,000          $ 135,062         $ 24,938
Deferred preservation
costs                                            --          523,891            281,008          242,883
Inventory                                          --          150,000                 --          150,000

EXHIBIT 10.1(a)

SEVENTH AMENDMENT TO LEASE

THIS  AGREEMENT,  made and entered into this 15th day of May,  1996, by and
between Newmarket  Partners III, Limited, a Georgia Limited  Partnership,  whose
general  partners  are  Laing  Properties,  Inc.  and Laing  Management  Company
(hereinafter  called  "Landlord")  and  CryoLife,  Inc.,  a Florida  corporation
(hereinafter called "Tenant").

WITNESSETH THAT:

WHEREAS,  Landlord and Tenant entered into a certain Lease  Agreement dated
February 13, 1986, as amended April 7, 1986, May 15, 1987, June 22, 1988,  April
4, 1989, October 15, 1990, and March 14, 1995 (collectively hereinafter "Lease")
for Suites 122 through 150 (hereinafter  "Premises") at 2211 Newmarket  Parkway,
Building 8, Marietta, Georgia 30067.

WHEREAS,  Tenant  desires to reduce the size of the Premises and extend the
Term of the Lease, and;

WHEREAS,  Landlord and Tenant  desire to amend the Lease in order to modify
some of the other terms and conditions of the Lease;

NOW, THEREFORE in consideration of the mutual agreements of the undersigned
and other good valuable consideration,  this Lease is hereby amended,  effective
December 1, 1996 as follows:

42.      BROKER DISCLOSURE

Pursuant to Georgia Real Estate Commission  Regulation 520-1-08,  Laing
Marketing Company makes the following disclosures concerning this Lease
transaction:

a)    In this transaction,  Laing Marketing Company represents Landlord
and not Tenant.

b)    In this transaction, Richard Bowers and Company represents Tenant
and not Landlord.

c)    In this  transaction,  both Laing  Marketing  Company and Richard
Bowers and Company shall receive their compensation from Landlord
exclusively.

Both  Tenant and  Landlord  acknowledge,  agree with and consent to the
representation and compensation disclosed above.

43.      Paragraph 2, Term, of the Lease shall be amended to read:

To have and to hold the same for the term to  commence  on  December 1,
1996 and ending on the 30th day of November,  1999, at midnight  unless
sooner terminated as hereinafter provided.

44.      Paragraph 3, Rental, of the Lease shall be amended to read:

The Tenant  agrees to pay to the Landlord  promptly on the first day of
each month in advance,  during the term of this Lease, a monthly rental
as follows:

December 1, 1996 through November 30, 1997 @ $13,342.88 per month 
December 1, 1997 through November 30, 1998 @ $13,876.59 per month      
December 1, 1998 through November 30, 1999 @ $14,431.65 per month

Payments  received  after the tenth day of the month may be assessed an
additional  five percent (5%) charge as agreed  liquidated  damages due
Landlord.  Acceptance by Landlord of a rental payment in an amount less
than that  which is  currently  due shall in no way  affect  Landlord's
rights under this Lease and in no way be an accord and satisfaction.

45.      Paragraph 1, Premises, of the Lease shall be amended to read:

The  Landlord,  for  and  in  consideration  of the  rents,  covenants,
agreements,  and  stipulations  hereinafter  mentioned,   reserved  and
contained, to be paid, kept and performed by the Tenant, has leased and
rented, and by these presents does lease and rent, unto the Tenant, and
the  Tenant  hereby  agrees  to lease  and  take  upon  the  terms  and
conditions  which  hereinafter  appear,  the following  described space
(herein called the "Premises").

Project: Newmarket Business Park        Building: Eight (8)

Address: 2211 Newmarket Parkway         Suite:    134, 136, 138, 140, 142, 144

City:    Marietta                       Rentable Square Feet:  18,837

County:  Cobb                           State:    Georgia

Premises are more particularly shown on Exhibit "A-1",  attached hereto and made
a part hereof.

46.     COMMON AREA MAINTENANCE EXPENSE

Paragraph 12, Common Area Maintenance, of the Lease shall be amended to
read:

Landlord  shall  maintain  and keep clean all  common  areas of the site
shown on Exhibit "B-1" which is attached  hereto and made a part hereof
including grounds, landscaping drives, parking and loading areas. Tenant
shall  reimburse  Landlord for Tenant's share of the cost of maintaining
the common  areas of the  Building.  Tenant  shall pay  Landlord for its
share of Common Area Maintenance expense at a rate of $0.65 per rentable
square foot,  per year,  payable in equal  monthly  payments  along with
monthly rental.  The Common Area Maintenance  expense shall be escalated
the same time and manner as the rentals hereunder are increased.

47.     TENANT IMPROVEMENTS

Tenant  agrees to lease the  Premises  in an "as-is"  condition.  Tenant
shall  be  solely  responsible  for the cost of any  improvements;  such
improvements shall be subject to Landlord's prior approval. Landlord, at
Landlord's cost, shall provide for demising the Premises,  isolating and
installing  the electrical  service,  heating and cooling system and gas
service.

Except as herein  amended,  all terms and  conditions of the Lease shall
remain in full force and effect.

IN WITNESS  WHEREOF,  the parties  hereunto  have  executed this Seventh
Amendment to Lease as of the day and year first above written.

Signed, sealed and delivered in the      LANDLORD:  Newmarket Partners III,
presence of:                             Limited, a Georgia Limited Partnership,
whose general partners are Laing 
Properties, Inc. and Laing Management
Company

BY:  LAING PROPERTIES, INC.
______________________________            MANAGING GENERAL PARTNER
Witness

BY:___________________________________

TITLE:________________________________

______________________________
Notary Public                             ATTEST:_______________________________

TITLE:________________________________

Signed, sealed and delivered in the       TENANT:  CryoLife, Inc., a Florida
presence of:                              corporation

_______________________________           BY:___________________________________
Witness

TITLE:________________________________

_______________________________
Notary Public                             ATTEST:_______________________________

TITLE:________________________________

EXHIBIT "A-1"

[GRAPHIC]

EXHIBIT "B-1"

[GRAPHIC]

EXHIBIT 11.1

STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE

Year Ended December 31
1996             1995              1994
----             ----              ----

Primary:

Average shares outstanding                           9,504,666         9,379,472        9,311,918

Net effect of dilutive stock options
based on the treasury stock
method using  the greater of quarter-end
market price or average market
price                                                401,370           189,026           60,978
-------           -------           ------

Totals                                               9,906,036         9,568,498        9,372,896
=========         =========        =========
Net Income                                          $3,927,481        $2,201,729       $1,266,367
==========        ==========       ==========
Per share amount                                          $.40              $.23             $.14
====              ====             ====

Fully diluted:
Average shares outstanding                           9,504,666         9,379,472        9,311,918

Net effect of dilutive stock options
based on the treasury stock
method using the greater of quarter-end
market price or average market
price                                                401,434           269,370           60,978
-------           -------           ------

Totals                                               9,906,100         9,648,842        9,372,896
=========         =========        =========
Net Income                                          $3,927,481        $2,201,729       $1,266,367
==========        ==========       ==========
Per share amount                                          $.40              $.23             $.14
====              ====             ====

EXHIBIT 13.1

C R Y O L I F E , I N C .

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company's  revenues have been derived primarily from human heart valve,
vein and orthopaedic tissue preservation services.

YEAR ENDED DECEMBER 31, 1996
COMPARED TO YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------

Revenues  increased  27% to $37.2  million in 1996 from  $29.2  million in 1995.
These  revenue  increases  were  primarily  due to greater  allograft  shipments
resulting from an increase in demand.

Revenues from human heart valve  preservation  increased 26% to $24.8 million in
1996 from $19.7 million in 1995,  representing 67% of total revenues during each
year. These revenue increases were primarily due to a 29% increase in the number
of  allograft  shipments  resulting  from an  increase  in demand.  Heart  valve
revenues attributable to the acquisition of United Cryopreservation  Foundation,
Inc. (UCFI) were $263,000 in 1996.

Revenues from human vein preservation increased 21% to $8.2 million in 1996 from
$6.8 million in 1995, representing 22% and 23%, respectively,  of total revenues
during such years.  These revenue increases were primarily due to a 22% increase
in the number of allograft  shipments resulting from an increase in demand. Vein
revenues attributable to the acquisition of UCFI were $63,000 in 1996.

Revenues from orthopaedic  connective tissue preservation increased 127% to $3.4
million in 1996 from $1.5 million in 1995, representing 9% and 5%, respectively,
of total revenues during each year.  These revenue  increases were primarily due
to a 173%  increase  in the  number of  allograft  shipments  resulting  from an
increase in demand.

Revenues from the sale of porcine heart valves in 1996 were $385,000 compared to
$263,000 in 1995,  representing 1% of revenues during each year.  These revenues
increased due to a 29% increase in the number of units shipped.  The Company has
concentrated  marketing  efforts  for  stentless  porcine  heart  valve sales in
Europe. During December 1995, the Company obtained CE Mark certification for the
stentless porcine valves.  Management  believes that CE Mark  certification will
help the Company  gain entry and  approval  for its porcine  heart valves in the
European  Community.  The Company  currently intends to initiate the process for
Investigational  Device Exemption (IDE) and Premarket Approval (PMA) approval of
stentless porcine heart valves in the United States in 1998.

Other  revenues  decreased  to  $362,000 in 1996 from  $712,000  in 1995.  Other
revenues in 1996 consist  primarily of research  grant award revenues and income
from the termination of the option  agreement with Bayer  Corporation.  Research
grant  award  revenues in 1996 were  primarily  related to the  bioadhesive  and
SynerGraft projects.  Income from the termination of the Bayer agreement totaled
$88,000,  net of related  expenses.  The decrease  compared to 1995 is primarily
attributable to the sale of the Company's  patented Viral  Inactivation  Process
technology in 1995.

Preservation  costs  increased  to $12.6  million in 1996 from $10.5  million in
1995. Cost of preservation services as a percentage of cryopreservation revenues
decreased to 34% in 1996 from 37% in 1995. This favorable  decrease is primarily
due to an  increase  in the  volume  of  processed  tissue  and  more  efficient
processing methods.

General, administrative and marketing expenses increased 23% to $15.7 million in
1996 from $12.8  million in 1995,  representing  42% and 44%,  respectively,  of
total revenues during such years. The increased  expenses of approximately  $2.9
million are primarily  attributable  to additional  regulatory and quality costs
related to the  Company's CE Mark and ISO 9001  certifications,  increased  fees
paid to technical representatives and other related marketing expenses resulting
from the growth in  revenues,  and  increases  in general  overhead  expenses to
support the growth in revenues.

The Company has continued its commitment to research and  development  activity,
spending  approximately  $2.8  million  and  $2.6  million  in  1996  and  1995,
representing 7.5% and 9.0%,  respectively,  of total revenues during such years.
The  Company   invested   significantly   during  1996  in  the  development  of
bioadhesives for surgical applications and in its SynerGraft technology.

YEAR ENDED DECEMBER 31,1995
COMPARED TO YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------

Revenues  increased  23% to $29.2  million in 1995 from  $23.8  million in 1994.
These  revenue  increases  were  primarily  due to greater  allograft  shipments
resulting  from an increase in demand,  coupled with a general  cryopreservation
fee increase in early 1995.

Revenues from human heart valve  preservation  increased 18% to $19.7 million in
1995 from $16.7  million in 1994,  representing  67% and 70%,  respectively,  of
total revenues during such years.  These revenues increased due in part to a 14%
increase in the number of preserved units shipped  resulting from an increase in
demand,and the general cryopreservation fee increase in early 1995.

Revenues from human vein preservation increased 24% to $6.8 million in 1995 from
$5.5 million in 1994, representing 23% of total revenues during each year. These
revenues  increased  due to an 11%  increase  in the number of  preserved  units
shipped  resulting  from  an  increase  in  demand,  coupled  with  the  general
cryopreservation fee increase in early 1995.

Revenues from orthopaedic  connective tissue preservation increased 153% to $1.5
million in 1995 from $593,000 in 1994, representing 5% and 2%, respectively,  of
total revenues during each year. These revenues increased due to a 160% increase
in the number of preserved units shipped resulting from an increase in demand.

Porcine heart valve  revenue in 1995 was $263,000  compared to $414,000 in 1994.
Marketing  efforts for the porcine  heart valves were  hindered by ongoing legal
actions  between the  Company  (the  exclusive  worldwide  distributor)  and the
manufacturer  (Bravo). In early 1995, the Company and Bravo reached an agreement
to settle  their  differences  whereby the  Company  obtained  ownership  of the
trademarks,  rights and patents of the stentless  porcine heart valves and Bravo
retained the same for the stented porcine heart valves.  Consequently,  revenues
decreased due to the transfer of the stented porcine valve technology to Bravo.

Cost of  preservation  services as a  percentage  of  cryopreservation  revenues
decreased to 37% in 1995 from 39% in 1994. This favorable decrease was primarily
due to an increase in the volume of processed tissue, more efficient  processing
methods and the general cryopreservation fee increase.

Other revenues increased to $712,000 in 1995 from $412,000 in 1994. The increase
was  primarily  attributable  to  the  sale  of  the  Company's  patented  Viral
Inactivation  Process  technology.  Also  contributing  to this  increase was an
increase in research  grants  revenue from $320,000 in 1994 to $353,000 in 1995.
The Company has continued to receive  research grants for both  bioadhesives and
tissue engineering research.

General, administrative and marketing expenses increased 15% to $12.8 million in
1995 from $11.1  million in 1994,  representing  44% and 47%,  respectively,  of
total revenues during such years.

The increased expenses of approximately $1.7 million were primarily attributable
to  additional  regulatory  consulting  related to the  Company's  bioadhesives,
provisions  for  a  sales  and  use  tax  audit,   additional  direct  technical
representatives,  increased  fees paid to  technical  representatives  and other
related marketing expenses.

The Company  continued  its  commitment  to research and  development  activity,
spending   approximately   $2.6  million  in  1995  and  $2.0  million  in  1994
representing 9.0% and 8.4% of revenues, respectively, in such years. The Company
invested  heavily during 1995 in the  development of  bioadhesives  for surgical
applications.

CONTINUING OPERATIONS

REVENUES AND PERFORMANCE DATA FROM CONTINUING  OPERATIONS BY MAJOR PRODUCT LINES
FOR THE YEARS ENDING 1996, 1995 AND 1994.

Year Ended December 31, (Dollars in Thousands)    1996         1995         1994
- --------------------------------------------------------------------------------

Heart Valves and Conduits:
- --------------------------------------------------------------------------------
Units shipped                             4,528       3,499       3,065
Revenues                                $24,764     $19,723     $16,669

VEINS:
- --------------------------------------------------------------------------------
Units shipped                             2,147       1,765       1,591
Revenues                                 $8,172      $6,771      $5,505

ORTHOPAEDIC TISSUES:
- --------------------------------------------------------------------------------
Units shipped                             1,562         573         220
Revenue                                  $3,358      $1,456         593

Human heart valve  preservation  services  currently account for the majority of
the Company's revenues,  followed by vein and orthopaedic services. The business
of the Company is expected to change in future  years,  reflecting,  among other
things, the anticipated growth in vein and orthopaedic tissue services.

Orthopaedic tissue units shipped consist of both tendons and menisci. The number
of tendons shipped  increased to 1,272 in 1996, from 338 in 1995 and 35 in 1994.
The increase in shipments  resulted  from an increase in demand for such tissue.
Menisci shipments were 290 in 1996, 235 in 1995 and 185 in 1994.

The Company  continually  reviews  tissue on hand to  determine  its  viability.
Tissue  determined not to be suitable for  implantation  is disposed of properly
and the associated deferred preservation costs are expensed.

In July, 1992, the Company acquired the exclusive distribution rights to certain
aortic and mitral porcine heart valves principally for sale in overseas markets.
Revenues from the sale of porcine valves totaled $385,000, $263,000 and $414,000
for 1996, 1995 and 1994, respectively.

SEASONALITY

The demand for the Company's human heart valve tissue  preservation  services is
seasonal, with peak demand generally occurring in the second and third quarters.
Management believes this demand trend for human heart valves is primarily due to
the high  number of  pediatric  surgeries  scheduled  during the summer  months.
However, the demand for the Company's vein preservation services does not appear
to experience this seasonal trend. Management believes the trends experienced by
the Company to date for its orthopaedic  tissue  preservation  services indicate
this business may also be seasonal because it is an elective  procedure that may
be performed less frequently during the fourth quarter holiday months.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary capital  requirements  arise out of working capital needs,
capital expenditures for additional lab and production facilities,  research and
development spending, and acquisitions.  Historically, the Company has met these
requirements primarily with proceeds from sales of common stock, loans under its
credit facilities and earnings.

The decrease in marketable  securities  results from the sale of such securities
to finance the  leasehold  improvements  and  furnishings  for the new corporate
headquarters.  The  increase  in  accounts  receivable  is due to the  growth in
revenues.  The increase in deferred preservation costs relates to an increase in
donors  necessary  to support  the  previously  mentioned  revenue  growth.  The
increase in property  and  equipment  relates  primarily  to the  Company's  new
corporate  headquarters.  The  Company  does not  expect  to  incur  significant
additional costs relating to the new headquarters.  The increase in other assets
relates  primarily  to the  acquisition  of  the  BioGlue(R)  technology  and to
intangible  assets  recorded in connection  with the  acquisition  of UCFI.  The
increase in accounts payable results primarily from liabilities  associated with
the construction and equipping of the new corporate  headquarters.  The increase
in accrued  procurement fees results from the increase in tissue  procurement in
the fourth quarter of 1996.  Long-term debt results from the  acquisition of the
BioGlue  technology  and from the  acquisition of UCFI. The increase in the bank
line of  credit  is  primarily  due to  leasehold  improvements,  furniture  and
equipment purchases for the new facility.

Net cash provided by operating  activities was $4.0 million in 1996, as compared
to net cash  provided  by  operating  activities  of $2.4  million in 1995.  The
increase in net cash provided by operating  activities during 1996 was primarily
a result of an increase in earnings and payables,  partially offset by increased
receivables.

Net cash flows from financing activities were $1,816,000 in 1996 and $265,000 in
1995. This activity primarily consists of net proceeds from borrowings under the
Company's line of credit and the exercise of stock options.

The Company's capital  expenditures  totaled  $9,220,000,  the majority of which
relates  to the  construction  and  equipping  of the  Company's  new  corporate
headquarters.  Also,  the Company has made a commitment  for up to $1,000,000 in
construction costs for a new manufacturing facility for Ideas for Medicine.

The Company's research and development expenditures totaled $2.8 million in 1996
and $2.6 million in 1995.  Management  estimates  that research and  development
expenditures for 1997 will be approximately  $3.9 million but are dependent upon
achieving  certain  milestones  in  clinical  testing.  A large  portion of this
spending  relates to the continued  development of bioadhesives  and application
for clinical trial approval of the bioadhesives to the FDA.

During 1996 the Company secured a revolving  credit facility of $10.0 million at
the bank's prime rate of interest.  In addition,  the Company may supplement its
financial  resources  from time to time, as market  conditions  permit,  through
additional   financing   through   collaborative   marketing  and   distribution
agreements.

The Company believes that the cash generated from operations and loans available
under its  revolving  credit  facility  will be sufficient to meet the Company's
funding  needs for the  foreseeable  future,  including the  approximately  $4.5
million cash portion of the purchase price relating to the  acquisition of Ideas
for Medicine which was completed on March 5, 1997.

INFLATION

Although  the  Company  cannot  determine  the  precise  effects  of  inflation,
management  does not  believe it has had a  significant  effect on  revenues  or
results of operations and does not expect it to have a significant effect in the
near future.

OUTLOOK

Management  expects 1997 to be another strong year. The existing markets for the
Company's  products continue to grow. The Company's backlog remains strong,  and
new  products  introduced  during 1996,  together  with  expanded  international
marketing efforts,  should spur demand.  Management does not anticipate that the
move to the new  corporate  headquarters  will  adversely  affect  product gross
margins.  Management  expects that the acquisition of Ideas of Medicine will not
have a significant impact on 1997 earnings.

FOWWARD-LOOKING STATEMENTS

Statements in this Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations,  and elsewhere in this 1996 Annual Report 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.

Such forward-looking  statements include, among others, statements regarding the
Company's  competitive position,  the acquisition and subsequent  integration of
Ideas for Medicine,  the  application to the U.S. FDA for the stentless  O'Brien
porcine  heart  valves,   estimates  regarding  1997  research  and  development
expenditures,  the  Company's  expectations  regarding  the  adequacy of current
financing  arrangements,  product demand and market growth, and other statements
regarding future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. It should be noted
that the Company's  actual results could differ  materially from those contained
in such  forward-looking  statements  mentioned above, due to adverse changes in
any number of factors that affect this  Company's  business,  including  without
limitation,  changes in government  regulation of the  Company's  business,  the
availability of tissue for implant,  the status of the Company's  products under
development,  the  protection  of  the  Company's  proprietary  technology,  the
reimbursement  of health care costs by  third-party  payors,  and the  Company's
ability to sufficiently integrate acquired businesses.

C R Y O L I F E, I N C.
CONSOLIDATED BALANCE SHEETS

ASSETS
December 31,                                                        1996                    1995
- -----------------------------------------------------------------------------------------------------------------

Current assets:
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                        $  1,369,699              $  516,416
Marketable securities                                  43,145               6,015,158
Receivables:
Trade accounts, less allowance
for doubtful accounts of
$94,287 in 1996 and $30,000
in 1995                                           6,571,751               5,092,658
Income taxes                                        150,123                      --
Other                                             1,474,793                 194,260

-------------------------------------------------------------------------------------------------------
Total receivables                                   8,196,667               5,286,918
-------------------------------------------------------------------------------------------------------

Deferred preservation costs, less
allowance of $278,399 in 1996
and $247,484 in 1995                                7,178,043               5,996,201
Inventories                                           260,796                 424,200
Prepaid expenses                                      846,294                 369,594
Deferred income taxes                                 286,679                 275,375

-------------------------------------------------------------------------------------------------------
Total current assets                               18,181,323              18,883,862
-------------------------------------------------------------------------------------------------------

Property and equipment:
- -----------------------------------------------------------------------------------------------------------------
Equipment                                           8,366,234               5,692,383
Furniture and fixtures                              1,493,239                 382,605
Leasehold improvements                              7,494,487               2,018,722
-------------------------------------------------------------------------------------------------------
17,353,960               8,093,710
Less accumulated depreciation
and amortization                                    5,787,596               4,814,542

-------------------------------------------------------------------------------------------------------
Net property and equipment                         11,566,364               3,279,168
-------------------------------------------------------------------------------------------------------

Other assets:
- -----------------------------------------------------------------------------------------------------------------
Patents and other intangibles,
less accumulated amortization of
$669,140 in 1996 and $286,570
in 1995                                             4,701,281               1,728,262
Other                                                 523,751                 240,897

-------------------------------------------------------------------------------------------------------
Total assets                                      $34,972,719             $24,132,189
-------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

C R Y O L I F E, I N C.
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,                                                     1996                    1995
- -----------------------------------------------------------------------------------------------------------------

Current liabilities:
- -----------------------------------------------------------------------------------------------------------------
Accounts payable                                  $ 3,695,862            $  1,372,862
Accrued expenses                                      719,427                 388,579
Accrued compensation                                  878,263                 610,194
Accrued fees to technical service
representatives                                       213,828                 391,300
Accrued procurement fees                            1,210,194                 694,486
Current maturities of debt                            527,054                      --
Income taxes payable                                       --                 209,574

-------------------------------------------------------------------------------------------------------
Total current liabilities                           7,244,628               3,666,995
-------------------------------------------------------------------------------------------------------

Bank line of credit                                 1,250,000                      --
Long-term debt                                      1,548,900                      --

-------------------------------------------------------------------------------------------------------
Total liabilities                                  10,043,528               3,666,995
-------------------------------------------------------------------------------------------------------

Commitments and Contingencies

Shareholders' equity:
- -----------------------------------------------------------------------------------------------------------------
Preferred stock of $.01 par value per share.
Authorized 5,000,000
shares; no shares issued.                              --                      --
Common stock of $.01 par
value per share.
Authorized 50,000,000
shares; issued 10,110,326
shares in 1996 and                                101,103                  99,743
9,974,332 shares in 1995
Additional paid-in capital                         17,127,706              16,568,313
Retained earnings                                   7,902,019               3,974,538
Unrealized gain (loss) on
marketable securities                              (1,146)                  28,092
Treasury stock of 543,000
shares, at cost                                  (179,625)               (179,625)
Notes receivable from
shareholders                                   (20,866)                (25,867)
Total shareholders' equity                         24,929,191              20,465,194
-------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity        $34,972,719             $24,132,189
-------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

C R Y O L I F E, I N C.
CONSOLIDATED STATEMENTS OF INCOME

December 31,                                             1996                     1995                   1994
- --------------------------------------------------------------------------------------------------------------

Revenues:
- --------------------------------------------------------------------------------------------------------------
Cryopreservation                       $36,677,973              $28,257,333            $23,231,841
Research grants, licenses,
lease and other revenues                   361,613                  712,352                412,386
Interest income                            188,768                  255,817                165,794

----------------------------------------------------------------------------------------------------
37,228,354               29,225,502             23,810,021
----------------------------------------------------------------------------------------------------

Costs and expenses:
- --------------------------------------------------------------------------------------------------------------
Preservation                            12,593,126               10,485,225              8,965,087
General, administrative and
marketing                               15,672,550               12,806,706             11,084,492
Research and development                 2,807,262                2,633,311              1,975,238
Interest expense                            71,800                    4,398                 21,468

----------------------------------------------------------------------------------------------------
31,144,738               25,929,640             22,046,285
----------------------------------------------------------------------------------------------------

Income before income taxes                          6,083,616                3,295,862              1,763,736
Income tax expense                                  2,156,135                1,094,133                497,369

- --------------------------------------------------------------------------------------------------------------
Net income                                         $3,927,481               $2,201,729             $1,266,367
- --------------------------------------------------------------------------------------------------------------

Earnings per share of common stock                 $     0.40               $     0.23             $     0.14
- --------------------------------------------------------------------------------------------------------------

Weighted average common and common
equivalent shares outstanding                $9,906,036               $9,568,498             $9,372,896
- --------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

C R Y O L I F E, I N C.
CONSOLIDATED STATEMENTS OF CASH FLOWS

- ----------------------------------------------------------------------------------------------------------------
December 31,                                                  1996                 1995                  1994
- ----------------------------------------------------------------------------------------------------------------

Net cash flow from operating activities:
- ----------------------------------------------------------------------------------------------------------------
Net income                                    $  3,927,481          $  2,201,729          $ 1,266,367
----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net 
income to net cash provided by 
operating activities:
Depreciation and
amortization                          1,355,624              979,682             1,027,286
Provision for doubtful
accounts                                166,600              266,433               150,000
Gain on sale of equipment                       --                   --               (34,148)
Deferred income taxes                      (11,304)            (107,415)             (167,960)
Changes in operating assets and liabilities:
Trade and other receivables             (2,561,176)          (1,779,993)             (206,167)
Income taxes                              (359,697)              105,859                50,892
Deferred preservation costs             (1,053,287)              378,974               199,754
Inventories                                 163,404              432,000               438,000
Prepaid expenses                          (476,700)            (145,471)              (32,987)
Accounts payable                          2,085,097               37,629             (316,712)
Accrued expenses                               739,899               39,383               289,949
----------------------------------------------------------------------------------------------------------
Net cash flows provided by operating
activities                                   3,975,941            2,408,810             2,664,274
----------------------------------------------------------------------------------------------------------

Net cash flows used in investing activities:
- ----------------------------------------------------------------------------------------------------------------
Capital expenditures                        (9,220,250)          (1,572,928)           (1,418,880)
Cash paid for acquisition, net of
cash acquired                               (721,721)                   --                    --
Other assets                                  (939,216)          (1,001,633)              (87,108)
Net sales (purchases) of
marketable securities                       5,942,775          (2,175,833)             (106,654)
Proceeds from sale of property
and equipment                                      --                   --                77,072
----------------------------------------------------------------------------------------------------------
Net cash flows used in investing
activities                                   (4,938,412)          (4,750,394)           (1,535,570)
----------------------------------------------------------------------------------------------------------

Net cash flows from financing activities:
- ----------------------------------------------------------------------------------------------------------------
Principal payments of debt                    (750,000)                   --                    --
Proceeds from debt issuance                   2,000,000                   --                    --
Proceeds from exercise of options               560,753              264,920                58,185
Net payments on notes receivable
from shareholder                                5,001                  281                31,000
----------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities                                  1,815,754              265,201                89,185
----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash                                853,283          (2,076,383)             1,217,889
Cash and cash equivalents at beginning of
period                                                  516,416            2,592,799             1,374,910
Cash and cash equivalents at end of period
$  1,369,699          $   516,416           $ 2,592,799
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Supplemental  disclosures of cash flow
information -- cash paid during the year for:
- ----------------------------------------------------------------------------------------------------------------
Interest                                   $     33,917          $     4,398            $   21,468
Income taxes                               $  2,528,598          $ 1,089,466            $  640,727
Noncash investing and financing        
activities:
Note issued for patent            $    825,953                   --                    --
-------------------------------------------------------------------
Fair value of assets acquired          $    533,605          $        --            $       --
Cost in excess of assets                  1,873,274                   --                    --
acquired
Liabilities assumed                       (435,158)                   --                    --
Note issued for assets
acquired                             (1,250,000)                   --                    --
-------------------------------------------------------------------
Net cash paid for acquisition
$   721,721                   --                    --

-------------------------------------------------------------------

C  R  Y  O  L  I  F  E,   I  N  C.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

December 31,                                                1996                  1995                   1994
- ----------------------------------------------------------------------------------------------------------------
Common Stock
- ----------------------------------------------------------------------------------------------------------------
Balance beginning of year                     $        99,743     $         98,693        $       98,434
(9,974,332, 9,326,372, and
9,300,512 shares outstanding
at January 1, 1996, 1995 and
1994, respectively)
Issuances of common stock:
Employee stock purchase
plan (1,939 shares)                              19                   --                    --
Purchase of other assets
(10,395 shares)                                 104                   --                    --
Exercise of options (123,660,
104,960, and 25,860 shares in
1996, 1995, and 1994,
respectively)
1,237                1,050                   259
----------------------------------------------------------------------------------------------------------
Balance, end of year                                101,103               99,743                98,693
----------------------------------------------------------------------------------------------------------

Additional Paid-in Capital
- ----------------------------------------------------------------------------------------------------------------
Balance, beginning of year              $    16,568,313     $     16,304,443        $   16,246,517
Issuances of common stock:
Employee stock purchase
plan                                      20,996                   --                    --
Purchase of other assets                    129,834                   --                    --
Exercise of options                            408,563              263,870                57,926
----------------------------------------------------------------------------------------------------------
Balance, end of year                             17,127,706           16,568,313            16,304,443
----------------------------------------------------------------------------------------------------------

Retained Earnings
- ----------------------------------------------------------------------------------------------------------------
Balance, beginning of year                  $     3,974,538     $      1,772,809        $      506,442
Net income                                        3,927,481            2,201,729             1,266,367
----------------------------------------------------------------------------------------------------------
Balance, end of year                              7,902,019            3,974,538             1,772,809
----------------------------------------------------------------------------------------------------------

Unrealized Gain (Loss) on Marketable
Securities
- ----------------------------------------------------------------------------------------------------------------
Balance, beginning of year                  $        28,092     $       (37,628)        $           --
Unrealized gain (loss)                             (29,238)               65,720              (37,628)
----------------------------------------------------------------------------------------------------------
Balance, end of year                                (1,146)               28,092              (37,628)
----------------------------------------------------------------------------------------------------------

Treasury Stock
- ----------------------------------------------------------------------------------------------------------------
Balance, beginning and end of year
$     (179,625)            (179,625)             (179,625)
----------------------------------------------------------------------------------------------------------

Notes Receivable From Shareholders

- ----------------------------------------------------------------------------------------------------------------
Balance, beginning of year                  $      (25,867)     $       (26,148)        $     (57,148)
Payments on shareholder notes                         5,001                  281                31,000
----------------------------------------------------------------------------------------------------------
Balance, end of year                               (20,866)             (25,867)              (26,148)
----------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity, end of year           $     24,929,191     $     20,465,194      $      17,932,544
- --------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

CRYOLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

NATURE OF BUSINESS

Founded in 1984,  CryoLife,  Inc. was the first  company in the United States to
specialize in the  commercialization  of ultra-low  temperature  preservation of
human  tissues for  transplant.  The Company  markets its  products in North and
South  America,  Europe and Asia. The Company's  preservation  efforts have been
directed  toward  tissue  transplant  opportunities  in the  areas  of  cardiac,
vascular and orthopaedic  surgery.  The Company seeks to identify medical market
areas that can benefit from its  expertise in  biochemistry  and cell biology to
develop innovative techniques and biological products for cardiac,  vascular and
orthopaedic reconstructive surgery.  Additionally,  the Company seeks to develop
and investigate the development of new  technologies  and products to expand the
Company's  implantable  product lines and laboratory service business to include
biological  products  that  are not  dependent  upon the  availability  of human
tissue.

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its subsidiaries. All significant intercompany balances have been eliminated.

RECLASSIFICATIONS

Certain  prior year  balances  have been  reclassified  to conform with the 1996
presentation.

USE OF ESTIMATES

The  financial  statements  have been  prepared  in  conformity  with  generally
accepted  accounting  principles and, as such, include amounts based on informed
estimates and judgments of management with  consideration  given to materiality.
Actual results could differ from those estimates.

CASH EQUIVALENTS

Cash   equivalents   consist   primarily  of  highly  liquid   investments  with
insignificant  interest  rate risk and maturity  dates of 90 days or less at the
time of acquisition.

MARKETABLE SECURITIES

Marketable  securities  consist  primarily of municipal  bond  investments.  The
Company  adopted the provisions of Statement of Financial  Accounting  Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",  on
January 1, 1994.  Under that  Statement,  the Company  classifies its marketable
securities as available-for-sale  with unrealized gains and losses excluded from
earnings  and  reported as a separate  component of  shareholders'  equity.  The
aggregate  amortized  cost of such  securities at December 31, 1996 and 1995 was
$43,145 and $5,987,066,  respectively.  The investments  mature at various dates
through 2027.

DEFERRED PRESERVATION COSTS AND REVENUE RECOGNITION

Tissue is procured from deceased human donors by organ procurement  agencies and
tissue  banks  which  consign  the  tissue to the  Company  for  processing  and
preservation.  Preservation  costs  related to tissue  held by the  Company  are
deferred until shipment to the implanting hospital.  Deferred preservation costs
consist primarily of laboratory expenses, organ procurement fees, and freight-in
charges  and are stated at average  cost,  determined  annually,  on a first-in,
first-out basis. When the tissue is shipped to the implanting hospital,  revenue
is  recognized  and the  related  deferred  preservation  costs are  charged  to
operations.

INVENTORIES

Inventories  are  comprised of purchased  porcine heart valves and are valued at
the lower of cost (first-in, first-out) or market.

PROPERTY AND EQUIPMENT

Property and  equipment  are stated at cost.  Depreciation  is provided over the
estimated  useful  lives  of  the  assets,   generally  5  to  10  years,  on  a
straight-line  basis.  Leasehold  improvements  are amortized on a straight-line
basis over the lease term or the estimated useful lives of the assets, whichever
is shorter.

INTANGIBLE ASSETS

Goodwill  resulting from business  acquisitions  is amortized on a straight-line
basis over 20 years. Patent costs are amortized over the expected useful life of
the  patent  (primarily  17  years)  using  the  straight-line   method.   Other
intangibles, which consist primarily of manufacturing rights and agreements, are
being amortized over the expected useful lives of the related assets  (primarily
five years).

The Company  periodically  evaluates the recoverability of intangible assets and
measures  the amount of  impairment,  if any,  by  assessing  current and future
levels of  income  and cash  flows as well as other  factors,  such as  business
trends and prospects and market and economic conditions.

INCOME TAXES

Deferred  income tax assets and  liabilities  are  recognized for the future tax
consequences   attributable  to  temporary  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  income tax rates  expected  to apply to taxable  income in the years in
which those temporary differences are expected to be recovered or settled.

LICENSE FEE AND RESEARCH GRANT REVENUES

License fee revenues are  recognized  in the period the cash is received and all
licensor  obligations  have been  fulfilled.  Revenues for  research  grants are
recognized in the period the associated costs are incurred.

EARNINGS PER SHARE

The  Company's  earnings  per share are  computed by dividing  net income by the
weighted average number of common and common equivalent shares.  Dilutive common
stock options have been included in the earnings per share calculation using the
treasury stock method.

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. All share and per share  information in
the accompanying consolidated financial statements have been adjusted to reflect
such split.

2.       REVOLVING TERM LOAN AGREEMENT

On August 30, 1996 the Company  executed a Revolving  Term Loan Agreement with a
bank which permits the Company to borrow up to  $10,000,000 at either the bank's
prime rate of  interest  (8.25% at December  31,  1996) or  adjusted  Libor,  as
defined, plus an applicable Libor margin. This credit agreement contains certain
restrictive  covenants  including,  but not limited to,  maintenance  of certain
financial  ratios  and a minimum  tangible  net worth  requirement.  The  credit
agreement is secured by  substantially  all of the Company's  assets,  excluding
intellectual property.  Commitment fees are paid based on the unused portions of
the  facility.  At  December  31, 1996  $1,250,000  was  outstanding  under this
agreement. (See Note 13).

3.       LONG-TERM DEBT

Long-term debt at December 31, 1996 consists of the following:
- --------------------------------------------------------------------------------

8.25% note payable due in equal annual installments of
$250,000                                             $1,250,000

Note payable due in 2000 with an effective interest rate of 8%,
net of unamortized discount of $84,046                   825,954
------------------------------------------------------------------------
Less current maturities                                      2,075,954
527,054
------------------------------------------------------------------------
Total long-term debt                                         $1,548,900
------------------------------------------------------------------------

In September 1996 the Company issued  $1,250,000 of notes in connection with the
acquisition of certain assets of United Cryopreservation  Foundation, Inc. Also,
in April 1996 the Company  issued  $910,000  of  non-interest  bearing  notes in
connection with the acquisition of its BioGlue(R) technology.

Scheduled maturities of long-term debt for the next five years are as follows:
- --------------------------------------------------------------------------------

1997                $527,054
1998                 496,088
1999                 515,775
2000                 287,037
2001                 250,000
- --------------------------------------------------------------------------------
$2,075,954
- --------------------------------------------------------------------------------

4.       FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial  Accounting  Standards No. 107,  "Disclosures  about Fair
Value of  Financial  Instruments"  (Statement  107),  requires  the  Company  to
disclose  estimated  fair values for its  financial  instruments.  The  carrying
amounts of cash and cash equivalents,  marketable securities,  trade receivables
and  accounts  payable  approximate  their  fair  values  due to the  short-term
maturity  of these  instruments  and  because  they are  marked to  market.  The
estimated fair value of long-term debt  approximates the carrying amount of such
debt at December 31, 1996.

5.       LEASES

The Company  leases  equipment and office space under various  operating  leases
with terms of up to 15 years.  Certain  leases  contain  escalation  clauses and
renewal  options for  additional  periods.  Future  minimum lease payments under
noncancelable operating leases as of December 31, 1996 are as follows:

Year ending December 31,
- --------------------------------------------------------------------------------

1997            $1,140,962
1998             1,158,418
1999             1,076,357
2000               934,748
2001               951,887
Thereafter             9,885,044
- --------------------------------------------------------------------------------
Total minimum lease payments    $       15,147,416
- --------------------------------------------------------------------------------

Total rental expense for operating  leases amounted to $713,571,  $740,588,  and
$692,159, for 1996, 1995, and 1994, respectively.

6.       STOCK OPTION PLANS

The Company has certain stock option plans that provide for grants of options to
employees  to purchase  shares of common  stock at an exercise  price  generally
equal to the fair value at the date of grant, which generally become exercisable
over a five-year  vesting  period and expire  within ten years of grant date.  A
summary of stock option transactions under the plans follows:

Shares                              Price                               Weighted Average
Exercise Price

Outstanding at December 31, 1993
- -------------------------------------------------------------------------------------------------------------------------

279,880                  $2.25  -          $4.13
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Granted                              201,000                   3.13  -           3.85

Exercised                           (25,860)                   2.25

Canceled                            (40,900)                   2.25  -           4.13
- -------------------------------------------------------------------------------------------------------------------------

Outstanding at December 31, 1994
- -------------------------------------------------------------------------------------------------------------------------

414,120                   2.25  -           4.13
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Granted                              321,000                   3.63  -           7.74                              $4.90

Exercised                          (104,960)                   2.25  -           4.13                               2.53

Canceled                            (40,000)                   2.25  -           4.13                               3.10
- -------------------------------------------------------------------------------------------------------------------------

Outstanding at December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------

590,160                   2.25  -           7.74                               4.21
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Granted                              247,000                   8.50  -          18.43                              15.70

Exercised                          (123,660)                   2.26  -           7.26                               3.31

Canceled                             (5,200)                   2.25  -           3.75                               3.68
- -------------------------------------------------------------------------------------------------------------------------

Outstanding at December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------

708,300                   2.25  -          18.43                               7.36
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related  Interpretations
in accounting for its employee stock options  because,  as discussed  below, the
alternative  fair value  accounting  provided for under FASB  Statement No. 123,
"Accounting for Stock-Based Compensation" (Statement 123) requires use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options.  Under APB 25,  because the exercise  price of the  Company's  employee
stock options equals the market price of the underlying stock on the date of the
grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the  information be determined as if the
Company has  accounted  for its employee  stock  options  granted  subsequent to
December 31, 1994 under the fair value method of that Statement.  The fair value
for these  options  was  estimated  at the date of grant  using a  Black-Scholes
option pricing model with the following weighted-average assumptions:

1996                 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

----------------------------------------------------------------------

Expected Dividend Yield                      0%                   0%
----------------------------------------------------------------------

Expected Stock Price Volatility           0.552                0.515
----------------------------------------------------------------------

Risk-Free Interest Rate                   6.48%                5.91%
----------------------------------------------------------------------

Expected Life of Options              4.8 Years            4.0 Years
----------------------------------------------------------------------

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  periods.  The  Company's pro
forma information follows:

1996             1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Net income - as reported                3,927,481       2,201,729
----------------------------------------------------------------------

Net income - pro forma                  3,632,183       2,123,134
----------------------------------------------------------------------

Earnings per share - as reported             0.40            0.23
----------------------------------------------------------------------

Earnings per share - pro forma               0.37            0.22
----------------------------------------------------------------------

Other information concerning stock 
options follows:

Weighted average fair value of options
granted during the year             7.97            $2.36
----------------------------------------------------------------------

Number of shares as to which options are
exercisable at end of year       156,700           73,600
----------------------------------------------------------------------

Weighted average remaining contractual life
of outstanding options         3.51 Years
----------------------------------------------------------------------

Because  Statement  123 is  applicable  only to options  granted  subsequent  to
December 31, 1994, its pro forma effect will not be fully reflected until 2000.

7.       EMPLOYEE BENEFIT PLANS

The Company  has a 401(k)  savings  plan  providing  retirement  benefits to all
employees who have  completed six months of service.  The Company makes matching
contributions  of  50%  of  each  participant's  contribution  up to 5% of  each
participant's  salary.  The  total  contributions  charged  to  operations  were
$123,193,   $131,399  and  $100,114  in  1996,  1995  and  1994,   respectively.
Additionally,  the Company may make discretionary contributions to the Plan that
are allocated to each participant's account. No such discretionary contributions
were made for 1996, 1995 or 1994.

On May 16, 1996 the Company's shareholders approved the CryoLife,  Inc. Employee
Stock  Purchase  Plan (ESPP).  The ESPP allows  eligible  employees the right to
purchase  common  stock on a  quarterly  basis at the lower of 85% of the market
price  at the  beginning  or end of  each  three-month  offering  period.  As of
December  31, 1996 there were 598,061  shares of common  stock  reserved for the
ESPP and there had been 1,939 shares issued under the plan.

8.       INCOME TAXES

Income tax expense consists of the following:

1996                   1995                        1994
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------

Current:
Federal                     $          1,826,144        $     1,012,356          $          537,795
State                                    341,295                189,192                     127,534
-----------------------------------------------------------------------------------------------------
Total current                          2,167,439              1,201,548                     665,329
Deferred                                (11,304)              (107,415)                   (167,960)
-----------------------------------------------------------------------------------------------------
Total income tax
expense            $          2,156,135        $     1,094,133          $          497,369
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------

Such  amounts  differ  from the amounts  computed by applying  the U.S.
Federal  income  tax rate of 34% to  pretax  income  as a result of the
following:

1996                     1995                     1994
- ----------------------------------------------------------------------------------------------------------------------

Tax expense at
statutory rate            $          2,068,429         $      1,120,593        $        $599,670
-----------------------------------------------------------------------------------------------------

INCREASE (REDUCTION) IN INCOME TAXES
RESULTING FROM:
- ----------------------------------------------------------------------------------------------------------------------
Change in validation
allowance for
deferred tax
assets                               (129,171)                 (51,529)                (184,664)
-----------------------------------------------------------------------------------------------------

Entertainment
expenses                                29,855                   32,845                   17,684
-----------------------------------------------------------------------------------------------------

Officer's life
insurance                                3,532                    3,873                    7,613
-----------------------------------------------------------------------------------------------------

State income taxes,
net of federal
benefit                                240,911                  126,464                   99,480
-----------------------------------------------------------------------------------------------------

Non-taxable interest
income                                (50,142)                 (73,955)                 (48,217)
-----------------------------------------------------------------------------------------------------

Other                                     (7,279)                 (64,158)                  (5,803)
-----------------------------------------------------------------------------------------------------
$2,156,135         $      1,094,133        $         497,369
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------

The tax effects of temporary  differences which give rise to deferred tax assets
and deferred tax liabilities are presented below:

December 31,                                      1996                1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
- --------------------------------------------------------------------------------

Depreciation                     $   111,298         $   186,262
-----------------------------------------------------------------------

Deferred preservation costs
and inventory reserves           86,616              94,044
-----------------------------------------------------------------------

Note receivable reserve                --                  85,500
-----------------------------------------------------------------------

Other                                118,765              68,740
-----------------------------------------------------------------------
316,679             434,546

Less valuation allowance              30,000             159,171
-----------------------------------------------------------------------

Net deferred tax assets          $   286,679         $   275,375
-----------------------------------------------------------------------
-----------------------------------------------------------------------

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those temporary  differences become deductible.  Management  considers the
scheduled reversal of deferred tax liabilities,  projected future taxable income
and tax planning  strategies in making this assessment.  Based upon the level of
historical  taxable  income and  projections  for future taxable income over the
periods in which the deferred tax assets are deductible,  management believes it
is more  likely  than  not the  Company  will  realize  the  benefits  of  these
deductible differences, net of the existing valuation allowances.

9.    FDA REGULATION

Human heart  valves  historically  have not been  subject to  regulation  by the
United States Food and Drug Administration  (FDA). However, in June 1991 the FDA
published a notice  stating  that human  heart  valves for  transplantation  are
medical devices subject to Premarket Approval (PMA) or an Investigational Device
Exemption  (IDE). In October 1994 the FDA announced in the Federal Register that
neither an approved  application  for PMA nor an IDE is required for  processors
and distributors who had marketed heart valve allografts  before June 1991. This
action by the FDA has removed  allograft heart valves from clinical trial status
thus allowing the Company to distribute such valves to  cardiovascular  surgeons
throughout the United States.

10.   EXECUTIVE INSURANCE PLAN

In December 1992 the Company's Board of Directors  approved a supplemental  life
insurance program for certain executive officers of the Company. The Company and
the executives share in the premium payments and ownership of insurance policies
on the lives of the executives.  The Company's  aggregate premium  contributions
were $37,515, $30,864 and $36,269 for 1996, 1995 and 1994, respectively.

11.   EQUIPMENT ON LOAN TO IMPLANTING HOSPITALS

The Company consigns liquid nitrogen freezers with the implanting  hospitals for
tissue  storage.  The freezers are the property of the Company.  At December 31,
1996,  freezers  with a  total  cost of  approximately  $1,021,000  and  related
accumulated   depreciation  of  approximately   $678,000  were  located  at  the
implanting  hospitals'  premises.  Depreciation  is provided  over the estimated
useful lives of the freezers on a straight-line basis.

12.   TRANSACTIONS WITH RELATED PARTIES

The Company expensed $39,208,  $66,609,  and $64,767 during 1996, 1995 and 1994,
respectively, relating to services performed by a law firm whose sole proprietor
is a  member  of the  Company's  Board of  Directors  and a  shareholder  of the
Company.

13.   SUBSEQUENT EVENT

On March 5, 1997 the  Company  acquired  the stock of Ideas for  Medicine,  Inc.
(IFM) of  Clearwater,  Florida,  a medical device  company  specializing  in the
manufacture  and  distribution  of  single  use  cardiovascular   products,  for
consideration of approximately $4.5 million in cash and approximately $5 million
in  convertible  debentures  plus  related  expenses.  The cash  portion  of the
purchase  price was financed by borrowings  under the Company's  Revolving  Term
Loan Agreement  discussed in Note 2. The acquisition  will be accounted for as a
purchase.

INDEPENDENT AUDITORS' REPORT

[LOGO]
ERNST & YOUNG LLP

The Board of Directors and Shareholders of CryoLife, Inc.:

We have audited the accompanying consolidated balance sheet of CryoLife, Inc. as
of  December  31,  1996  and the  related  consolidated  statements  of  income,
shareholders'  equity,  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  consolidated  financial
statements  based  on  our  audit.  The  consolidated  financial  statements  of
CryoLife,  Inc.  for the years ended  December 31, 1995 and 1994 were audited by
other auditors whose report dated February 14, 1996, except as to Note 13, which
is as of March 18, 1996, expressed an unqualified opinion on those statements.

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 1996 consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
CryoLife,  Inc.  at  December  31,  1996,  and the  consolidated  results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
generally accepted accounting principles.

ERNST & YOUNG LLP

Atlanta, Georgia
February 7, 1997, except for Note 13 as to which the date is March 5, 1997

- --------------------------------------------------------------------------------

MARKET PRICE OF COMMON STOCK

The  following  table sets forth the range of high and low sales  prices for the
Company's  common stock, on the NASDAQ  National Market System,  for each of the
quarters of fiscal 1996 and 1995.  Such prices have been restated to reflect the
two-for-one stock split effected June 28, 1996.

High                   Low
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996
-----------------------------------------------------------------------
First quarter             12 5/8                     7
Second quarter            20 3/4                10 4/5
Third quarter             20 1/2                11 1/4
Fourth quarter            15 3/4               12 3/16

-----------------------------------------------------------------------
1995
-----------------------------------------------------------------------
First quarter              4 1/4                 3 1/8
Second quarter             5 5/8                 3 3/8
Third quarter              9 1/8                 5 3/8
Fourth quarter            9 1/16                 6 1/8

SELECTED FINANCIAL & QUARTERLY INFORMATION

SELECTED FINANCIAL INFORMATION

(In thousands except share data) December 31,              1996          1995          1994         1993          1992
- -----------------------------------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------

Revenues                                   $   37,228   $    29,226   $    23,810  $    21,340   $    19,633
Net income                                      3,927         2,202         1,266          554           696
Research and development as a percent
of revenues                                    7.5%          9.0%          8.3%         6.5%          7.1%

EARNINGS PER SHARE
- -----------------------------------------------------------------------------------------------------------------------
Net income*                                $     0.40   $      0.23   $      0.14  $      0.06   $      0.09

YEAR-END FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------------------------
Total assets                               $   34,973   $    24,132   $    21,417  $    20,075   $    12,441
Working capital                                10,937        15,217        14,279       13,397         5,266
Long-term liabilities                           2,799             0             0            0         1,141
Shareholders' equity                           24,929        20,465        17,933       16,615         7,333
Current ratio                                     3:1           5:1           5:1          5:1           2:1
Shareholders' equity per common
share*

$     2.61   $      2.17   $      1.92  $      1.83   $      1.00

SELECTED QUARTERLY FINANCIAL INFORMATION

First        Second        Third        Fourth
(In thousands except share data)                                      Quarter       Quarter      Quarter       Quarter
- -----------------------------------------------------------------------------------------------------------------------

Revenues                                         1996   $     8,434   $     9,698  $    10,411   $     8,685
--------------------------------------------------------------------------------------------------------------
1995         6,605         7,230        8,347         7,044
1994         5,281         5,876        6,647         6,006

Net Income                                       1996   $       782   $       988  $     1,261   $       896
--------------------------------------------------------------------------------------------------------------
1995           390           559          685           568
1994           195           289          349           433

Earnings per share*                              1996   $      0.08   $      0.10  $      0.13   $      0.09
--------------------------------------------------------------------------------------------------------------
1995          0.04          0.06         0.07          0.06
1994          0.02          0.03         0.04          0.05

* Reflects adjustment for the two-for-one stock split effected June 28, 1996.

CRYOLIFE, INC.

Board of Directors

Steven G. Anderson
Chairman, President and
Chief Executive Officer
CryoLife, Inc.
Kennesaw, Georgia

Ronald C. Elkins, M.D.
Chief, Department of Thoracic and
Cardiovascular Surgery
University of Oklahoma Health
Science Center
Oklahoma City, Oklahoma

Benjamin H. Gray
Partner
Massey Burch Capital Corp.
(An investment firm)
Nashville, Tennessee

Rodney G. Lacy
President
AI Industries
(A manufacturing concern)
West Chicago, Illinois

Ronald D. McCall, Esq.
Attorney at Law
Tampa, Florida

Corporate Officers

Steven G. Anderson
Chairman, President and
Chief Executive Officer

Kirby S. Black, Ph.D.
Vice President, Research &
Development

Edwin B. Cordell, Jr.
Vice President and Chief Financial Officer

Albert E. Heacox, Ph.D.
Vice President, Laboratory Operations

Ronald D. McCall, Esq.
Secretary/Treasurer

Robert T. McNally, Ph.D.
Senior Vice President, Clinical Research

Gerald B. Seery
Vice President, Marketing

James C. Vander Wyk, Ph.D.
Vice President, Regulatory Affairs and
Quality Assurance

[LOGO]

EXHIBIT 21.1

Exhibit 21.1
Subsidiaries of CryoLife, Inc.

Name                            State of Incorporation
----                            ----------------------

CryoLife International Incorporated                    Florida

CryoLife Acquisition Corporation                       Florida

EXHIBIT 23.1

Accountants' Consent

The Board of Directors
CryoLife, Inc.

We consent to incorporation  by reference in the  registration  statements (Nos.
33-83996,  33- 84048,  333-03513  and  333-06141)  on Form S-8 and  registration
statement  (No.  333-16581)  on Form S-3 of CryoLife,  Inc. of our reports dated
February 14, 1996, relating to the consolidated balance sheet of CryoLife,  Inc.
and  subsidiaries  as  of  December  31,  1995,  and  the  related  consolidated
statements of income,  shareholders' equity, and cash flows and related schedule
for each of the years,  in the two-year  period ended  December 31, 1995,  which
reports  appear in the December 31, 1996 annual report on Form 10-K of CryoLife,
Inc.

KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP

Atlanta, Georgia
March 28, 1997

EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS

We consent to the  incorporation  by reference in this Annual Report (Form 10-K)
of CryoLife,  Inc. of our report dated February 17, 1997,  except for Note 13 as
to which  the date is March 3,  1997,  included  in the 1996  Annual  Report  to
shareholders of CryoLife, Inc.

Our audit also  included the  financial  statement  schedule of  CryoLife,  Inc.
listed in Item 14(a).  This  schedule  is the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion based on our audit. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole,  presents fairly
in all material respects the information set forth therein.

We also consent to the incorporation by reference in Registration  Statement No.
333-16581  on Form  S-3 and  Registration  Statement  Nos.  33-83996,  33-84048,
33-03513 and 333-06141 on Form S-8, of our report dated February 7,1997,  except
for  Note 13 as to  which  the  date is  March  5,  1997,  with  respect  to the
consolidated  financial  statements  incorporated  herein by reference,  and our
report  included  in the  preceding  paragraph  with  respect  ot the  Financial
Statement Schedule included in this Annual Report (Form 10-K)of CryoLife, Inc.

Atlanta, Georgia
March 26, 1997

<ARTICLE>5
<LEGEND>
THIS  SCHEDULE  CONTAINS  SUMMARY  FINANCIAL   INFORMATION  EXTRACTED  FROM  THE
FINANCIAL STATEMENTS OF CRYOLIFE,  INC. FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<PERIOD-TYPE>                               YEAR
<FISCAL-YEAR-END>                                                    DEC-31-1996
<PERIOD-START>                                                       JAN-01-1996
<PERIOD-END>                                                         DEC-31-1996
<CASH>                                                                 1,369,699
<SECURITIES>                                                              43,145
<RECEIVABLES>                                                          6,571,751
<ALLOWANCES>                                                              94,287
<INVENTORY>                                                              260,796
<CURRENT-ASSETS>                                                      18,181,323
<PP                                                                17,353,960
<DEPRECIATION>                                                         5,787,596
<TOTAL-ASSETS>                                                        34,972,719
<CURRENT-LIABILITIES>                                                  7,244,628
<BONDS>                                                                        0
<PREFERRED-MANDATORY>                                                          0
<PREFERRED>                                                                    0
<COMMON>                                                                 101,103
<OTHER-SE>                                                            24,828,088
<TOTAL-LIABILITY-AND-EQUITY>                                          34,972,719
<SALES>                                                                        0
<TOTAL-REVENUES>                                                      37,228,354
<CGS>                                                                          0
<TOTAL-COSTS>                                                         12,593,126
<OTHER-EXPENSES>                                                      18,551,612
<LOSS-PROVISION>                                                         166,600
<INTEREST-EXPENSE>                                                        71,800
<INCOME-PRETAX>                                                        6,083,616
<INCOME-TAX>                                                           2,156,135
<INCOME-CONTINUING>                                                    3,927,481
<DISCONTINUED>                                                                 0
<EXTRAORDINARY>                                                                0
<CHANGES>                                                                      0
<NET-INCOME>                                                           3,927,481
<EPS-PRIMARY>                                                                .40
<EPS-DILUTED>                                                                .40