8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 13, 2007

_______________________

CRYOLIFE, INC.

(Exact name of registrant as specified in its charter)

_________________________

Florida	1-13165	59-2417093
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1655 Roberts Boulevard, N.W., Kennesaw, Georgia 30144

(Address of principal executive office) (zip code)

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

_____________________________________________________________

(Former name or former address, if changed since last report)

_________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2Financial Information

Item 2.02Results of Operations and Financial Condition.

On February 20, 2007, CryoLife, Inc. (“CryoLife” or the “Company”) issued a press release announcing its financial results for the fourth quarter and fiscal year ended December 31, 2006. CryoLife hereby incorporates by reference herein the information set forth in its Press Release dated February 20, 2007, a copy of which is attached hereto as Exhibit 99.1. Except as otherwise provided in the press release, the press release speaks only as of the date of such press release and it shall not create any implication that the affairs of CryoLife have continued unchanged since such date.

The information provided pursuant to this Item 2.02 is to be considered “furnished” pursuant to Item 2.02 of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended, nor shall it be deemed incorporated by reference into any of CryoLife’s reports or filings with the Securities and Exchange Commission (“SEC”), whether made before or after the date hereof, except as expressly set forth by specific reference in such report or filing.

Except for the historical information contained in this report, the statements made by CryoLife are forward-looking statements that involve risks and uncertainties. All such statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. CryoLife’s future financial performance could differ significantly from the expectations of management and from results expressed or implied in the press release.  Please refer to the last paragraph of the press release for further discussion about forward-looking statements. For further information on risk factors, please refer to “Risk Factors” contained in CryoLife’s Form 10-K for the year ended December 31, 2005, as filed with the SEC, and any subsequent SEC filings. CryoLife disclaims any obligation or duty to update or modify these forward-looking statements.

Section 5Corporate Governance and Management

Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Approval of Awards Pursuant to the 2006 Performance-Based Bonus Plan

On February 13, 2007, the Compensation Committee (the “Committee”) of the Board of Directors of CryoLife approved an aggregate bonus award of approximately $880,000 and 68,455 shares of Company common stock for the Company’s corporate officers, including its executive officers, pursuant to the Company’s 2006 Performance-Based Bonus Plan. The awards for the Company’s executive officers were as follows:

·   Steven G. Anderson, Chairman, President and Chief Executive Officer: $59,774 and 4,650 shares of common stock for the Company’s revenue performance from products and services, $185,992 and 14,470 shares of common stock for the Company’s net income performance after adjustment for stock compensation expense, $54,006 and 4,200 shares of common stock based on Mr. Anderson’s personal performance rating, and an additional $54,006 and 4,200 shares of common stock for the Company’s net income performance beyond that contemplated in the primary portion of the 2006 Performance-Based Bonus Plan.

·   D. Ashley Lee, Executive Vice President, Chief Operating Officer, and Chief Financial Officer: $33,872 and 2,635 shares of common stock for the Company’s revenue performance from products and services, $105,402 and 8,199 shares of common stock for the Company’s net income performance, $30,603 and 2,380 shares of common stock based on Mr. Lee’s personal performance rating, and an additional $30,603 and 2,380 shares of common stock for the Company’s net income performance beyond that contemplated in the primary portion of the 2006 Performance-Based Bonus Plan.

·   Albert E. Heacox, Ph.D., Senior Vice President, Research and Development: $15,434 and 1,202 shares of common stock for the Company’s revenue performance from products and services, $48,052 and 3,737 shares of common stock for the Company’s net income performance, $12,560 and 976 shares of common stock based on Dr. Heacox’s personal performance rating, and an additional $23,915 and 1,860 shares of common stock for the Company’s net income performance beyond that contemplated in the primary portion of the 2006 Performance-Based Bonus Plan.

·   Gerald B. Seery, Senior Vice President, Sales and Marketing: $28,421 and 2,210 shares of common stock for the Company’s net income performance after adjustment for stock compensation expense, and an additional $22,503 and 1,750 shares of common stock for the Company’s net income performance beyond that contemplated in the primary portion of the 2006 Performance-Based Bonus Plan.

·   David M. Fronk, Vice President, Regulatory Affairs and Quality Assurance: $11,955 and 930 shares of common stock for the Company’s revenue performance from products and services, $37,199 and 2,894 shares of common stock for the Company’s net income performance after adjustment for stock compensation expense, $10,261 and 798 shares of common stock based on Mr. Fronk’s personal performance rating, and an additional $21,602 and 1,680 shares of common stock for the Company’s net income performance beyond that contemplated in the primary portion of the 2006 Performance-Based Bonus Plan.

All common shares were issued on February 15, 2007 and are unrestricted shares of CryoLife common stock, valued at $8.57 per share, which was the closing price of the common stock on the New York Stock Exchange (“NYSE”) on February 13, 2007.

Adoption of the CryoLife, Inc. 2007 Executive Incentive Plan

On February 13, 2007, the Compensation Committee recommended to the Board for approval the CryoLife, Inc. 2007 Executive Incentive Plan (the “Plan”), which was subsequently adopted by the Board of Directors on February 14, 2007. The Plan became effective on February 14, 2007.

The purpose of the Plan is to reward key management personnel for outstanding performance in the service of the Company. The material terms of the Plan are as follows:

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·   the total number of shares of Company common stock that may be awarded under the Plan shall not exceed 200,000 shares, subject to adjustment pursuant a recapitalization event, and no participant may receive a bonus in excess of $1.5 million in any fiscal year;

·   all shares issued under the Plan will be issued pursuant to the Company’s 2004 Employee Stock Incentive Plan;

·   the Committee is charged with the Plan’s implementation, administration, and interpretation;

·   the participants in the Plan for each fiscal year will be designated by the Committee from Company employees. Once designated as a Plan participant, the Committee may remove a participant with or without cause at any time prior to the payment of the bonus, and the participant will not be entitled to any bonus following his or her removal as a participant;

·   the bonus that a participant may earn will be based on one or more of the following:

o   Company revenues, adjusted in the Committee’s discretion;

o   Company net earnings, adjusted in the Committee’s discretion;

o   the participant’s personal performance; and

o   any other performance criteria designated by the Committee;

·   the Company will determine and pay the amount of any bonus earned by any participant within 75 days following fiscal year-end;

·   unless otherwise determined by the Committee, the bonus will be payable 70% in cash and 30% in unrestricted shares of common stock, valued at the closing price of the common stock on the New York Stock Exchange on the date the bonus is approved by the Committee;

·   to the extent provided by the Committee, participants will also have the opportunity to receive an additional bonus above and beyond the bonus describe above should the Company achieve additional adjusted net income goals for a fiscal year;

·   within 75 days following a change of control, as defined in the Plan, participants will be paid a pro-rated cash bonus pursuant to a formula set forth in the Plan based on Company performance during the fiscal year prior to the change of control;

·   at the discretion of the Committee, awards under the Plan are subject to repayment in the event of a significant restatement of financial results with respect to any portion of the bonus that would not have been paid based on the restated financial results;

·   the Committee may, in its discretion, reduce the amount of any award or bonus payable pursuant to the Plan or determine not to pay any award or bonus at any time prior to payment; and

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·   the Plan may be amended or terminated by the Board of Directors at any time; however, the Plan will terminate in accordance with its terms on December 31, 2011.

Grants Pursuant to the CryoLife, Inc. 2007 Executive Incentive Plan

On February 13, 2007, the Compensation Committee approved, contingent on Board approval of the Plan, grants under the Plan to specified participants, including the executive officers. The range of potential bonuses for the participants varies. Subject to meeting performance thresholds, CryoLife executive officers may earn bonuses as follows:

·   up to 39.7% of base salary, with a target of 24%, for Messrs. Anderson and Lee, up to 23.1% of base salary, with a target of 14% for Dr. Heacox, up to 17.4% of base salary, with a target of 10.5% for Mr. Seery and up to 19.8% of base salary, with a target of 12%, for Mr. Fronk, based on the Company’s adjusted net income for 2007. Adjusted net income excludes interest expense, interest income, stock compensation, other than stock compensation related to the 2007 Executive Incentive Plan, changes in the value of the derivative related to the Company’s preferred stock, other income and expense, and amortization associated with intangibles recorded in connection with the previously announced exchange and service agreement with Regeneration Technologies, Inc. and related parties, if any. A minimum threshold is required to be met before any bonus may be earned under this measure;

·   up to 36% of base salary, with a target of 24%, for Messrs. Anderson and Lee, up to 21% of base salary, with a target of 14%, for Dr. Heacox, up to 26.3% of base salary, with a target of 17.5%, for Mr. Seery and up to 18% of base salary, with a target of 12%, for Mr. Fronk, based on the Company’s annual revenues from the sale of products and services. Annual revenues for bonus purposes consists solely of revenues from cardiac and vascular allograft tissue processing, BioGlue and CardioWrap. A minimum threshold is required to be met before any bonus may be earned under this measure; and

·   up to 15% of base salary, with a target of 12%, for Messrs. Anderson and Lee, up to 8.8% of base salary, with a target of 7%, for Dr. Heacox and Mr. Seery and up to 7.5% of base salary, with a target of 6%, for Mr. Fronk, based on personal performance. In considering personal performance, the Committee will consider the recommendations of management as well as its own subjective determination.

Subject to meeting minimum performance thresholds, the executive officers may earn bonuses as follows:

·   Mr. Anderson, from 36% to 91% of base salary, with the target level set at 60%;

·   Mr.  Lee, from 36% to 91% of base salary, with the target level set at 60%;

·   Dr.  Heacox, from 21% to 53% of base salary, with the target level set at 35%.

·   Mr. Seery, from 21% to 52% of base salary, with the target level set at 35%; and

·   Mr. Fronk, from 18% to 45% of base salary, with the target level set at 30%.

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Pursuant to the terms of the Plan, unless otherwise determined by the Committee, the bonus will be payable 70% in cash and 30% in unrestricted shares of common stock, valued at the closing price of the common stock on the New York Stock Exchange on the date the bonus is approved by the Committee.

Additional performance bonuses of up to 20% of the participants’ base salaries may be earned if specified adjusted net earnings targets, calculated as described above, are reached which reflect performance improvements beyond that contemplated in the primary bonus plan.

Discontinuance of Mr. Seery’s Quarterly Bonus

In 2006, Mr. Seery received a quarterly bonus plus consisting of .5% of the net increase in fiscal 2006 Company quarterly revenues over fiscal 2005 Company quarterly revenues. Because Mr. Seery received this revenue-based bonus, Mr. Seery did not participate in the revenue-based or personal performance components of the 2006 Performance-Based Bonus Plan. However, Mr. Seery’s quarterly bonus was terminated by the Committee on February 13, 2007, effective January 1, 2007, and, as a result, Mr. Seery will participate fully in the 2007 Executive Incentive Plan.

Option and Restricted Stock Grants to Certain Executive Officers 

On February 14, 2007, the Company’s Compensation Committee granted stock options and restricted stock under the Company’s 1998 Long-Term Incentive Plan and2004 Employee Stock Incentive Plan to certain executive officers, as follows:

·   Steven G. Anderson: stock options to purchase 63,750 shares of CryoLife common stock and 10,625 shares of restricted CryoLife common stock;

·   D. Ashley Lee: stock options to purchase 37,500 shares of CryoLife common stock and 6,250 shares of restricted CryoLife common stock;

·   Albert E. Heacox, Ph.D.: stock options to purchase 22,500 shares of CryoLife common stock and 3,750 shares of restricted CryoLife common stock;

·   Gerald B. Seery: stock options to purchase 22,500 shares of CryoLife common stock and 3,750 shares of restricted CryoLife common stock; and

·   David M. Fronk: stock options to purchase 15,000 shares of CryoLife common stock and 2,500 shares of restricted CryoLife common stock.

The options and restricted stock are governed by the terms of the plan under which they are issued and separate option and restricted stock agreements.

The option agreements provide in part that the options will have an exercise price equal to the mean of the high and low reported sales prices for the Company’s common stock on the New York Stock Exchange on February 23, 2007 and will become exercisable, subject to the employee remaining continuously employed by CryoLife, as follows: one-third of the shares will become exercisable on the first anniversary of February 23, 2007, and an additional one-third will become exercisable on each subsequent anniversary thereof until all shares (100%) of the option are exercisable (on the third anniversary, assuming continuous employment). The option has a term of sevenyears but the option may terminate earlier as stated in the option agreement.

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The restricted stock will vest on February 14, 2010 if the grantee remains in the continuous employ of the Company. Any unvested portion of the grant will be forfeited upon the grantee’s ceasing to serve as an employee of the Company for any reason.

Messrs. Anderson, Lee, Seery, and Fronk and Dr. Heacox have no material relationships with the Company and its affiliates other than their positions as officers and Mr. Anderson’s positions as a director and Chairman of the Board.

Section 9Financial Statements and Exhibits.

Item 9.01(c) Exhibits.

(a) Financial Statements.

Not applicable.

(b) Pro Forma Financial Information.

Not applicable.

(c) Shell Company Transactions.

Not applicable.

(d) Exhibits.

Exhibit Number	Description
99.1*	Press release dated February 20, 2007

* This exhibit is furnished, not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, CryoLife, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CRYOLIFE, INC.
Date: February 19, 2007	By: /s/ D. Ashley Lee
	Name: D. Ashley Lee
	Title: Executive Vice President, Chief
	Operating Officer and Chief
	Financial Officer

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EX-99

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

Media Contacts:

D. Ashley Lee	Katie Brazel
Executive Vice President, Chief Financial Officer and	Fleishman Hillard
Chief Operating Officer	Phone: 404-739-0150
Phone: 770-419-3355

CryoLife Returns to Profitability in 2006

Revenues increase 17 percent in 2006 compared to 2005;

Recent transactions provide platform for future growth

ATLANTA, GA… (February 20, 2007)… CryoLife, Inc. (NYSE: CRY), a biomaterials, medical device and tissue processing company, announced today that revenues for the fourth quarter of 2006 increased 17 percent to $21.1 million compared to $18.0 million in the fourth quarter of 2005. Net loss in the fourth quarter of 2006 was ($50,000), and ($0.01) per basic and fully diluted common share, compared to a net loss of ($681,000), and ($0.04) per basic and fully diluted common share, in the fourth quarter of 2005.

The fourth quarter of 2006 included a non-cash charge of $2.8 million and a net gain of $2.6 million, (comprised of a non-cash gain of $2.9 million offset by approximately $300,000 in transaction costs), related to the Company’s exit from orthopedic tissue processing, a $751,000 charge for stock-based compensation, and benefits related to the adjustment of reserves for product liability and other legal losses of $333,000. The fourth quarter of 2005 included benefits related to the adjustment of reserves for product liability and other legal losses of $683,000, a $118,000 charge for stock-based compensation and a non-cash gain for the change in value of the derivative related to the Company’s six percent convertible preferred stock of $512,000.

Revenues for the full year of 2006 increased 17 percent to $81.3 million compared to $69.3 million for the full year of 2005. Net income in the full year of 2006 was $365,000, with a net loss of ($0.02) per basic and fully diluted common share, compared to a net loss of ($19.5) million, and ($0.85) per basic and fully diluted common share, in the full year of 2005. The net loss of ($0.02) per share in 2006 results primarily from dividends related to the Company’s convertible preferred stock.

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The full year of 2006 included a non-cash charge of $2.8 million and a net gain of $2.6 million, (comprised of a non-cash gain of $2.9 million offset by approximately $300,000 in transaction costs), related to the Company’s exit from orthopedic tissue processing, a net $2.1 million gain related to the settlement of insurance coverage disputes, a $1.6 million charge for stock-based compensation, a $784,000 gain related to the adjustment of reserves for product liability losses, and a $448,000 charge related to post-employment benefits. The full year of 2005 included an $11.6 million charge for the settlement of the shareholder class action lawsuit, an $851,000 charge related to post-employment benefits, a $285,000 charge for stock-based compensation and a $961,000 benefit related to the adjustment of reserves for product liability and other legal losses.

Steven G. Anderson, president and chief executive officer of CryoLife, Inc., stated, “Our return to profitability in 2006 reflects the ongoing recovery of the Company. The recent announcements concerning agreements with Regeneration Technologies, the Cleveland Clinic and MAST BioSurgery reflect the continued implementation of our strategic initiatives outlined during late 2006.”

BioGlue^® revenues were $10.5 million for the fourth quarter of 2006 compared to $9.6 million in the fourth quarter of 2005, an increase of nine percent. U. S. BioGlue revenues were $7.7 million and $7.2 million in the fourth quarter of 2006 and 2005, respectively. International BioGlue revenues were $2.8 million and $2.4 million in the fourth quarter of 2006 and 2005, respectively.

BioGlue revenues were $40.0 million for the full year of 2006 compared to $38.0 million in the full year of 2005, an increase of five percent. U.S. BioGlue revenues were $29.8 million and $28.7 million in the full year of 2006 and 2005, respectively. International BioGlue revenues were $10.2 million and $9.3 million in the full year of 2006 and 2005, respectively.

Tissue processing revenues in the fourth quarter of 2006 increased 27 percent to $10.2 million compared to $8.1 million in the fourth quarter of 2005. Tissue processing revenues for the full year of 2006 increased 32 percent to $40.1 million compared to $30.3 million in the full year of 2005. In addition to increases in tissue prices, the growth in tissue processing revenues was primarily due to an increase in unit shipments resulting from an increase in tissue procurement and an improvement in processing yields.

Total product and tissue processing gross margins were 47 percent in the fourth quarter of 2006 compared to 54 percent in the fourth quarter of 2005. Tissue processing gross margins in the fourth quarter of 2006 were 10 percent compared to 21 percent in the fourth quarter of 2005. Excluding a non-cash charge of $2.8 million related to the Company’s exit from orthopedic tissue processing, total product and tissue processing gross margins were 60 percent and tissue processing gross margins were 37 percent in the fourth quarter of 2006. See attached schedule for a reconciliation of these numbers.

Total product and tissue processing gross margins were 54 percent in the full year of 2006 compared to 53 percent in the full year of 2005. Tissue processing gross margins in the full year of 2006 were 25 percent compared to 20 percent in the first year of 2005. Excluding a non-cash charge of $2.8 million related to the Company’s exit from orthopedic activities, total product and tissue processing gross margins were 57 percent and tissue processing gross margins were 32 percent for the full year of 2006. See attached schedule for a reconciliation of these numbers. Tissue processing gross margins improved in 2006 compared to 2005, primarily as a result of price increases and improved tissue processing yields, as well as an increase in the number of tissues processed.

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General, administrative, and marketing expenses in the fourth quarter of 2006 were $11.4 million compared to $10.5 million in the fourth quarter of 2005. General, administrative, and marketing expenses in the fourth quarter of 2006 included a $751,000 charge for stock-based compensation and a $333,000 gain related to the adjustment of reserves for product liability and other legal losses. General, administrative, and marketing expenses in the fourth quarter of 2005 included a $683,000 gain related to the adjustment of reserves for product liability and other legal losses and a $118,000 charge for stock-based compensation.

General, administrative, and marketing expenses in the full year of 2006 were $41.5 million compared to $53.2 million in the full year of 2005. General, administrative, and marketing expenses for the full year of 2006 included a net $2.1 million gain from the settlement of insurance coverage disputes, a $1.6 million charge for stock based compensation, a $784,000 gain related to the adjustment of reserves for product liability losses, and a $448,000 charge related to post employment benefits. General, administrative, and marketing for the full year of 2005 included an $11.6 million charge for the settlement of the shareholder class action lawsuit, an $851,000 charge related to post-employment benefits, a $285,000 charge for stock-based compensation and a $961,000 benefit related to the adjustment of reserves for product liability and other legal losses.

R&D expenses were $975,000 and $980,000 in the fourth quarters of 2006 and 2005, respectively. R&D expenses were $3.5 million and $3.7 million in the full year of 2006 and 2005, respectively.

As of February 16, 2007, the Company had $9.3 million in cash, cash equivalents, marketable securities (at market), and restricted securities.

2007 Guidance

The Company expects annual product and tissue processing revenues for the full year of 2007 to be between $89.0 million and $92.0 million, exceeding the company’s previous record of $87.7 million recorded in 2002. The Company expects tissue processing revenues between $45.0 million and $47.0 million, and BioGlue revenues between $43.0 million and $44.0 million for the full year of 2007.

The Company expects continuing improvements in its gross margins for the full year of 2007. The Company believes that with more of its tissue processing revenues being generated from cardiac and vascular tissue shipments versus orthopedic tissue shipments, gross margins should improve.

The Company expects general, administrative and marketing expenses of between $45.0 million and $48.0 million, and research and development expenses of between $4.0 million and $5.0 million, for the full year of 2007.

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Webcast and Conference Call Information

The Company will hold a teleconference call and live webcast at 10:00 a.m. Eastern Time, February 20, 2007, to discuss fourth quarter and full year 2006 financial results, followed by a question and answer session hosted by Mr. Anderson.

To listen to the live teleconference, please dial 201-689-8261 a few minutes prior to 10:00 a.m. A replay of the teleconference will be available February 20 - 28, 2007 and can be accessed by calling (toll free) 877-660-6853 or 201-612-7415. The account number for the replay is 244 and the conference number is 230323.

The live webcast and replay, as well as a copy of this press release, can be accessed by going to the Investor Relations section of the CryoLife web site at www.cryolife.com and selecting the heading Webcasts & Presentations.

About CryoLife, Inc.

Founded in 1984, CryoLife, Inc. is a leader in the processing and distribution of implantable living human tissues for use in cardiac and vascular surgeries throughout the United States and Canada. The Company's BioGlue^® Surgical Adhesive is FDA approved as an adjunct to sutures and staples for use in adult patients in open surgical repair of large vessels. BioGlue is also CE marked in the European Community and approved in Canada and Australia for use in soft tissue repair. The Company also distributes the CryoLife-O'Brien^® stentless porcine heart valve and the SG Model 100 vascular graft, which are CE marked for distribution within the European Community.

Statements made in this press release that look forward in time or that express management's beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include those regarding anticipated revenues, expenses and gross margin improvements for 2007 and future growth and financial improvement. These future events may not occur as and when expected, if at all, and, together with the Company's business, are subject to various risks and uncertainties. These risks and uncertainties include that the Company’s recently announced strategic directives may not generate anticipated revenue and earnings growth, the RTI exchange and service agreement may not result in some or all of the positive benefits anticipated, that sources of cardiovascular and vascular tissue procurement for RTI may choose not to make that tissue available to the Company or may not be able to meet the Company's tissue processing standards, or the Company may otherwise be unable to replace the orthopedic revenues that it expects to decrease as a result of the RTI agreement with cardiovascular or vascular revenues, that expected cost savings and synergies from the RTI agreement may not occur when and as anticipated, the Company's efforts to continue to increase revenue may not be effective, since their effectiveness is subject to such factors as competitive pressures and tissue availability, that the Company's efforts to develop and introduce new products outside the U.S. may be unsuccessful, that the Company's efforts to improve procurement and tissue processing yields may not continue to prove effective, the possibility that the FDA could impose additional restrictions on the Company's operations, require a recall, or prevent the Company from processing and distributing tissues or manufacturing and distributing other products, that products and services under development, including BioDisc, may not be commercially feasible, the Company’s SynerGraft products may not receive FDA approval when anticipated or at all, that the Company may not have sufficient borrowing or other capital availability to fund its business, that pending litigation cannot be settled on terms acceptable to the Company, that the Company may not have sufficient resources to pay punitive damages (which are not covered by insurance) or other liabilities in excess of available insurance, the possibility of decreases in the Company's working capital if cash flow does not improve, that to the extent the Company does not have sufficient resources to pay the claims against it, it may be forced to cease operations or seek protection under applicable bankruptcy laws, changes in laws and regulations applicable to CryoLife, and other risk factors detailed in CryoLife's Securities and Exchange Commission filings, including CryoLife's Form 10-K filing for the year ended December 31, 2005, its most recent Form 10-Q, and the Company's other SEC filings. The Company does not undertake to update its forward-looking statements.

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CRYOLIFE, INC.

Financial Highlights

(In thousands, except share data)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
	(Unaudited)			(Unaudited)			(Unaudited)			(Audited)
Revenues:
Products	$	10,729		$	9,830		$	41,037		$	38,932
Human tissue preservation services		10,239			8,088			40,078			30,307
Research grants		122			43			196			43
Total revenues		21,090			17,961			81,311			69,282
Costs and expenses:
Products		1,882			1,930			7,463			8,065
Human tissue preservation services		9,207			6,373			29,958			24,357
General, administrative, and marketing		11,439			10,499			41,545			53,225
Gain on exit activities		(2,620	)		--			(2,620	)		--
Research and development		975			980			3,547			3,724
Interest expense		153			126			657			346
Interest income		(105	)		(123	)		(409	)		(531	)
Change in valuation of derivative		10			(512	)		121			(140	)
Other expense, net		51			(13	)		399			199
Total costs and expenses		20,992			19,260			80,661			89,245
Earnings (loss) before income taxes		98			(1,299	)		650			(19,963	)
Income tax expense (benefit)		148			(618	)		285			(428	)
Net (loss) income	$	(50	)	$	(681	)	$	365		$	(19,535	)
Effect of preferred stock		(243	)		(244	)		(973	)		(777	)
Net loss applicable to common shares	$	(293	)	$	(925	)	$	(608	)	$	(20,312	)
Loss per common share:
Basic	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.85	)
Diluted	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.85	)
Weighted average common shares outstanding:
Basic		24,904			24,314			24,829			23,959
Diluted		24,904			26,755			24,829			23,959
Revenues from:
BioGlue	$	10,491		$	9,645		$	40,025		$	37,985
Bioprosthetic devices		238			185			1,012			947
Total products		10,729			9,830			41,037			38,932
Cardiovascular		4,438			3,355			15,988			13,762
Vascular		3,890			3,172			16,956			11,453
Orthopaedic		1,911			1,561			7,134			5,092
Total preservation services		10,239			8,088			40,078			30,307
Other		122			43			196			43
Total revenues	$	21,090		$	17,961		$	81,311		$	69,282
Domestic revenues	$	17,970		$	15,275		$	69,467		$	58,869
International revenues		3,120			2,686			11,844			10,413
Total revenues	$	21,090		$	17,961		$	81,311		$	69,282

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CRYOLIFE, INC.

Financial Highlights

(In thousands)

	December 31,		December 31,
	2006		2005
	(Unaudited)		(Audited)
Cash and cash equivalents, marketable securities,	$	8,669	$	12,159
at market, and restricted securities
Trade receivables, net		12,553		10,153
Other receivables		1,403		1,934
Deferred preservation costs, net		19,278		13,959
Inventories		5,153		4,609
Total assets		79,865		76,809
Shareholders’ equity		52,088		50,621

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CRYOLIFE, INC.

Unaudited Reconciliation of Adjusted Gross Margin

(In thousands, except percent data)

	Three Months Ended					Twelve Months Ended
	December 31, 2006					December 31, 2006
	Amount			Percentage		Amount			Percentage
	in Dollars			of Revenue		in Dollars			of Revenue
Total product and human tissue preservation services:
Revenue	$	20,968				$	81,115
Cost		(11,089	)				(37,421	)
Gross margin	$	9,879			47%	$	43,694			54%
Adjustments to gross margin:
Loss on exit activities		2,779			13%		2,779			3%
Adjusted gross margin	$	12,658			60%	$	46,473			57%
Human tissue preservation services:
Revenue	$	10,239				$	40,078
Cost		(9,207	)				(29,958	)
Gross margin	$	1,032			10%	$	10,120			25%
Adjustments to gross margin:
Loss on exit activities		2,779			27%		2,779			7%
Adjusted gross margin	$	3,811			37%	$	12,899			32%

For additional information about the company, visit CryoLife’s Web site:

http://www.cryolife.com

END