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, 1998
                                       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 1-13165

                                 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
       Title of each class                    on which registered
       -------------------                  ----------------------
  Common Stock, $.01 par value              New York Stock Exchange
Preferred Share Purchase Rights             New York Stock Exchange

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

     None

     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 $119,519,000 at March 25, 1999 (10,743,292 shares).
The   number   of   common   shares   outstanding   at   March   25,   1999  was
12,415,991(exclusive of treasury shares).

                       Documents Incorporated By Reference

     Part III: Portions of Registrant's  Proxy Statement  relating to the Annual
Meeting of Shareholders to be filed not later than April 30, 1999.


<PAGE>
          

                                     PART I


Item 1. Business.

Overview

CryoLife  is the leader in the  cryopreservation  of viable  human  tissues  for
cardiovascular,  vascular and orthopaedic transplant applications,  and develops
and  commercializes  additional  implantable  products  and  single-use  medical
devices.  The  Company  estimates  that  it  provided  approximately  70% of the
cryopreserved  human tissue  implanted in the U.S. in 1998. The Company uses its
expertise in biochemistry and cell biology,  and its  understanding of the needs
of the cardiovascular,  vascular and orthopaedic surgery medical specialties, to
continue  expansion  of its core  cryopreservation  business  and to  develop or
acquire  complementary  implantable  products and technologies for these fields.
The Company develops  bioprosthetic  cardiovascular  devices including two novel
design  stentless  porcine  heart  valves  currently  marketed  in the  European
Community.   The  Company  also  develops   proprietary   implantable   surgical
bioadhesives,   including   BioGlue(R) surgical   adhesive,   which   it   began
commercializing for vascular applications within the European Community in April
1998.  In addition,  the Company  serves as an Original  Equipment  Manufacturer
("OEM") manufacturer,  through its Ideas For Medicine,  Inc. ("IFM") subsidiary,
of single-use medical devices for use in vascular surgical procedures.

CryoLife processes and distributes for transplantation cryopreserved human heart
valves and conduits,  human vascular tissue and human connective  tissue for the
knee.  Management  believes that  cryopreserved  human heart valves and conduits
offer  certain   advantages  over  mechanical,   synthetic  and   animal-derived
alternatives.  Depending  on the  alternative,  these  advantages  include  more
natural  functionality,  elimination of a chronic need for anti-coagulation drug
therapy,  reduced  incidence of  reoperation  and reduced  risk of  catastrophic
failure,  thromboembolism (stroke) or calcification.  The Company estimates that
the  potential  U.S.  market  for  implantable  products  targeting  indications
addressed by the Company's  cryopreserved tissues was approximately $950 million
in 1997.  The Company seeks to expand the  availability  of human tissue through
its established  relationships  with over 250 tissue banks and organ procurement
agencies nationwide.

CryoLife  has   developed  and  markets   outside  of  the  U.S.   bioprosthetic
cardiovascular devices for implantation, currently consisting of fixed stentless
porcine heart valves. Fixed porcine heart valves are often preferred by surgeons
for procedures  involving  elderly  patients  because they eliminate the risk of
patient  non-compliance with long-term  anti-coagulation drug therapy associated
with mechanical valves, are less expensive than human heart valves or mechanical
valves and their  shorter  longevity  is more  appropriately  matched with these
patients'  life  expectancies.  Fixed porcine  heart valves  address a worldwide
target  market  estimated to have been $175  million in 1997.  Unlike most other
available porcine heart valves, the Company's  stentless porcine heart valves do
not contain  synthetic  materials  which  increase the risk of  endocarditis,  a
debilitating   and  potentially   fatal  bacterial   infection.   The  Company's
CryoLife-O'Brien(R)  aortic  heart  valve,  currently  marketed in the  European
Community and certain other territories outside the U.S., is a stentless porcine
heart valve which contains a matched  composite leaflet design that approximates
human heart valve blood flow  characteristics  and requires only a single suture
line  which  simplifies  surgical  implantation.   The  Company's  CryoLife-Ross
pulmonary heart valve,  another of the Company's fixed stentless porcine valves,
is also marketed in the European Community and certain  territories  outside the
U.S. The Company plans to apply its proprietary SynerGraft(R) technology to some
of its stentless porcine heart valves.  SynerGraft  involves the depopulation of
living  cells from the  structure  of  non-viable  animal  heart  tissue and the
repopulation of such tissue with human cells. This process is designed to reduce
calcification of porcine heart valves,  thereby increasing  longevity,  and more
generally to improve the  biocompatibility and functionality of such tissue. The
Company  believes that its porcine heart  valves,  when treated with  SynerGraft
technology, will expand its opportunity to address the broader international and
U.S. heart valve markets,  estimated to have been $348 million and $395 million,
respectively, in 1997.

CryoLife is developing  implantable  biomaterials for use as surgical  adhesives
and sealants. The Company's patent protected BioGlue surgical adhesive, designed
for cardiovascular,peripheral  vascular and pulmonary applications, is a polymer
based  on a  derivative  of a blood  protein  and a  cross  linking  agent.  The

                                       2

<PAGE>

Company's  patent  protected  FibRx(R)  surgical  sealant,  designed  for tissue
hemostasis and suture line sealing, is a light activated, biodegradable surgical
sealant  under  development  which is based on a  derivative  of the human blood
factors  fibrinogen and thrombin.  Both of these  products may offer  advantages
over  sutures  and  staples,   including  more  effective   sealing  and  easier
application. The Company estimates that the annual worldwide market for surgical
sutures and staples in 1998 was in excess of $2 billion. The Company received CE
Mark  Certification in 1998 for use of its BioGlue surgical adhesive in vascular
applications  and began  marketing  this  product in April 1998 in the  European
Community.  In 1998, the Company  engaged a firm to provide  financial  advisory
services in connection with a potential  private  placement of up to $30 million
in equity  or  equity-oriented  securities  to form a  minority-owned  subsidary
company,   AuraZyme   Pharmaceuticals,   LLC  (AuraZyme),   for  the  commercial
development of its  photo-activated  reversible  inhibitor  technology  (FibRx),
including the FibRx adhesive.  Such strategy is designed to allow the Company to
continue  development of this technology without incurring  additional  research
and development expenditures, other than through Aurazyme, and allow the Company
to focus its resources on the commercial  development  of its surgical  adhesive
and other products under development.

Prior to October 1, 1998 CryoLife manufactured and distributed,  through its IFM
subsidiary,   single-use  medical  devices,  including  endarterectomy  surgical
instruments,  intravascular  shunts,  infusion  ports,  accessories  utilized in
laparoscopic  procedures  and a wide  range of  single  and dual  lumen  balloon
catheters.  On September 30, 1998, the Company sold substantially all of its IFM
product line to Horizon Medical Products,  Inc. ("Horizon") pursuant to an asset
purchase agreement. As part of this agreement, the Company committed to continue
manufacturing  the IFM product line as an OEM  manufacturer of such products for
Horizon for four years.  The Company is benefiting from, and intends to utilize,
its design and manufacturing expertise to develop single-use medical devices for
use in conjunction with its cryopreserved human tissue and biomaterial products.
An  example  of such a device  under  development  includes  a family of balloon
catheters designed to assist in applying BioGlue surgical adhesive.

In the U.S., the Company markets its  cryopreservation  services for human heart
valves and  conduits  and human  vascular  tissue  through its direct  technical
service   representatives   and   relies  on   independent   orthopaedic   sales
representatives  to market its  cryopreservation  services for human  connective
tissue for the knee. Internationally, cryopreserved human tissues, bioprosthetic
cardiovascular  devices and BioGlue  surgical  adhesive are distributed  through
independent  representatives  located in  several  countries  in  Europe,  South
America  and Asia.  The  Company  plans to market  and  distribute  its  BioGlue
surgical  adhesive,  if  approved  for  sale in the  U.S.,  through  its  direct
technical service representatives.


Growth Strategy

The Company's primary objective is to continue its consistent growth in revenues
and profitability.  The Company's strategy to generate continued growth is based
on increasing the use of  cryopreserved  tissues as an alternative to mechanical
and synthetic implantable products, developing new markets for existing products
and  technologies  and  developing  new  products and  technologies  for new and
existing markets. The Company also selectively considers strategic  acquisitions
of complementary  technologies and businesses to supplement its internal growth.
The key elements of the Company's business and growth strategy are to:

- -        Continue  Leadership  in  Cryopreservation  of Human Heart  Valves and
         Conduits. The Company intends to increase the market penetration of its
         cryopreserved   human  heart  valves  and  conduits  by  (i)  expanding
         awareness of clinical advantages of cryopreserved human tissues through
         continuing  educational  efforts  directed to  physicians,  prospective
         heart valve and conduit  recipients  and tissue  procurement  agencies,
         (ii)  expanding its  relationships  with the more than 250 tissue banks
         and  procurement  agencies  across the U.S.  which direct tissue to the
         Company for cryopreservation and (iii) expanding its physician training
         activities.

                                       3

<PAGE>



 -        Expand  Distribution  of  Cryopreserved  Human  Vascular  Tissue  and
          Connective  Tissue  for the  Knee.  Using  the  same  strategy  it has
          successfully  employed  to expand its  distribution  of  cryopreserved
          human heart valves and conduits,  the Company  intends to increase its
          cryopreservation  revenues from human  vascular  tissue and connective
          tissue for the knee through continuing educational efforts directed to
          vascular and  orthopaedic  surgeons  about the clinical  advantages of
          cryopreserved   vascular  and   orthopaedic   tissue,   expanding  its
          relationships with tissue banks and procurement agencies and expanding
          its   programs  for   training   physicians   in  the  use  of  tissue
          cryopreserved by the Company.

- -         Broaden  Application of Cryopreservation  Services. The Company
          will  continue to collect,  monitor and  evaluate  implant data to (i)
          develop expanded uses for the human tissues currently cryopreserved by
          the Company and (ii)  identify  new human  tissues as  candidates  for
          cryopreservation.  In 1997, the Company began providing  cryopreserved
          human vascular tissue to be used as dialysis access replacement grafts
          for patients undergoing long-term dialysis, and separately,  as venous
          valve  replacements for patients suffering from diseases of the venous
          system.  The  Company  has  recently  begun  providing   cryopreserved
          posterior  tibialis  and  anterior  tibialis  tendons  for use in knee
          repairs,  and preserved human osteochondral grafts to repair articular
          defects.  The Company is also  investigating  the use of cryopreserved
          human endothelial cells, peripheral nerves and spinal disks in various
          surgical applications.

- -         Develop and Commercialize  Bioprosthetic  Cardiovascular  Devices. The
          Company  intends to leverage its expertise with stentless  human heart
          valves to expand  commercialization  of its  stentless  porcine  heart
          valves and to use its stentless porcine heart valves as a platform for
          the  development  and  commercialization  of the Company's  SynerGraft
          technology.  The Company has expanded its production  capacity for its
          bioprosthetic  cardiovascular  devices to address the increased demand
          it  is  currently  experiencing.   Separately,  the  Company's  patent
          protected  SynerGraft  technology  is being  developed  to expand  the
          target  market for the  stentless  porcine  heart valves by minimizing
          calcification  often  associated  with  porcine  tissues  and  thereby
          increasing their longevity.

- -         Develop and  Commercialize  Biomaterials  for  Surgical  Adhesive and
          Sealant Applications. In the second quarter of 1998, the Company began
          commercializing  its patent protected BioGlue surgical adhesive in the
          European  Community through its existing  independent  representatives
          and in April 1998 received  approval under an  Investigational  Device
          Exemption  (IDE) to  conduct  clinical  trials  for  BioGlue  surgical
          adhesive  in  the  U.S.  The  Company  has  formed  a   minority-owned
          subsidiary  to raise  equity  or  equity-related  capital  in order to
          continue  development of its patent protected FibRx surgical  sealant.
          In  addition  to  the  adhesive  and  sealant  applications  of  these
          biomaterials,  the  Company  intends to  pursue,  either  directly  or
          through  strategic  alliances,  certain drug delivery  applications of
          BioGlue  surgical  adhesive  and  FibRx  surgical  sealant,   such  as
          administering  antibiotics,  attaching  chemotherapy  drugs to tumors,
          delivering growth agents or delivering bone chips for orthopaedic bone
          repair.

- -         Leverage Existing Capability across Product Lines The Company intends
          to apply its  expertise  with  stentless  human heart valves to expand
          commercialization of its stentless porcine heart valves and to use its
          stentless  porcine heart valves as a platform for the  development and
          commercialization   of  the  Company's  SynerGraft   technology.   New
          complementary  products under development  include modified single and
          double lumen balloon  catheters  for use in  delivering  the Company's
          implantable bioadhesives.

                                       4

<PAGE>



Services and Products

Cryopreservation of Human Tissue for Transplant/Living Biologic Devices

The Company's proprietary and patent protected 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.

The transplant of human tissue that has not been preserved must be  accomplished
within extremely short time limits (not to exceed eight hours for transplants of
the human heart).  Prior to the advent of human tissue  cryopreservation,  these
time constraints resulted in the inability to use much of the tissue donated for
transplantation.   The  application  by  the  Company  of  its  cryopreservation
technologies  to donated tissue expands the amount of human tissue  available to
physicians  for  transplantation.  Cryopreservation  also expands the  treatment
options  available to physicians and their patients by offering  alternatives to
implantable  mechanical,  synthetic  and  animal-derived  devices.  The  tissues
presently  cryopreserved by the Company include human heart valves and conduits,
vascular tissue and connective tissue for the knee.

CryoLife  maintains  and  collects  extensive  clinical  data  on  the  use  and
effectiveness of implanted human tissues that it has  cryopreserved,  and shares
this data with  implanting  physicians.  The Company also uses this data to help
direct its continuing efforts to improve its  cryopreservation  services through
ongoing   research   and   development.   Its  research   staff  and   technical
representatives assist physicians by providing educational  materials,  seminars
and clinics on methods for handling and implanting the tissue  cryopreserved  by
the Company and the clinical advantages,  indications and applications for those
tissues.  The Company has ongoing efforts to train and educate physicians on the
indications for and uses of its cryopreserved  tissues,  as well as its programs
whereby surgeons train other surgeons in necessary techniques.  The Company also
assists organ procurement agencies through training and development of protocols
and provides  necessary  materials to improve their internal  tissue  processing
techniques and to increase efficiency and the yield of usable tissue.

Human Heart Valves and  Conduits.  The Company's  revenues  have been  primarily
derived from the  cryopreservation of human heart valves and conduits for use in
reconstructive heart valve replacement surgery.  CryoLife shipped  approximately
35,000  cryopreserved  human heart valves and conduits  from 1984 through  1998.
Based on CryoLife's records of documented implants, management believes that the
Company's  success  in the  allograft  heart  valve  market  is due in  part  to
physicians'  recognition  of the  longevity  and  natural  functionality  of the
Company's  cryopreserved  human  tissues as compared to  mechanical  and porcine
heart valve alternatives in certain applications.  The Company currently applies
its  cryopreservation  services to human aortic,  pulmonary  and, more recently,
mitral heart  valves for  implantation  by cardiac  surgeons.  In addition,  the
Company  provides  cryopreserved  conduit  tissue,  which is the only  source of
tissue  available to surgeons who wish to perform  certain  specialized  cardiac
repair  procedures.  Each of these human heart valves and  conduits  maintains a
viable  tissue  structure  which more closely  resembles  and performs  like the
patient's own tissue than non-human tissue alternatives.


The Company estimates that the total heart valve and conduit  replacement market
in the U.S. in 1997 was  approximately  $395 million.  Management  believes that
approximately  95,000 heart valve and conduit surgeries were conducted in the U.
S.  in  1997.  Of the  total  number  of  heart  valve  and  conduit  surgeries,
approximately   64,000,   or  67%,   involved   mechanical  heart  valves,   and
approximately  31,500,  or  33%,  involved  tissue  heart  valves  or  conduits,
including porcine and cryopreserved  human tissues.  Of these tissue heart valve
or conduit  replacements,  management believes that approximately 6,500, or 21%,
involved  cryopreserved  human heart valve or conduit  replacements.  Over 5,500
human heart  valves and conduits  cryopreserved  by the Company were shipped for
implantation in 1998.


                                       5


<PAGE>

Management   believes   cryopreserved  human  heart  valves  and  conduits  have
characteristics  that make them the  preferred  replacement  for most  patients.
Specifically,  human heart valves,  such as those  cryopreserved by the Company,
allow for more normal blood flow and provide  higher cardiac output than porcine
and  mechanical  heart  valves.  Human heart  valves are not as  susceptible  to
progressive calcification, or hardening, as are porcine heart valves, and do not
require  anti-coagulation  drug therapy,  as do mechanical valves. The synthetic
sewing rings contained in mechanical and stented porcine valves are difficult to
treat with  antibiotics  after they have  become  infected,  a  condition  which
usually  necessitates the surgical removal of these valves at considerable cost,
morbidity and risk of mortality.  Consequently,  for many physicians human heart
valves are the preferred  alternative to mechanical  and stented  porcine valves
for patients who have, or are at risk to contract, endocarditis.

The following table sets forth the  characteristics  of alternative  heart valve
implants  that  management  believes make  cryopreserved  human heart valves the
preferred replacement for most patients:

<TABLE>
<CAPTION>

                                                    Porcine
                                         -------------------------------
                           Cryopreserved                                                           Bovine
                              Human                                           Mechanical         Pericardium
                           -------------                                      ----------         ------------
                                             Stented         Stentless(1)
                                             -------         ------------
<S>                     <C>               <C>               <C>               <C>                <C>    
Materials:              human tissue      Glutaraldehyde-                     pyrolitic carbon   Glutaraldehyde-
                                          Fixed pig tissue                    bi-leaflet and     fixed cow tissue
                                          Synthetic         glutaraldehyde-   synthetic          and synthetic 
                                          sewing ring       fixed pig tissue  sewing ring        sewing ring
                                          ----------------  ----------------  -----------------  ----------------
Blood Flow Dynamics:         normal        moderate          nearly normal     high elevation     high
                                           elevation                                              elevation
(Required Pressure) (2)      (0-5)         (10-20)           (5-15)            (10-25)            (10-30)
Mode of Failure:             gradual       gradual           expected to be    catastrophic       gradual
                                                             gradual

Longevity:                   20 years      7-10 years        expected to       20 years           10-15 years
                                                             exceed
                                                             stented porcine
                                                             valves

Increased Risk of
  Thromboembolic Events
  (strokes or other                                          expected to be                      
  clotting):                 no            occasional        rare             yes                occasional

Anti-Coagulation Drug
Therapy Required:            none          short-term        short-term        chronic            short-term

Responsiveness to
Antibiotic                  
  Treatment of
  Endocarditis:              high          low               low               low                low

Average Valve Cost in U.S.:  $7,000        $4,228            $5,500            $4,100(3)          $4,500

</TABLE>


(1)  Limited long-term  clinical data is available since stentless porcine heart
     valves only recently became commercially  available.

(2)  Pressure  measured in mm/Hg.  

(3)  Mechanical valves also require chronic  anti-coagulation  drug therapy at a
     cost of approximately $450 per year.


                                       6

<PAGE>
While the clinical benefits of cryopreserved  human heart valves discussed above
are relevant to all patients,  they are particularly important for (i) pediatric
patients (newborn to 14 years) who are prone to calcification of porcine tissue,
(ii) young or otherwise  active  patients  who face an increased  risk of severe
blood   loss  or  even   death  due  to  side   effects   associated   with  the
anti-coagulation drug therapy required with mechanical valves and (iii) women in
their childbearing years for whom  anti-coagulation drug therapy would interfere
with normal pregnancy.

Human  Vascular  Tissues.   The  Company   cryopreserves   human  saphenous  and
superficial  femoral  veins for use in vascular  surgeries  that  require  small
diameter  conduits (3mm to 6mm),  such as coronary bypass surgery and peripheral
vascular  reconstructions.  Failure to bypass or revascularize an obstruction in
such cases may result in death or the loss of a limb.  The  Company  believes it
offers the only available  small  diameter  conduit  product for  below-the-knee
vascular  reconstruction and shipped approximately 12,900 human vascular tissues
from 1986 through 1998.

A surgeon's  first choice for replacing  diseased or damaged  vascular tissue is
generally  the  patient's  own tissue.  However,  in cases of advanced  vascular
disease, the patient's own tissue is often unusable and the surgeon may consider
using synthetic grafts or transplanted  human vascular  tissue.  Synthetic small
diameter vascular grafts are not available for below-the-knee  surgeries and, in
other  procedures,  have a tendency  to shut down due to  occlusion  because the
synthetic  materials in these products attract cellular  material from the blood
stream which in turn closes off the vessel to normal  blood flow.  Cryopreserved
vascular  tissues  tend not to occlude as quickly  because of the presence of an
endothelial  cell lining in the donor vein which  remains  intact  following the
cryopreservation process. The Company's cryopreserved human vascular tissues are
used for coronary artery bypass surgeries,  peripheral vascular  reconstruction,
dialysis access graft replacement and venous valve transplantation.

In 1986, the Company began a program to cryopreserve  saphenous veins for use in
coronary artery bypass  surgeries.  Although the Company's  cryopreserved  human
tissue was used in only a small percentage of the nearly 310,000 coronary artery
bypass  procedures  performed  in  1997,  the  Company  believes  it is the only
commercially  available  alternative  to the patient's  own tissue.  The Company
estimates that, in 1998,  approximately  20,000 coronary artery bypass surgeries
using the patient's own vascular  tissue were  performed in which human vascular
tissues cryopreserved by the Company could have been used.

In 1989,  the Company  began a program to  cryopreserve  long segment  saphenous
veins for use in  peripheral  vascular  reconstruction.  In cases of  peripheral
arteriosclerosis,  a  cryopreserved  saphenous vein can be implanted as a bypass
graft for the  diseased  artery in order to improve  blood  flow and  maintain a
functional  limb.  Analysis  of  clinical  data has shown  that 80% of  patients
receiving  CryoLife's  preserved  vascular  tissues  in this  type  of  surgical
procedure still have the use of the affected leg three years after surgery.  The
alternative  for many of these patients was  amputation.  The Company  estimates
that, in 1998, approximately 20,000 peripheral vascular reconstruction surgeries
were performed in which its cryopreserved human vascular tissues could have been
used.

In  1996,  the  Company  began a  program  for  the  cryopreservation  of  human
superficial  femoral veins for use in dialysis  access graft  replacement  as an
alternative  for  synthetic  grafts which have a higher risk of  infection  than
human tissue. The Company estimates that, in 1998, approximately 30,000 dialysis
access  graft  replacements  were  performed  in which its  cryopreserved  human
vascular tissues could have been used.

In  1997,  the  Company  began a  program  for  the  cryopreservation  of  human
superficial femoral veins for venous valve transplant.  The  cryopreservation of
these human  tissues is designed for  patients  suffering  from  chronic  venous
insufficiency,  a condition in which the blood flow  returning to the heart from
the legs is  compromised  due to absent,  improperly  functioning  or  destroyed
venous valves.  Prior to the  introduction  of CryoLife's  cryopreserved  venous
valves, treatment for patients suffering from this ailment generally was limited
to drug therapy or compression  stockings.  The Company estimates that, in 1998,
approximately  25,000  patients  with chronic  venous  insufficiency  could have
benefitted from venous valve transplant procedures using its cryopreserved human
vascular tissues.

Human  Connective  Tissue  for the  Knee.  The  Company  provides  cryopreserved
surgical  replacements for the meniscus and the anterior and posterior  cruciate
ligaments,  which are connective tissues critical to the proper operation of the
human knee.  CryoLife has shipped  approximately  7,600 human connective tissues
for the knee through 1998.

                                       7

<PAGE>

Human menisci  cryopreserved by the Company provide orthopaedic surgeons with an
alternative  treatment in cases where a patient's  meniscus has been  completely
removed.   When  a  patient  has  a  damaged  meniscus,   the  current  surgical
alternatives are to repair,  partially remove or completely remove the patient's
meniscus, with partial removal being the most common procedure. Meniscal removal
increases the risk of premature  knee  degeneration  and arthritis and typically
results  in the need for knee  replacement  surgery  at some  point  during  the
patient's  life.  Management  believes  that the Company is the only provider of
cryopreserved  meniscal  tissue and that there are no  synthetic  menisci on the
market.  The Company  estimates that in 1997 in the U.S.  approximately  683,000
patients underwent partial or total  meniscectomies.  The Company believes up to
30% of these patients could become  candidates for meniscal  replacement  within
five years.

Tendons cryopreserved by the Company are used for the reconstruction of anterior
cruciate  ligaments  in cases  where the  patient's  ligaments  are  irreparably
damaged. Surgeons have traditionally removed a portion of the patient's patellar
tendon from the patient's undamaged knee for use in repairing a damaged anterior
cruciate ligament.  Tendons  cryopreserved by the Company provide an alternative
to this procedure.  Because surgeries using cryopreserved  tissue do not involve
the removal of any of the patient's own patellar  tendon,  the patient  recovery
period is typically  shorter.  The Company estimates that in 1998  approximately
165,000 cruciate ligament reconstruction surgeries were performed.

Based on its  experience  with  human  heart  valves  and  conduits,  management
believes  that  as the  body  of  clinical  data  builds  regarding  the  use of
cryopreserved  human  connective  tissues for the knee,  the use of such tissues
will increase, although there can be no assurance that this will be the case.

Other Allograft  Tissues Under  Development.  The Company has other projects for
the use of cryopreserved  human endothelial cells,  peripheral nerves and spinal
discs, in various surgical applications.

Bioprosthetic Cardiovascular Devices

The Company is  developing  bioprosthetic  cardiovascular  devices  based on its
experience with  cryopreserved  human tissue implants.  Like human heart valves,
the  Company's  porcine heart valves are stentless  with the valve  opening,  or
annulus,  retaining a more natural  flexibility.  Stented porcine and mechanical
heart valves are typically  fitted with  synthetic  sewing rings which are rigid
and can impede  normal blood flow.  Unlike most other  available  porcine  heart
valves,  the Company's  stentless  porcine heart valves do not contain synthetic
materials  which  increase  the  risk  of   endocarditis,   a  debilitating  and
potentially deadly bacterial infection.

Fixed  porcine  heart  valves are often  preferred  by surgeons  for  procedures
involving   elderly   patients  because  they  eliminate  the  risk  of  patient
non-compliance  with  anti-coagulation  drug therapy  associated with mechanical
valves,  are less expensive than allograft valves and their shorter longevity is
more appropriately matched with these patients' life expectancies. Fixed porcine
heart  valves  address a worldwide  target  market  estimated  to have been $175
million in 1997.

The Company's  SynerGraft  technology  involves the removal of living cells from
the structure of non-viable  animal tissue and the  repopulation  of such tissue
with human cells.  This process is designed to reduce  calcification  of porcine
heart valves, thereby increasing their longevity,  and more generally to improve
the biocompatibility and functionality of such tissue. The Company believes that
its porcine heart valves, when treated with SynerGraft  technology,  will expand
its  opportunity  to address  the  broader  international  and U.S.  heart valve
markets, estimated to have been $348 million and $395 million,  respectively, in
1997.

                                       8

<PAGE>


The  following  table  sets  forth  the  bioprosthetic   cardiovascular  devices
currently  marketed by the Company,  along with the product  features and market
status for each.

<TABLE>

Fixed Steneless Porcine Valves                Features                 Regulatory/Market Status
                                              --------                 ------------------------
<S>                                   <C>                              <C>  
CryoLife-O'Brien                      aortic  valve of  matched        currently marketed in Europe  with
                                      composite leaflet design;        regulatory approval under CE Mark
                                      single suture line

CryoLife-Ross                         pulmonary valve with             currently marketed in Europe with
                                      attached conduit                 regulatory approval under CE Mark

</TABLE>


The  CryoLife-O'Brien  aortic  valve is a  stentless  porcine  valve with design
features which  management  believes provide  significant  advantages over other
stentless porcine heart valves.  CryoLife began exclusive worldwide distribution
of this valve in 1992 and acquired all rights to the  underlying  technology  in
1995. The Company's  CryoLife-O'Brien  aortic heart valve, currently marketed in
the European Community and certain other territories  outside the U.S., contains
a matched  composite  leaflet design that  approximates  human heart valve blood
flow  characteristics and requires only a single suture line thereby simplifying
surgical implantation. Other stentless porcine valves require a more complicated
implant procedure.

The CryoLife-Ross(TM)pulmonary  valve, the patent for which the Company acquired
in October 1996, is an advanced design  stentless  porcine heart valve within an
attached conduit of porcine tissue,  which mimics the structure of a human heart
valve.  The Company  began  manufacturing  and  distributing  the  Cryolife-Ross
pulmonary heart valve,  another of the Company's fixed stentless porcine valves,
in the European Community in September 1998.

The Company plans to apply its  proprietary  SynerGraft  technology to stentless
porcine  heart  valves.  The  first of the  SynerGraft  technology  applications
involves  developing  depopulated  stentless  porcine  heart valves with antigen
reduction properties.  This technology removes viable cells from animal tissues,
thereby  reducing the transplant  recipient's  immune  response to the remaining
depopulated  tissues.  The auto-immune response typically deposits calcium which
attaches to and hardens implanted porcine heart valve tissue, a process known as
calcification,  which reduces the useful life of the implant. By removing viable
animal  cells  from the  tissue  while  maintaining  the  underlying  structural
strength of the porcine heart valve, this SynerGraft  application is designed to
provide a platform for a patient's own cells to naturally populate the implant.

The  second  of  the  SynerGraft  technology  applications  involves  developing
stentless  porcine  heart  valves  repopulated  with viable human cells prior to
implantation. This technology uses porcine tissues that have been depopulated of
viable animal cells.


Implantable Biomaterials for Use as Surgical Adhesives and Sealants

The  effective  closure of internal  wounds  following  surgical  procedures  is
critical  to the  restoration  of the  function  of tissue  and to the  ultimate
success of the surgical  procedure.  Failure to effectively seal surgical wounds
can  result in  leakage  of air in lung  surgeries,  cerebral  spinal  fluids in
neurosurgeries,  blood in cardiovascular surgeries and gastrointestinal contents
in abdominal  surgeries.  Air and fluid leaks resulting from surgical procedures
can  lead  to  significant   post-surgical   morbidity  resulting  in  prolonged
hospitalization,  higher levels of  post-operative  pain and a higher  mortality
rate.

                                       9

<PAGE>



Sutures and staples  facilitate  healing by joining wound edges and allowing the
body to heal  naturally.  However,  because  sutures  and  staples  do not  have
inherent sealing capabilities,  they cannot consistently eliminate air and fluid
leakage  at the wound  site.  This is  particularly  the case when  sutures  and
staples are used to close tissues containing air or fluids under pressure,  such
as the lobes of the lung,  the dural membrane  surrounding  the brain and spinal
cord, blood vessels and the  gastrointestinal  tract. In addition,  in minimally
invasive  surgical  procedures,  where the physician must operate  through small
access  devices,  it can be difficult  and time  consuming  for the physician to
apply  sutures  and  staples.  The  Company  believes  that the use of  surgical
adhesives  and sealants  with or without  sutures and staples  could enhance the
efficacy of these procedures through more effective and rapid wound closure.

In order to address the inherent limitations of sutures and staples, the Company
has developed and begun  commercializing  its BioGlue  surgical  adhesive and is
developing  its FibRx  surgical  sealant.  The  BioGlue  surgical  adhesive is a
polymeric  surgical  bioadhesive  based on a derivative of a blood protein and a
cross-linking  agent.  BioGlue surgical adhesive is  nonbiodegradable  and has a
tensile  strength  that is four to five  times that of FibRx  surgical  sealant.
Target   clinical   applications   for   BioGlue   surgical   adhesive   include
cardiovascular,  peripheral vascular,  and pulmonary repair. A derivative of the
BioGlue   technology  is   BioLastic(TM),   an  implantable   biomaterial  under
development which is capable of exchanging oxygen and carbon dioxide.  BioLastic
is being developed for use in reinforcing or patching vascular tissue, repairing
air leaks in lungs, and replacing or sealing holes in dura mater. FibRx surgical
sealant is a light activated surgical sealant based on a derivative of the human
blood factors  fibrinogen and thrombin.  The Company  believes that FibRx is the
only  surgical  sealant  under  development  offering ease of use to the surgeon
through either  single-syringe  or spray  applicators.  The Company is currently
seeking  funding  for  FibRx  and other  photo-activated  reversible  inhibitors
through AuraZyme.

The following table summarizes certain important features, targeted applications
and regulatory and market status of BioGlue surgical adhesive and FibRx surgical
sealant:

<TABLE>
<CAPTION>

                                                                          FibRx Surgical
                                BioGlue Surgical Adhesive                    Sealant
                                -------------------------                 --------------
      <S>                    <C>                                  <C>    
      Composition:           animal albumin and glutaraldehyde    thrombin, fibrinogen and a thrombin
                                                                  inhibitor

      Method of Application: double syringe; mixing device        light activated single syringe; or
                             provided                             light activated spray applicator

      Targeted Clinical      vascular repair; anastomotic         hemostasis in cardiovascular
        Applications:        sealing; aortic                      proceduresmodified tPA, drug delivery
                             dissection repair; carotid
                             endarterectomy
                             patching; tissue bonding; pulmonary
                             repair

      Performance            high tensile strength;               strength of normal human blood clot;
        Characteristics:     non-biodegradable                    biodegradable; flexible, easily
                                                                  manipulated

      Regulatory/Market      Approved for cardiovascular,         regulatory pathway to be determined
        Status               vascular and pulmonary repair        pending AuraZymefunding
           Europe:           applications                            
                                                                  
                         
           United States:    clinical trials began in second      regulatory pathway to be determined
                             quarter of 1998                      pending AuraZyme funding

</TABLE>


The Company estimates that the worldwide market for surgical sutures and staples
in 1998 was in excess of $2 billion. The Company began shipping BioGlue surgical
adhesive for  distribution  in the European  Community in the second  quarter of
1998 for use in vascular applications. The regulatory pathway for FibRx surgical
sealant will be determined upon the funding of Aurazyme.

                                       10


<PAGE>



Single-Use Medical Devices

The  Company  serves as an OEM  manufacturer,  through  its IFM  subsidiary,  of
single-use  medical  devices  including   endarterectomy  surgical  instruments,
intravascular  shunts,  infusion  ports,  accessories  utilized in  laparoscopic
procedures  and a wide  range of single and dual lumen  balloon  catheters.  The
Company is benefiting from, and intends to utilize, its design and manufacturing
expertise in developing  single-use  medical devices for use in conjunction with
its human  tissue and  biomaterial  products.  An  example of such a  single-use
medical device under development includes a family of balloon catheters designed
to assist in applying the BioGlue surgical adhesive.

The Company plans to expand sales of the single-use medical devices which it has
retained by leveraging its established  cryopreservation  services marketing and
sales staff to market  existing  products and by introducing  new products.  New
complementary  products under  development  include  modified  single and double
lumen  balloon  catheters  to be  used  to  deliver  the  Company's  implantable
bioadhesives.  The Company is working to develop  single-use medical devices for
use  with  its  BioGlue  surgical  adhesive.   The  Company  believes  that  the
introduction of BioGlue surgical adhesive in the European Community for vascular
repair will create additional marketing opportunities for its single-use medical
devices.


Sales, Distribution and Marketing

Cryopreservation Services

CryoLife markets its cryopreservation  services to tissue procurement  agencies,
implanting physicians and prospective tissue recipients.  The Company works with
tissue banks and organ  procurement  agencies to ensure consistent and continued
availability of donated human tissue for transplant and educates  physicians and
prospective  tissue  recipients  with respect to the  benefits of  cryopreserved
human tissues.

Procurement  of Tissue.  Donated human tissue is procured  from  deceased  human
donors by organ procurement  agencies and tissue banks. 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
tissue is  transported  to the Company's  laboratory  facilities  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.  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.  The  Company  has  developed
relationships  with  over  250  tissue  banks  and  organ  procurement  agencies
throughout the U.S. Management believes the establishment of these relationships
is critical for a growing business in the cryopreservation services industry and
that  the  breadth  of these  existing  relationships  provides  the  Company  a
significant advantage over potential new entrants to this market. As a result of
its maintaining and developing these relationships, the Company has consistently
increased  its annual human heart valve  procurement  since its  inception.  The
Company employs  approximately 14 individuals in the area of tissue procurement,
seven of whom are employed as procurement  relations  managers and are stationed
throughout the country.  The Company's central  procurement office is staffed 24
hours per day, 365 days per year.

Preservation of Tissue.  Upon receiving 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 and cause of death.  A trained  technician  then  removes the
portion or portions of the delivered  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.

Human heart valves and conduits,  vascular tissue and connective  tissue for the
knee are cryopreserved in a proprietary  freezing process conducted according to
strict Company protocols.  After the cryopreservation process, the specimens are
transferred to liquid  nitrogen  freezers for long-term  storage at temperatures
below -135(Degree)C.  The entire cryopreservation  process is rigidly controlled
by guidelines established by the Company.

                                       11


<PAGE>

Distribution of Tissue to Implanting Physicians. After cryopreservation,  tissue
is stored by the Company or is delivered directly to hospitals at the implanting
physician's  request.  Cryopreserved  tissue must be transported under stringent
handling conditions and maintained within specific temperature tolerances at all
times.  Cryopreserved  tissue is  packaged  for  shipment  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.  After the Company transports the tissue to the hospital, the Company
invoices  the   institution   for  its  services,   the   procurement   fee  and
transportation costs.

The Company encourages  hospitals to accept the cryopreserved  tissue quickly by
providing  Company-owned  liquid nitrogen  freezers to client hospitals  without
charge.  The Company has currently  installed  more than 300 of these  freezers.
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 reduces the Company's working capital needs.

Marketing,  Educational  and Technical  Support.  The Company  maintains  active
relationships with approximately 2,000 cardiovascular,  vascular and orthopaedic
surgeons who have active practices  implanting  cryopreserved  human tissues and
markets to a broader  group of  physicians  within  these  medical  specialties.
Because  the  Company  markets  its   cryopreservation   services   directly  to
physicians,  an important aspect of increasing the distribution of the Company's
cryopreservation  services is educating  physicians on the use of  cryopreserved
human  tissue  and on proper  implantation  techniques.  Trained  field  support
personnel  provide back-up and support to implanting  institutions and surgeons.
The Company currently has over 100 independent technical service representatives
and  sub-representatives  (who deal primarily with orthopaedic  surgeons and who
are paid on a  commission  basis) as well as 40 persons  employed  as  technical
service  representatives  (who deal primarily with  cardiovascular  and vascular
surgeons and receive a base salary with a performance bonus) all of whom provide
field support.

The Company sponsors  physician  training  seminars where physicians teach other
physicians the proper technique for handling and implanting  cryopreserved human
tissue Physicians pay their own expenses to attend these seminars in addition to
paying the Company a fee for attendance.  The Company also produces  educational
videotapes for physicians.  The Company coordinates live surgery  demonstrations
at various medical  schools.  The Company also coordinates  laboratory  sessions
that utilize animal tissue to demonstrate  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 human
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.  The  Company  also  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 staff 24 hours per day, 365
days per year for customer support.


                                       12

<PAGE>



Bioprosthetic Cardiovascular Devices

The Company markets the  CryoLife-O'Brien  and  CryoLife-Ross  stentless porcine
heart valves in the European  Community and  Australia.  The Company's  European
sales,   distribution   and   marketing   force   consists  of  15   independent
representatives,  representing each of the Benelux countries,  France,  Germany,
Greece, Denmark,  Norway, Finland, Sweden, Italy, Turkey and the United Kingdom.
Marketing  efforts are directed almost  exclusively  toward  cardiovascular  and
vascular surgeons, and the Company conducts educational seminars and conferences
to train these  surgeons  and educate them with respect to the uses and benefits
of its porcine stentless heart valves.


BioGlue Surgical Adhesive

The   Company   markets  and   distributes   its   BioGlue   surgical   adhesive
internationally,    excluding   Japan,    through   its   existing   independent
representatives,  and if approved  for sale in the U.S.,  will market it through
its direct technical service representatives.  During 1998, the Company signed a
five-year  exclusive  agreement with Century Medical,  Inc. for the introduction
and distribution of BioGlue in Japan. Under the terms of the agreement,  Century
Medical will be responsible  for the  applications  and  clearances  through the
Japanese  Ministry of Health and Welfare.  Marketing efforts are directed almost
exclusively  toward  cardiovascular,  vascular  and thoracic  surgeons,  and the
Company  conducts  training  sessions for  European  doctors with respect to the
application and administration of BioGlue surgical adhesive.


Single-Use Medical Devices

The Company serves as an OEM  manufacturer  for single-use  medical  devices for
Horizon  Medical  Products,  Inc.  The  Company  plans  to  expand  sales of its
single-use medical devices by continuing new product  development and leveraging
its established  cryopreservation services and product marketing and sales staff
to market the products


Research and Development

The  Company  uses its  expertise  in  biochemistry  and cell  biology,  and its
understanding  of the  needs of the  cardiovascular,  vascular  and  orthopaedic
surgery  medical  specialties,  to continue to expand its core  cryopreservation
business  in the  U.S.  and to  develop  or  acquire  implantable  products  and
technologies  for these fields.  The Company seeks to identify market areas that
can benefit from  preserved  living tissues and other related  technologies,  to
develop  innovative  techniques and products within these areas, to secure their
commercial  protection,  to  establish  their  efficacy and then to market these
techniques  and products.  The Company  employs  approximately  26 people in its
research  and  development  department.  There are 10 PhDs with  specialties  as
diverse as immunology,  molecular biology, protein chemistry,  organic chemistry
and vascular biology.

In order to expand the Company's service and product  offerings,  the Company is
currently in the process of developing or investigating several technologies and
products,   including   FibRx  surgical   sealant,   SynerGraft  and  additional
applications   of  BioGlue   surgical   adhesive.   The  Company  is   currently
investigating  certain drug delivery  applications for BioGlue surgical adhesive
and  FibRx  surgical  sealant,  such  as  administering  antibiotics,  attaching
chemotherapy drugs to tumors,  delivering growth agents or delivering bone chips
for orthopaedic  bone repair.  To the extent the Company  identifies  additional
applications  for these  products,  the  Company  may  attempt to license  these
products to corporate  partners for further  development of such applications or
seek funding from outside sources to continue the commercial  develoment of such
technologies.  The Company's  research and  development  strategy is to allocate
available   resources   among  the   Company's   four  core   market   areas  of
cryopreservation  services,  bioprosthetic  cardiovascular devices,  implantable
biomaterials and single-use medical devices,  based on the size of the potential
market for any specific product candidate and the estimated development time and
cost required to bring the product to market.

                                       13

<PAGE>

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.  In 1996, 1997 and 1998, the Company spent approximately $2.8
million,  $3.9  million  and  $4.7  million,   respectively,   on  research  and
development  activities on new and existing products.  These amounts represented
approximately  8% of the  Company's  revenues for those  respective  years.  The
Company's  research  and  development  program is  overseen  by its  medical and
scientific advisory boards. The Company's  pre-clinical 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.


Manufacturing and Operations

The Company's facilities (other than its single-use medical device manufacturing
plant) are located in suburban Atlanta,  Georgia,  and consist of three separate
locations  totaling   approximately   130,000  square  feet  of  leased  office,
laboratory and warehouse space.  Approximately  17,500 square feet are dedicated
to laboratory work areas. The primary facility, which does not include the FibRx
laboratory  and  the  bioprosthetic   manufacturing  operation,  has  four  main
laboratory facilities:  human tissue processing BioGlue manufacturing,  research
and  development  and  microbiology.  Each of these areas  consists of a general
technician  work area and adjoining  "clean rooms" for work with human tissue or
Bioglue manufacturing,  and for aseptic processing. The clean rooms are supplied
with highly filtered air which provides a near-sterile environment.


Human Tissue Processing

The human tissue  processing  laboratory is  responsible  for the processing and
cryopreservation of human tissue for transplant. This includes all processing of
heart valves and conduits,  vascular  tissue and connective  tissue for the knee
supplied by CryoLife.  This laboratory contains  approximately 7,700 square feet
with a suite of seven clean rooms.  Currently there are 43 technicians  employed
in this area, and the  laboratory is staffed for two shifts,  365 days per year.
In 1998,  the  laboratory  processed  approximately  21,000  human  tissues  for
distribution  and transplant.  The current  staffing level is estimated to be at
about half of total capacity.  Increasing this capacity could be accomplished by
increasing employees and expanding to three shifts.


Bioprosthetic Cardiovascular Devices

The  bioprosthesis  laboratory  is  responsible  for  the  manufacturing  of the
CryoLife-O'Brien   and  CryoLife-Ross   stentless  porcine  heart  valves.  This
laboratory  is located in Marietta,  Georgia and contains  approximately  13,000
square  feet,  with about 3,500 square feet of  laboratory  space and a suite of
four clean rooms for tissue  processing.  Currently,  this laboratory employs 21
technicians and is scheduled to manufacture approximately 2,000 CryoLife-O'Brien
and CryoLife-Ross  valves in 1999. The recently renovated facility's capacity is
over 6,000 valves.


Implantable Biomedical Devices

The  Company  produces  limited  quantities  of FibRx  surgical  sealant  in the
biomedical  products  laboratory,  which is located  in  Marietta,  Georgia  and
employs 4 technicians.  This  laboratory  contains  approximately  11,000 square
feet, including 4,000 square feet of laboratory space and a suite of eight clean
rooms.   BioGlue  surgical  adhesive is presently  manufactured at the Company's
headquarters  facility,  which has an annual capacity of  approximately  300,000
units. This laboratory contains  approximately  12,900 square feet,  including a
suite of 2 cleanrooms.

                                       14


<PAGE>



Single-Use Medical Devices

The  manufacturing  of single-use  medical devices is conducted at the Company's
IFM subsidiary located in St. Petersburg, Florida. IFM was purchased by CryoLife
in 1997 and has recently moved to a renovated  30,000 square foot facility.  The
Company has approximately 130 employees at this facility. In the new facility, a
single shift can produce approximately 300,000 units annually with full capacity
expected to be nearly 800,000 units annually.


Quality Assurance

The Company's  operations  encompass the provision of cryopreservation  services
and the  manufacturing of  bioprosthetics,  bioadhesives and single-use  medical
devices.  In all  of its  facilities,  the  Company  is  subject  to  regulatory
standards for good  manufacturing  practices,  including  current Quality System
Regulations,  which are U.S.  Food and Drug  Administration  ("FDA")  regulatory
requirements for medical device  manufacturers.  The FDA  periodically  inspects
Company  facilities to ensure Company  compliance  with these  regulations.  The
Company also  operates  according to ISO 9001 Quality  System  Requirements,  an
internationally  recognized voluntary system of quality management for companies
that design, develop, manufacture,  distribute and service products. The Company
maintains a  Certification  of Approval to the ISO 9001,  as well as EN46001 and
ANSI/ISO/ASQC/Q9001,  the  European  and  U.S.  versions  of  the  international
standard,  respectively.  This  approval is issued by Lloyd's  Register  Quality
Assurance Limited ("LRQA"). LRQA is a Notified Body officially recognized by the
European  Community to perform  assessments of compliance  with ISO 9001 and its
derivative  standards.  LRQA performs  semi-annual  on-site  inspections  of the
Company's quality systems.

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.


Cryopreservation Services

The Company  employs a  comprehensive  quality  assurance  program in all of its
tissue  processing  activities.   The  Company  is  subject  to  Quality  System
Regulations,  additional FDA  regulations  and ISO 9001.  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.  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
cryopreserved,  a separate  disinfection  procedure  is begun  during  which the
removed  tissue is treated  with  proprietary  antibiotic  solutions.  A trained
technician then removes  samples from the  disinfected  tissue upon which serial
cultures are performed to identify bacterial or fungal growth.

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.

                                       15

<PAGE>



The Company's tissue  processing  facilities are annually licensed by the States
of Georgia,  New York, Florida and California as facilities that process,  store
and distribute  human tissue for  implantation.  The regulatory  bodies of these
states perform  appropriate  inspections of the facilities to ensure  compliance
with state law and  regulations.  In addition,  the Company's  human heart valve
operations are additionally  regulated by the FDA and periodically inspected for
compliance to Quality System  Regulations.  Other human tissue  processed by the
Company  is  periodically  inspected  for  compliance  with the Code of  Federal
Regulation  ("CFR") Part 1270. CFR 1270 is a FDA regulation which sets forth the
requirements  with which the Company must comply in determining  the suitability
of human tissue for implantation.


Bioprosthetic, Bioadhesive and Single-Use Medical Device Manufacturing

The Company  employs a  comprehensive  quality  assurance  program in all of its
manufacturing activities.  The Company is subject to Quality System Regulations,
additional FDA regulations and ISO 9001.

All  materials  and  components  utilized  in the  production  of the  Company's
products are  received  and  thoroughly  inspected  by trained  quality  control
personnel,   according  to  written   specifications   and  standard   operating
procedures.   Only  materials  and  components  found  to  comply  with  Company
procedures are accepted by quality control and utilized in production.

All materials, components and resulting sub-assemblies are traced throughout the
manufacturing  process to assure  that  appropriate  corrective  actions  can be
implemented if necessary.  Each process is documented  along with all inspection
results, including final finished product inspection and acceptance. Records are
maintained  as to the  consignee of product to  facilitate  product  removals or
corrections,  if  necessary.  All  processes in  manufacturing  are validated by
quality  engineers  to assure  that they are capable of  consistently  producing
product  meeting  specifications.  The  Company  maintains  a  rigorous  quality
assurance  program of measuring devices used for manufacturing and inspection to
ensure appropriate accuracy and precision.

Each  manufacturing  facility is subject to periodic  inspection  by the FDA and
LRQA to  independently  assure the  Company's  compliance  with its  systems and
regulatory requirements.


Patents, Licenses and Other Proprietary Rights

The Company  relies on a combination of patents,  trade secrets,  trademarks and
confidentiality  agreements  to protect  its  proprietary  products,  processing
technology,  rights and know-how.  The Company believes that its patents,  trade
secrets,  trademarks and technology  licensing  rights provide it with important
competitive  advantages.  The  Company  owns or has  licensed  rights to 19 U.S.
patents and nine foreign patents,  including  patents relating to its technology
for human heart valve and conduit, vascular tissue and connective tissue for the
knee preservation;  tissue  revitalization prior to freezing;  tissue transport;
fibrin adhesive;  organ storage  solution;  and packaging.  Certain of the above
patents  relate to the Company's  BioGlue  surgical  adhesive and FibRx surgical
sealant. The Company has eight pending U.S. patent applications and in excess of
14 pending foreign  applications  that relate to areas including heart valve and
tissue  processing  technology and delivery of bioadhesives  for anastomosis and
other uses. In connection with the sale of the IFM product line to Horizon,  the
Company sold all patents related to such product line. There can be no assurance
that any patents  pending  will result in issued  patents.  The Company also has
exclusive  licensing rights for technology  relating to  light-sensitive  enzyme
inhibitors. The remaining duration of the Company's issued patents ranges from 3
to 17 years.  The Company has licensed from third parties  certain  technologies
used in the development of its FibRx surgical sealant and SynerGraft technology.
These licenses call for the payment of both development milestones and royalties
based on product  sales,  when and if such products are approved for  marketing.
The loss of these  licenses  could  adversely  affect the  Company's  ability to
successfully develop its FibRx surgical sealant and SynerGraft technologies.

                                       16

<PAGE>


There  can be no  assurance  that the  claims  allowed  in any of the  Company's
existing or future patents will provide competitive advantages for the Company's
products,  processes and technologies or will not be successfully  challenged or
circumvented  by competitors.  To the extent that any of the Company's  products
are not patent  protected,  the  Company's  business,  financial  condition  and
results of operations could be materially adversely affected. Under current law,
patent  applications  in the U.S. are  maintained  in secrecy  until patents are
issued and patent  applications  in foreign  countries are maintained in secrecy
for a period after filing.  The right to a patent in the U.S. is attributable to
the first to invent,  not the first to file a patent  application.  The  Company
cannot be sure that its products or  technologies  do not infringe  patents that
may be granted in the future pursuant to pending patent applications or that its
products do not infringe any patents or proprietary rights of third parties. The
Company  may  incur  substantial  legal  fees  in  defending  against  a  patent
infringement  claim or in asserting  claims against third parties.  In the event
that any  relevant  claims  of  third-party  patents  are  upheld  as valid  and
enforceable, the Company could be prevented from selling certain of its products
or could be required to obtain  licenses  from the owners of such  patents or be
required  to  redesign  its  products  to avoid  infringement.  There  can be no
assurance  that such licenses  would be available or, if available,  would be on
terms  acceptable  to the Company or that the Company would be successful in any
attempt to  redesign  its  products  or  processes  to avoid  infringement.  The
Company's  failure to obtain these  licenses or to redesign  its products  could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

The  Company  has  entered  into  confidentiality  agreements  with  all  of its
employees and several of its consultants and third-party vendors to maintain the
confidentiality  of trade secrets and proprietary  information.  There can be no
assurance  that the  obligations  of employees of the Company and third  parties
with  whom  the  Company  has  entered  into  confidentiality   agreements  will
effectively  prevent  disclosure of the Company's  confidential  information  or
provide  meaningful  protection  for the Company's  confidential  information if
there is unauthorized use or disclosure,  or that the Company's trade secrets or
proprietary  information  will not be  independently  developed by the Company's
competitors.   Litigation   may  be  necessary  to  defend   against  claims  of
infringement,  to enforce  patents and trademarks of the Company,  or to protect
trade secrets and could result in  substantial  cost to, and diversion of effort
by, the Company. There can be no assurance that the Company would prevail in any
such litigation.  In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the U.S.


Competition

Cryopreserved Human Tissues and Bioprosthetic Cardiovascular Devices

The Company faces competition from non-profit tissue banks that cryopreserve and
distribute  human  tissue,  as well as from  companies  that market  mechanical,
porcine and bovine heart valves for  implantation.  Many established  companies,
some  with  resources  greater  than  those  of  the  Company,  are  engaged  in
manufacturing, marketing and selling alternatives to cryopreserved human tissue.
Management  believes  that  it  competes  favorably  with  other  entities  that
cryopreserve  human  tissue on the basis of  technology,  customer  service  and
quality assurance.  As compared to mechanical,  porcine and bovine heart valves,
management  believes  that the human heart valves  cryopreserved  by the Company
compete on the factors set forth above, as well as by providing a tissue that is
the  preferred   replacement   alternative   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
endocarditis.  Although human tissue  cryopreserved  by the Company is initially
higher priced than are mechanical  alternatives,  these  alternatives  typically
require that the patient take  anti-coagulation drug therapy for the lifetime of
the  implant.  As  a  result  of  the  costs  associated  with  anti-coagulants,
mechanical  valves are generally,  over the life of the implant,  more expensive
than  tissue  cryopreserved  by  the  Company.  Notwithstanding  the  foregoing,
management believes that, to date, price has not been a significant  competitive
factor.

Generally,  for each  procedure  that may utilize  other  human  tissue that the
Company cryopreserves,  there are alternative treatments.  Often, as in the case
of veins and ligaments,  these alternatives include the repair,  partial removal

                                       17


<PAGE>

or complete removal of the damaged tissue and may utilize other tissues from the
patients themselves or synthetic products. 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  cryopreserved by
the Company.

Human and Stentless  Porcine Heart  Valves.  Alternatives  to human heart valves
cryopreserved  by the Company  include  mechanical  valves,  porcine  valves and
valves  constructed  from  bovine  pericardium.  St. Jude  Medical,  Inc. is the
leading  supplier  of  mechanical   heart  valves,   and  has  a  marketing  and
distribution  arrangement with a tissue bank for supplies of cryopreserved human
heart valves and Baxter  International  Inc. is the leading  supplier of porcine
heart valves. In addition,  management believes that at least three tissue banks
offer  cryopreservation  services for human heart valves in competition with the
Company.  The Company  presently  distributes its stentless porcine heart valves
only  outside  the U.S.  These  stentless  porcine  heart  valves  compete  with
mechanical  valves,  human heart valves and processed  bovine  pericardium.  The
Company is aware of at least two other  companies that offer  stentless  porcine
heart valves.

Human Vascular  Tissue.  Synthetic  alternatives to veins  cryopreserved  by the
Company  are  available  primarily  in medium  and large  diameters.  Currently,
management  believes that there are no other  providers of  cryopreserved  human
vascular  tissue in  competition  with the Company.  Companies  offering  either
synthetic or allograft products may enter this market in the future.

Human Connective  Tissue for the Knee. The Company's  competition in the area of
connective  tissue for the knee varies  according to the tissue  involved.  When
transplant  is  indicated,   the   principal   competition   for  human  tissues
cryopreserved  by the Company are freeze-dried and fresh frozen human connective
tissues.  These  alternative  allografts  are  distributed  by  distributors  of
Osteotech,  Inc. and various tissue banks,  among others.  Ligaments and tendons
cryopreserved  by the Company  constitute  the principal  treatment  options for
injuries  which require  anterior  cruciate  ligament  repair.  To  management's
knowledge, there are presently no processed or synthetic alternatives to menisci
cryopreserved by the Company or preserved osteochondral grafts..


Implantable Biomedical Devices

The  Company   competes   with  many  domestic  and  foreign   medical   device,
pharmaceutical  and  biopharmaceutical  companies.  In the surgical adhesive and
surgical  sealant area,  the Company will compete with  existing  methodologies,
including  traditional  wound  closure  products  such as sutures  and  staples,
marketed  by  companies  such as  Johnson  &  Johnson,  United  States  Surgical
Corporation,  Sherwood,  Davis & Geck and others. Other products currently being
marketed  include  fibrin  glue  sold by  Immuno  AG,  a  subsidiary  of  Baxter
Healthcare Company,  Chemo-Sero  Therapeutic Research Institute,  Hoechst AG and
others,  and management  believes other products are under development by Baxter
Healthcare  Corporation,  Bristol-Myers Squibb Company, V.I. Technologies,  Inc.
and others.  Other  competitors in the surgical  sealant market include  Closure
Medical Corporation, B. Braun GmbH and Focal, Inc. Competitive products may also
be  under  development  by  other  large  medical  device,   pharmaceutical  and
biopharmaceutical  companies.  Many  of  the  Company's  current  and  potential
competitors have substantially  greater financial,  technological,  research and
development,  regulatory and clinical,  manufacturing,  marketing and sales, and
personnel resources than the Company.

These  competitors  may also have greater  experience  in  developing  products,
conducting clinical trials,  obtaining regulatory  approvals,  and manufacturing
and marketing  such  products.  Certain of these  competitors  may obtain patent
protection,  approval or  clearance  by the FDA or foreign  countries or product
commercialization  earlier  than  the  Company,  any of which  could  materially
adversely affect the Company.  Furthermore, if the Company commences significant
commercial  sales of its  products,  it will also be  competing  with respect to
manufacturing efficiency and marketing capabilities, areas in which it currently
has limited experience.

Other recently  developed  technologies  or procedures are, or may in the future
be,  the  basis of  competitive  products.  There can be no  assurance  that the
Company's  current  competitors  or other parties will not succeed in developing

                                       18


<PAGE>

alternative technologies and products that are more effective,  easier to use or
more  economical  than those which have or are being developed by the Company or
that  would  render  the  Company's   technology   and  products   obsolete  and
non-competitive  in  these  fields.  In  such  event,  the  Company's  business,
financial  condition  and results of operations  could be  materially  adversely
affected. See "Risk Factors--Rapid Technological Change."


Government Regulation

U.S. Federal Regulation

Because human heart valves are, and other  Company  products may be regulated in
the future as,  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  FDA  regulates  the
manufacture, distribution, labeling and promotion of medical devices in the U.S.
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  distributed  in the U.S.  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 an  investigational  device  exemption  ("IDE") which
authorizes  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
must be labeled that it is for investigational use and may not be advertised, or
otherwise  promoted,  and the  price  charged  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  Quality  System  Regulations,  which  require that
companies   manufacture  their  products  and  maintain  their  documents  in  a
prescribed manner with respect to good manufacturing practices, design, document
production,  process,  labeling and packaging  controls,  process validaiton and
other 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

                                       19


<PAGE>

manufacturers of life-sustaining or implantable  products,  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 U.S.
follow certain procedures before they are exported.

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

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 Class III 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
Class II Medical  Devices and has removed them from clinical  trial  status.  It
also allows the Company to  distribute  such valves to  cardiovascular  surgeons
throughout the U.S.

Other Tissue.  Other than human and porcine heart valves,  none of the Company's
other tissue services or products are currently subject to regulation as medical
devices 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.  In July  1997,  the FDA  published  a final  rule,  which  became
effective in January 1998,  regulating  "human  tissue." The rule  clarifies and
modifies an earlier  interim rule and defines human tissue as any tissue derived
from a human body which is (i) intended for  administration to another human for
the  diagnosis,  cure,  mitigation,  treatment or prevention of any condition or
disease and (ii)  recovered,  processed,  stored or  distributed  by methods not
intended  to change  tissue  function  or  characteristics.  The FDA  definition
excludes,  among other  things,  tissue that  currently  is regulated as a human
drug,  biological product or medical device and excludes kidney,  liver,  heart,
lung,  pancreas or any other vascularized human organ. Human tissue is regulated
by the FDA in a manner the agency has  deemed  necessary  to protect  the public
health from the  transmission of HIV infection and hepatitis  infection  through
transplantation of tissue from donors with or at risk for these diseases. Unlike
certain drugs,  biologicals and medical devices,  human tissue is not subject to
premarket notification or approval by the FDA. 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, or the FDA may determine
to regulate human heart valves as "human  tissue"  rather than 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, the U.S. Congress is
expected to consider legislation that would regulate human tissue for transplant
or the FDA could  impose a separate  regulatory  scheme for human  tissue.  Such
legislation or regulation could have a material adverse effect on the Company.

Porcine Heart Valves.  Porcine heart valves are Class III medical  devices,  and
FDA  approval  of a PMA is required  prior to  commercial  distribution  of such
valves in the U.S. The porcine  heart valves  currently  marketed by the Company
have not been approved by the FDA for  commercial  distribution  in the U.S. but
may be manufactured in the U.S. and exported to foreign  countries if the valves
meet the specifications of the foreign purchaser,  do not conflict with the laws
of and are  approved by the  country to which they will be exported  and the FDA
determines  that their  exportation  is not  contrary  to the public  health and
safety.

Single-Use Medical Devices. The products manufactured by the Company through IFM
are regulated as Class I and Class II medical devices by the FDA. These products
require clearance under a 510(k) procedure.  All products  currently marketed by
IFM  have  received  a 510(k)  clearance  from the  FDA.  In  addition,  the IFM
facilities  are  subject to  periodic  review by the FDA,  as are the  Company's
records on returned products and reported problems.

                                       20



BioGlue Surgical Adhesive. BioGlue surgical adhesive is regulated as a Class III
medical device by the FDA. The Company is currently  conducting  clinical trials
for BioGlue  surgical  adhesive.  There can be no  assurance  that  BioGlue will
receive FDA approval.

The Company intends to submit an application for a Humanitarian Device Exemption
(HDE) in May 1999 for  BioGlue  surgical  adhesive  for use in  repair of aortic
dissections. If successful, the Company would be able to commercially distribute
BioGlue in the US for this  indication  and would  likely  discontinue  clinical
trials of BioGlue under its current IDE.  Additionally,  the Company  intends to
submit a 510(k)  Premarket  Notification  during the second  quarter of 1999 for
BioLastic Patch  (BioLastic) for sealing air leaks in lungs. If successful,  the
Company would be able to commercially  distribute  BioLastic for this indication
in the  US.  However,  there  can be no  assurance  that  the  Company  will  be
successful in gaining approval for either the HDE or clearance for the 510(k).

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
and FibRx surgical sealant).  Some may be classified as medical devices;  others
may be  classified  as drugs or  biological  products or subject to a regulatory
scheme for human  tissue  that the FDA may adopt in the  future.  Regulation  of
drugs and biological products is substantially  similar to regulation of medical
devices.  Obtaining FDA approval 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  assurance,  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  and tissue
bank under Georgia,  New York,  California and Florida law. The Company has such
licenses,  and the Company  believes it is in compliance with  applicable  state
laws and regulations  relating to clinical  laboratories  and tissue banks which
store,  process  and  distribute  human  tissue  designed to be used for medical
purposes  in  human  beings.  There  can be no  assurance,  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 other required licenses.


Foreign Approval Requirements

Sales of medical devices and biological products outside the U.S. are subject to
foreign  regulatory  requirements  that vary  widely  from  country to  country.
Approval of a product by comparable regulatory  authorities of foreign countries
must be obtained prior to  commercialization  of the product in those countries.
The time required to obtain foreign approvals may be longer or shorter than that
required for FDA approval.  The European Community recognizes a single approval,
called  a CE  Mark,  which  allows  for  distribution  of  an  approved  product
throughout the European Community (15 countries) without additional applications
to each country. The CE Mark is awarded by third parties called Notified Bodies.

                                       21


<PAGE>

These  Notified  Bodies are  approved  and  subject  to review by the  Competent
Authorities of their respective countries.  A number of countries outside of the
European  Community accept the CE Mark in lieu of clinical data submission as an
addendum to that country's  application  process. The Company has been issued CE
Marks for its CyroLife-O'Brien and CryoLife-Ross  porcine heart valves,  BioGlue
surgical  adhesive and IFM  single-use  medical  devices that it has retained by
LRQA. The Company's porcine heart valves may be exported to specified  developed
nations,  including  countries in the  European  Community,  Australia,  Canada,
Israel, Japan, New Zealand, South Africa and Switzerland if they comply with the
laws of that country and have valid marketing  authorization  by the appropriate
authority in that  country.  Beginning in July 1998,  CE Mark  Certification  is
required to market porcine heart valves and other bioprosthetics in the European
Community.


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 U.S.  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.

Employees

The Company presently has  approximately 400 employees.  These employees include
13 persons with PhD degrees. 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

Dependence on Cryopreservation of Human Tissue

A  significant  portion of the  Company's  current  revenues is derived from the
cryopreservation  of human tissue,  particularly heart valves and conduits.  The
success of this business depends upon, among other factors,  the availability of
sufficient quantities of tissue from human donors. Any material reduction in the
supply of donated human heart tissue could  restrict the Company's  growth.  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 a
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
transplantable  tissue gains acceptance,  demand for that tissue will exceed the
amount of  tissue  available  from  human  donors.  [While  availability  is not
currently a limiting factor for most vascular  tissue and connective  tissue for
the  knee,  growth  in  these  areas  could  ultimately  be  limited  by  tissue
availability,  in addition to other factors.] Failure of the Company to maintain
its supply of tissue for  cryopreservation  could have a material adverse effect
on the  Company's  business,  financial  condition  and  results of  operations.
Furthermore,  a reduction in the demand for the  Company's  cryopreserved  human
tissue  could also have a material  adverse  effect on the  Company's  business,
financial  condition and results of operations.  Such  reduction  could occur if
competitors'  products were  perceived as either  functionally  superior or more
cost effective,  if the number of procedures in which cryopreserved  tissues are
used declines or if hospitals  acquire  sufficient  inventories of cryopreserved
tissue to allow a  reduction  in new orders.  See  "--Intense  Competition"  and
"--Uncertainties Regarding Future Health Care Reimbursement."

                                       22


<PAGE>

Intense 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 three 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., Medtronic,  Inc. and Baxter International Inc.
The Company is aware that several  companies  have  surgical  adhesive  products
under development.  Competitive  products may also be under development by other
large medical device,  pharmaceutical and biopharmaceutical  companies.  Many of
the Company's competitors have greater financial,  technical,  manufacturing 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 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.  Failure of the
Company to compete  effectively  could  have a  material  adverse  effect on the
Company's  business,   financial  condition  and  results  of  operations.   See
"Business--Competition."


Rapid Technological Change

The technologies  underlying the Company's  products and services are subject to
rapid and profound  technological  change.  The Company  expects  competition to
intensify  as  technical  advances in each field are made and become more widely
known.  There can be no  assurance  that  others  will not  develop  products or
processes with  significant  advantages over the products and processes that the
Company  offers or is  seeking  to  develop.  Any such  occurrence  could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.


Uncertainties Regarding Products in Development

The Company's growth and profitability will depend, in part, upon its ability to
complete development of and successfully introduce new products. The Company may
be required to undertake  time consuming and costly  development  activities and
seek  regulatory  clearance  or  approval  for new  products.  See  "--Extensive
Government  Regulation." Although the Company has conducted pre-clinical studies
on many of its products under  development which indicate that such products may
be  effective in a particular  application,  there can be no assurance  that the
results obtained from expanded  clinical studies will be consistent with earlier
trial results or be sufficient for the Company to obtain any required regulatory
approvals or  clearances.  There can be no  assurance  that the Company will not
experience  difficulties that could delay or prevent the successful development,
introduction  and  marketing  of new  products,  that  regulatory  clearance  or
approval  of these or any new  products  will be granted on a timely  basis,  if
ever,  or that the new products will  adequately  meet the  requirements  of the
applicable  market  or  achieve  market   acceptance.   The  completion  of  the
development of any of the Company's products remains subject to all of the risks
associated  with the  commercialization  of new  products  based  on  innovative
technologies, including unanticipated technical or other problems, manufacturing
difficulties  and the  possible  insufficiency  of the funds  allocated  for the
completion of such development. Consequently, there can be no assurance that any
of the Company's  products under  development will be successfully  developed or
manufactured  or, if developed  and  manufactured,  that such products will meet
price or performance  objectives,  be developed on a timely basis or prove to be
as effective as competing products.  The inability to complete  successfully the
development of a product or application,  or a determination by the Company, for
financial,  technical  or other  reasons,  not to  complete  development  of any
product or application,  particularly in instances in which the Company has made
significant  capital  expenditures,  could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company's porcine heart valve products and its BioGlue surgical adhesive are
currently only offered for sale outside of the U.S . The Company's porcine heart
valves and BioGlue  surgical  adhesive  are subject to the risk that the Company
may be unable to  obtain  regulatory  approval  necessary  to permit  commercial
distribution of these products in the U.S.

                                       23


<PAGE>

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 costs 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 follow-up studies on human
implant recipients in order to gain acceptance in the medical community.

Extensive Government Regulation

Government   regulation   in  the  U.S.,   the  European   Community  and  other
jurisdictions  represents a potentially  determinative  factor in the success of
the   Company's   efforts   to   market   and   develop   its   products.    See
"Business--Government  Regulation."  The human heart valves to which the Company
applies  its  cryopreservation  services  are  currently  regulated  as Class II
medical   devices  by  the  FDA  and  are  subject  to  significant   regulatory
requirements,   including   Quality   System   Regulations   and   recordkeeping
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  adversely  impact the marketing or development of these products or could
adversely affect market demand for these products.

Other allograft  tissues  processed and distributed by the Company are currently
regulated as "human tissue" under a rule  promulgated by the FDA pursuant to the
Public Health Services Act. This rule establishes requirements for donor testing
and screening of human tissue and  recordkeeping  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  PMA  or  product  licensing
requirements.

BioGlue  surgical  adhesive is regulated  as a Class III medical  device and the
Company  believes that FibRx surgical sealant will be regulated as a biologic by
the FDA. These products have not been approved for distribution  within the U.S.
Fixed porcine heart valve products are classified as Class III medical  devices.
There  can be no  assurance  that the  Company  will be able to  obtain  the FDA
approval  required to distribute its surgical  adhesives,  surgical  sealants or
porcine heart valve products in the U.S.  Distribution  of these products within
the European Community is dependent upon the Company maintaining its CE Mark and
ISO 9001 certifications, of which there can be no assurance.

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 normally involves clinical
trials and the  preparation of an extensive PMA 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 receive the required  approvals for  manufacturing  and marketing.
Delays in  obtaining  U.S.  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 product  approvals  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.  Also,
delays or  rejections  may be  encountered  during  any stage of the  regulatory
approval  process  based  upon the  failure  of the  clinical  or other  data to
demonstrate  compliance  with,  or upon the failure of the product to meet,  the
regulatory  agency's  requirements for safety,  efficacy and quality,  and those
requirements  may  become  more  stringent  due to changes  in  applicable  law,
regulatory agency policy or the adoption of new regulations. Clinical trials may
also be delayed due to unanticipated side effects,  inability to locate, recruit
and qualify  sufficient numbers of patients,  lack of funding,  the inability to
locate or recruit  scientists,  the  redesign of clinical  trial  programs,  the
inability to  manufacture  or acquire  sufficient  quantities of the  particular
product candidate or any other components required for clinical trials,  changes
in the Company's or its collaborative partners' development focus and disclosure
of trial results by competitors. Even if regulatory approval is obtained for any
of  the  Company's  products  or  services,   the  scope  of  the  approval  may
significantly  limit the indicated usage for which such products or services may
be marketed.
                                       24


<PAGE>

Products  marketed  by the  Company  pursuant  to FDA or  foreign  oversight  or
approval  are  subject to  pervasive  and  continuing  regulation.  In the U.S.,
devices and biologics must be  manufactured  and registered  and, in the case of
biologics,  licensed  establishments  and must be  produced in  accordance  with
Quality System 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 and could have a material  adverse  effect on the Company's  business,
financial condition and results of operations.  In addition, 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 that restrictive
interpretations  of NOTA will not be adopted in the future  that will  challenge
one  or  more   aspects  of  the   Company's   methods  of   charging   for  its
cryopreservation  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.  While
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 have a material adverse effect on the Company's  business,
financial  condition  and  results  of  operations.   See  "Business--Government
Regulation."


Uncertainties Related to 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  could  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.  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,
which could have a material adverse effect on the Company's business,  financial
condition  and results of  operations.  Additionally,  the Company  protects its
proprietary  technologies  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,  any of which
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

Uncertainties Regarding Future Health Care Reimbursement

Even though the Company  does not receive  payments  directly  from  third-party
health care payors,  their reimbursement  methods and policies impact demand for
the  Company's  cryopreserved  tissue  and  other  services  and  products.  The
Company's   cryopreservation   services  may  be  particularly   susceptible  to
third-party  cost  containment  measures.  In particular,  the initial cost of a
cryopreserved  human heart  valve  generally  exceeds the cost of a  mechanical,

                                       25


<PAGE>


synthetic or animal-derived valve. The Company is unable to predict what changes
will be made in the  reimbursement  methods and policies utilized by third-party
health care payors or their effect on the Company.  Changes in the reimbursement
methods and  policies  utilized by  third-party  health care  payors,  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
payors are increasingly attempting to contain health care costs 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  payors for uses of the Company's new products
and services,  market acceptance of these products would be adversely  affected,
which could have a material adverse effect on the Company's business,  financial
condition and results of operations.


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 have a material  adverse effect on
the Company's business, financial condition and results of operations.


Product Liability and Insurance

The use of the Company's  products  involves the  possibility of adverse effects
that could expose the Company to product liability claims. A recent U.S. Supreme
Court decision held that product  liability may exist despite FDA approval,  and
future  court  decisions  may  also  increase  the  Company's  risk  of  product
liability. From time to time, the Company is involved in legal proceedings based
on product liability claims of a nature  considered normal to its business.  The
Company's  products  are used by health care  providers in  connection  with the
treatment of patients, who will, on occasion,  sustain injury or die as a result
of their condition or medical  treatment.  If a lawsuit is filed because of such
an occurrence,  the Company,  along with  physicians  and nurses,  hospitals and
other  medical  suppliers,  may be named as a defendant,  and whether or not the
Company is ultimately determined to be liable, the Company may incur significant
legal  expenses.  In  addition,  such  litigation  could  damage  the  Company's
reputation  and  therefore  impair its ability to market its  products or obtain
product  liability  insurance and could cause the premiums for such insurance to
increase.  Although  the  Company  has  incurred  minimal  losses due to product
liability  claims  to date,  there  can be no  assurance  that it will not incur
significant  losses in the  future.  The  Company  currently  maintains  product
liability  insurance in the aggregate  amount of $14 million 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  Company's  business,  financial
condition and results of operations. See "Business--Legal Proceedings."


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.


                                       26

<PAGE>



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's  business,
financial condition and results of operations.  Also, any failure to comply with
applicable  regulations  could result in the imposition of penalties,  fines and
sanctions, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

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  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 Bylaws 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  shareholder  rights plan  adopted in 1995,
each  outstanding  share of Common Stock has one attached right. 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.


Absence of Dividends

The Company has not paid, and does not presently  intend to pay, cash dividends.
The Company's major credit agreement contains,  and future credit agreements may
contain, financial covenants,  including covenants to maintain certain levels of
net  worth  and  certain  leverage  ratios,  which  could  have  the  effect  of
restricting  the amount of dividends  that the Company may pay. It is not likely
that any cash dividends will be paid in the foreseeable future.


                           Forward-Looking Statements

This Form 10-K  includes  "forward-looking  statements"  within  the  meaning of
Section 27A of the  Securities Act of 1933, as amended (the  "Securities  Act"),
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act") and the Private Securities  Litigation Reform Act of 1995. All statements,
other than statements of historical facts, included or incorporated by reference
in this Form 10-K which address  activities,  events or  developments  which the
Company  expects  or  anticipates  will or may  occur in the  future,  including
statements regarding the Company's competitive  position,  the timing and of the
application  to the FDA for the  stentless  CryoLife-O'Brien  and  CryoLife-Ross
porcine heart valves, and for BioGlue and the BioLastic Patch and FibRx surgical


                                       27


<PAGE>

sealant,  other  estimated dates relating to the Company's  proposed  regulatory
submissions, estimates regarding 1999 research and development expenditures, the
Company's expectations regarding the adequacy of current financing arrangements,
product demand and market growth,  the impact of the  introduction of BioGlue in
Europe or marketing  opportunities for the Company's  single-use medical devices
and other statements  regarding future plans and strategies,  anticipated events
or trends and similar  expressions  concerning  matters that are not  historical
facts are  forward-looking  statements.  These  statements  are based on certain
assumptions  and analyses made by the Company in light of its experience and its
perception  of  historical  trends,   current  conditions  and  expected  future
developments  as well as  other  factors  it  believes  are  appropriate  in the
circumstances.  However,  whether actual results and  developments  will conform
with the Company's  expectations and predictions is subject to a number of risks
and uncertainties which could cause actual results to differ materially from the
Company's  expectations,  including the risk factors discussed in this Form 10-K
and  other  factors,  many of which  are  beyond  the  control  of the  Company.
Consequently,  all of the forward-looking  statements made in this Form 10-K are
qualified by these cautionary  statements and there can be no assurance that the
actual results or  developments  anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequences to
or effects on the Company or its business or operations.  The Company assumes no
obligation to update publicly any such forward-looking statements,  whether as a
result of new information, future events or otherwise.



I
tem 2. Properties.

The Company's facilities (other than its single use medical device manufacturing
plant) are located in suburban Atlanta,  Georgia,  and consist of three separate
locations  totaling   approximately   130,000  square  feet  of  leased  office,
laboratory and warehouse space.  Approximately  30,000 square feet are dedicated
to laboratory work areas. The primary facility, which does not include the FibRx
laboratory  and  the  bioprosthetic   manufacturing  operation,  has  four  main
laboratory facilities: human tissue processing, BioGlue manufacturing,  research
and  development,  and  microbiology.  Each of these areas consists of a general
technician work area and adjoining  "clean rooms" for work with human tissue and
for aseptic  processing.  The clean rooms are supplied with highly  filtered air
which  provides  a  near-sterile   environment.   The  human  tissue  processing
laboratory contains  approximately 7,700 square feet with a suite of seven clean
rooms. The Bioglue manufacturing laboratory contains approximately 12,900 square
feet with a suite of 2 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 FibRx laboratory 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 about 3,500 square feet of laboratory space and a suite of four clean
rooms for tissue  processing.  The  Company's  single-use  medical  devices  are
manufactured at the Company's IFM subsidiary located in St. Petersburg, Florida.
This facility is approximately  30,000 square feet and is leased from the former
principal shareholder of IFM.



Item 3. Legal Proceedings.

From time to time,  the  Company is involved  in  litigation  relating to claims
arising  out of its  operations  in the normal  course of  business.  Management
believes that no currently ongoing  litigation,  if determined  adversely to the
Company,  will  have  a  material  adverse  effect  on the  Company's  business,
financial condition or results of operations.



Item 4. Submission of Matters to Vote of Security Holders.

Inapplicable.


                                       28

<PAGE>




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  shareholders  or until their earlier  removal by the
Board of Directors or their resignation. The following table lists the executive
officers of the Registrant and their ages,  positions with the  Registrant,  and
the dates from which they have  continually  served in their  present  positions
with the Registrant.

<TABLE>
<CAPTION>

                                                                                     Date First Elected to
Name                          Age  Position                                          Present Office
- ----                          ---  --------                                          --------------
<S>                           <C>  <C>                                               <C>   
Steven G. Anderson            60   President, Chief Executive Officer and Chairman   February, 1984
Kirby S. Black, PhD           44   Vice President, Research and Development          July, 1995
Edwin B. Cordell, Jr., CPA    40   Vice President and Chief Financial Officer        December, 1994
David M. Fronk                35   Vice President, Clinical Research                 December, 1998
Albert E. Heacox, PhD         48   Vice President, Laboratory Operations             June, 1995
Gerald B. Seery               42   Vice President, Marketing                         August, 1995
James C. Vander Wyk, PhD      54   Vice President, Regulatory Affairs and Quality    February, 1996
                                   Assurance
Ronald D. McCall, Esq.        62   Director, Secretary and Treasurer                 January, 1984

</TABLE>


Steven G.  Anderson,  a founder  of the  Company,  has  served as the  Company's
President,  Chief  Executive  Officer  and  Chairman  since its  inception.  Mr.
Anderson has more than 30 years of experience in the implantable  medical device
industry.  Prior to joining the Company,  Mr. Anderson was Senior Executive Vice
President and Vice  President,  Marketing,  from 1976 until 1983 of Intermedics,
Inc. (now Guidant, Inc.), a manufacturer and distributor of pacemakers and other
medical devices. Mr. Anderson received his BA from the University of Minnesota.

Kirby S. Black,  PhD, has served as Vice  President of Research and  Development
since July 1995. Dr. Black is responsible  for the continued  development of the
Company's  current products as well as the evaluation of new  technologies.  Dr.
Black is listed on three patents and has authored over 125  publications.  Prior
to joining the Company, Dr. Black was Director,  Medical Information and Project
Leader  from July 1993 until July 1994 at  Advanced  Tissue  Sciences,  LaJolla,
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 received his BS degree from the
University of California, Los Angeles, and his PhD degree from the University of
California at Irvine.

Edwin B.  Cordell,  Jr., CPA, has served as Vice  President and Chief  Financial
Officer of the Company since November  1994.  From August 1987 to November 1994,
Mr. Cordell served as Controller  and Chief  Financial  Officer of Video Display
Corporation,   a  publically  held  consumer   electronics   manufacturing   and
distribution company. Mr.
Cordell received his BS in Accounting from the University of Tennessee.

David M. Fronk was  appointed  to the  position  of Vice  President  of Clinical
Research in December 1998 and has been with the Company since 1992. Mr. Fronk is
responsible  for managing the preclinical  and clinical  investigations  for all
products,  as well as  monitoring  product  performance.  Prior to  joining  the
Company,  Mr. Fronk held engineering  positions with Zimmer Inc. from 1986 until
1988 and Baxter Healthcare  Corporation from 1988 until 1991. Mr Fronk served as
a market manager with Baxter  Healthcare  Corporation  from 1991 until 1992. Mr.
Fronk received his BS in Mechanical  Engineering at The Ohio State University in
1985 and his MS in Biomedical Engineering at The Ohio State University in 1986.

Albert E. Heacox, PhD, has served as Vice President, Laboratory Operations since
June 1988 and has been with the Company since June of 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

                                       29


<PAGE>

Company's quality assurance programs,  and overseeing all production  activities
of the Company's  laboratories.  Prior to joining the Company, Dr. Heacox 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  a BA and an MS in Biology  from  Adelphi
University, and received his PhD in Biology from Washington State University and
completed  his  post-doctorate  training in cell  biology at the  University  of
Cologne, West Germany.

Gerald B. Seery has served as Vice President of Marketing  since August 1995 and
has been  with the  Company  since  July  1993.  Mr.  Seery is  responsible  for
developing  and  implementing  the  Company's  sales  and  marketing  plans  and
supervising all tissue procurement activities. Prior to joining the Company, Mr.
Seery held senior marketing  management positions with Meadox Medicals from 1982
until  1985,  Electro  Catheter  Corporation  from  1985  until  1989  and  Daig
Corporation  from 1992 until 1993,  accumulating  fifteen  years of  specialized
marketing  experience in cardiovascular  medical devices. Mr. Seery received his
BA  in  International  Economics  at  The  Catholic  University  of  America  in
Washington,  D.C. in 1978 and  completed  his MBA at Columbia  University in New
York in 1980.

James C. Vander Wyk, PhD, has served as Vice President,  Regulatory  Affairs and
Quality  Assurance  of the Company  since  February  1996.  Prior to joining the
Company,  Dr. Vander Wyk held senior  management  positions at Schneider  (USA),
Inc. from 1993 until 1996,  Pharmacia Deltec, Inc. from 1985 until 1993, Delmed,
Inc. from 1980 until 1985 and Pharmaco, Inc. from 1975 to 1979, gaining 20 years
of  experience  in  Regulatory  Affairs and Quality  Assurance.  Dr.  Vander Wyk
received his BS in Pharmacy from the  Massachusetts  College of Pharmacy and his
PhD in  Microbiology  from the  University  of  Massachusetts.  Dr.  Vander  Wyk
performed his NIH Postdoctoral Fellowship at the University of Illinois.

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.  Mr.  McCall  received  his BA and JD degrees  from the  University  of
Florida.

                                       30

<PAGE>




                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

The response to Item 5 is  incorporated  herein by reference to the  information
set forth under the  caption  "Market  Price of Common  Stock" on page 33 of the
annual shareholders report for the year ended December 31, 1998.


Item 6. Selected Financial Data.

The response to Item 6 is  incorporated  herein by reference to the  information
set forth under the caption "Selected  Financial  Information" on page 34 of the
annual shareholders report for the year ended December 31, 1998.


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

The response to Item 7 is  incorporated  herein by reference to the  information
set forth under the caption  "Management's  Discussion and Analysis" on pages 14
though 19 of the annual  shareholders  report for the year  ended  December  31,
1998.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The response to Item 7A is  incorporated  herein by reference to the information
set forth under the caption  "Quantitative  and  Qualitative  Disclosures  About
Market Risk" appearing on page 19 of the annual shareholders report for the year
ending December 31, 1998.


Item 8. Financial Statements and Supplementary Data.

The  report  of  independent  auditors  and  consoldiated  financial  statements
included on pages 20 through 33 of the annual  shareholders  report for the year
ended December 31, 1998 are incorporated herein by reference.  Quarterly Results
of  Operations on page 34 of the annual  shareholders  report for the year ended
December 31, 1998 is incorporated herein by reference.


Item 9. Changes in and  Disagreements  with Accounts on Accounting and Financial
Disclosure.

Inapplicable.


                                       31

<PAGE>




                                    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
Shareholders  to be filed with the  Commission  not later  than April 30,  1999.
Information concerning executive officers is included in Part I, Item 4A 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 Shareholders to be
filed with the Commission not later than April 30, 1999.



Item 11. Executive Compensation.

The response to Item 11 is  incorporated  herein by reference to the information
set forth under the caption "Executive  Compensation" in the Proxy Statement for
the Annual  Meeting of  Shareholders  to be filed with the  Commission not later
than April 30, 1999.



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  Shareholders  to be filed with the Commission not later than
April 30, 1999.



Item 13. Certain Relationships and Related Transactions0 .


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 filed with the  Commission not later
than April 30, 1999.

                                       32


<PAGE>



                                     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 report of independent  auditors and consoldiated  financial  statements
     included on pages 20 through 33 of the annual  shareholders  report for the
     year ended December 31, 1998 are incorporated herein by reference.

          2.   Financial Statement Schedule


     Independent Auditors' Report on Schedule

     Schedule II--Valuation and Qualifying Accounts


                                       33

<PAGE>


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.)

2.3       Agreement and Plan of Merger dated as of March 5, 1997 among Ideas for
          Medicine,  Inc., J. Crayton Pruitt,  Sr., M.D., Thomas Benham,  Thomas
          Alexandris,  Tom Judge,  Natalie  Judge,  Helen  Wallace,  J.  Crayton
          Pruitt, Jr., M.D., and Johanna Pruitt, and CryoLife, Inc. and CryoLife
          Acquisition Corporation.  (Incorporated by reference to Exhibit 2.1 to
          the Registrant's Current Report on Form 8-K filed on March 19, 1997.)

2.4       Asset Purchase Agreement by and between Horizon Medical Products, Inc.
          and Ideas for Medicine,  Inc. dated September 30, 1998.  (Incorporated
          by  reference  to Exhibit  2   to  Horizon  Medical  Products,  Inc.'s
          Current  Report on Form  8K-filed  with the  Securities  and  Exchange
          Commission on October 14, 1998.)

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).)

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


                                       34

<PAGE>





Exhibit
Number      Description
- -------     -----------

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. (Incorporated
          by reference to Exhibit 10.1(a) to the  Registrant's  Annual Report on
          Form 10-K for the fiscal year ended December 31, 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, David M. Fronk, 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.

                                       35


<PAGE>


Exhibit
Number    Description
- -------   -----------

10.9(b)   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(c)   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(d)   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(e)   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(f)   Employment  Agreement,  by and between the Company and Kirby S. Black,
          Ph.D.   (Incorporated   by  reference   to  Exhibit   10.9(g)  to  the
          Registrant's  Annual  Report on Form  10-K/A for the fiscal year ended
          December 31, 1996.)

10.9(g)*  Employment Agreement, by and between the Company and David M. Fronk.


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).)

                                       36

<PAGE>



Exhibit
Number    Description
- -------   -----------

10.15     CryoLife, Inc. Non-Employee Directors Stock Option Plan, as amended.
          (Incorporated   by  reference  to  Appendix  2  to  the   Registrant's
          Definitive  Proxy  Statement  filed with the  Securities  and Exchange
          Commission on April 17, 1998.)

10.16     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.)

10.17     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.)

10.18     CryoLife, Inc. Employee Stock Purchase Plan (Incorporated by reference
          to Exhibit "A" of the  Registrant's  Definitive  Proxy Statement filed
          with the Securities and Exchange Commission on April 10, 1996.)

10.19     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.)

10.20     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.)

10.21     RevolvingTerm  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.)

10.22     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.)

10.23     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.)

10.24(a)  First  Amendment of Third Amended and Restated Loan Agreement  between
          CryoLife, Inc., as Borrower and NationsBank,  N.A. (South), as Lender,
          dated April 14,  1997.  (Incorporated  by reference to Exhibit 10.1 to
          the  Registrant's  Quarterly Report on Form 10-Q for the quarter ended
          June 30, 1997.)

10.24(b)  Second Modification of Third Amended and Restated Loan Agreement dated
          December 16, 1997 by and between the Registrant and NationsBank,  N.A.
          (Incorporated  by  reference to Exhibit 4.2 to the Registrant's Annual
          Report on Form 10-K for the fiscal year ended December 31, 1997.)

10.25     Consulting  Agreement  dated January 1, 1998 by and between  Robert T.
          McNally and the Registrant.  .  (Incorporated  by reference to Exhibit
          4.2 to the Registrant's Annual Report on Form 10-K for the fiscal year
          ended December 31, 1997.)

                                       37



<PAGE>



Exhibit
Number    Description
- -------   -----------

10.26    CryoLife,  Inc.  1998  Long-Term   Incentive  Plan.   (Incorporated  by
         reference  to Appendix 2 to the Registrant's Definitive Proxy Statement
         filed with the  Securities and Exchange Commission  on April 17, 1998.)

10.27    Consulting  Agreement dated March 5, 1997 between CryoLife  Acquisition
         Corporation and J. Crayton Pruitt, Sr., M.D. (Incorporated by reference
         to Exhibit 10.2 to the  Registrant's  Quarterly Report on Form 10-Q for
         the quarter ended March 31, 1997.)

10.28    Subordinated  Convertible  Debenture  dated  March 5, 1997  between the
         Company and J. Crayton Pruitt, Sr., M.D.  (Incorporated by reference to
         Exhibit 10.3 to the Registrant's  Quarterly Report on Form 10-Q for the
         quarter ended March 31, 1997.)

10.29    Lease  Agreement dated March 5, 1997 between the Company and J. Crayton
         Pruitt,  Sr.,  M.D.  (Incorporated  by reference to Exhibit 10.4 to the
         Registrant's  Quarterly Report on Form 10-Q for the quarter ended March
         31, 1997.)

10.30    Lease  Guaranty  dated March 5, 1997 between J. Crayton  Pruitt  Family
         Trust U/T/A and CryoLife,  Inc., as Guarantor for CryoLife  Acquisition
         Corporation.   (Incorporated  by  reference  to  Exhibit  10.5  to  the
         Registrant's  Quarterly Report on Form 10-Q for the quarter ended March
         31, 1997.)

10.31    Form of  Non-Competition  Agreement  dated  March 5, 1997  between  the
         Company  and J.  Crayton  Pruitt,  Sr.,  M.D.,  Thomas  Benham,  Thomas
         Alexandris, Tom Judge, Natalie Judge, Helen Wallace, J. Crayton Pruitt,
         Jr., M.D., and Johanna  Pruitt.  (Incorporated  by reference to Exhibit
         10.6 to the Registrant's  Quarterly Report on Form 10-Q for the quarter
         ended March 31, 1997.)

13.1*     Portions of the  Registrant's  Annual Report to  Shareholders  for the
          year ended  December  31,  1998 which are  incorporated  by  reference
          herein.

21.1*    Subsidiaries of CryoLife, Inc.

23.1*    Consent of Independent Auditors.

27.1*    Financial Data Schedule

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

* Filed herewith.

     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).)

                                       38


<PAGE>

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

8.   Employment Agreement, by and between the Company and David M. Fronk.

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, as  amended.
     (Incorporated  by reference to Exhibit 10.15 to this Form 10-K.)

14.  CryoLife, Inc. Employee Stock Purchase Plan.  (Incorporated by reference to
     Exhibit "A" of the  Registrant's  Definitive Proxy Statement filed with the
     Securities and Exchange Commission on April 10, 1996.)

15.  Employment  Agreement  by and  between  the  Company  and  Kirby  S.  Black
     (Incorporated  by reference to Exhibit 10.9(g) to the  Registrant's  Annual
     Report on Form 10-K/A for the fiscal year ended December 31, 1996.)

16.  CryoLife, Inc. 1998 Long-Term Incentive Plan. (Incorporated by reference to
     Exhibit 10.26 to this Form 10-K).

     (b) Reports on Form 8-K

1.   The  Registrant filed a Current  Report on  Form 8-K  with  respect  to the
     Asset Purchase Agreement by and between Horizon Medical Products,  Inc. and
     Ideas for Medicine,  Inc. dated  September 30, 1998 with the Securities and
     Exchange Commission on October 15, 1998.

2.   The  Registrant filed a Current  Report on Form 8-K/A with  respect  to the
     Asset Purchase Agreement by and between Horizon Medical Products,  Inc. and
     Ideas for Medicine,  Inc. dated  September 30, 1998 with the Securities and
     Exchange Commission on November 14, 1998.



                                       39


<PAGE>



                                   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 26, 1999
                                 By  /S/ 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.



<TABLE>
<S>                                       <C>                                       <C>    
                 Signature                                 Title                           Date
                 ---------                                 -----                           ----

         /s/ STEVEN G. ANDERSON           President, Chief Executive Officer         March 26, 1999
         ---------------------- 
            Steven G. Anderson            and Chairman of the Board of
                                          Directors (Principal Executive
                                          Officer)

        /s/ EDWIN B. CORDELL, JR.         Vice President and Chief Financial         March 26, 1999
        -------------------------  
          Edwin B. Cordell, Jr.           Officer (Principal Financial and
                                          Accounting Officer)

          /s/ RONALD D. MCCALL            Director                                   March 26, 1999
          ---------------------
             Ronald D. McCall


          /s/ BENJAMIN H. GRAY            Director                                   March 26, 1999
          ---------------------
             Benjamin H. Gray


          /s/ VIRGINIA C. LACY            Director                                   March 26, 1999
          ---------------------
             Virginia C. Lacy


   /s/ RONALD CHARLES ELKINS, M.D.         Director                                   March 26, 1999
   -------------------------------
        Ronald Charles Elkins, M.D.
</TABLE>





<PAGE>



SCHEDULE II
                         CRYOLIFE, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                  Years ended December 31, 1998, 1997, and 1996

<TABLE>
<CAPTION>
                                                                                      
                                                                                       Balance end         
                                              Balance beginning                            of
                 Description                      of period     Additions   Deductions   Period
                 -----------                  ----------------- ---------   ---------- -----------
<S>                                              <C>            <C>          <C>         <C>   
                                                                                    
Year ended December 31, 1998
   Allowance for doubtful accounts...........    $   103,000    $171,000      $18,000    $256,000
   Deferred preservation costs...............        152,000           -       99,000      53,000

Year ended December 31, 1997
   Allowance for doubtful accounts...........     $   94,000    $ 46,000     $ 37,000   $ 103,000
   Deferred preservation costs...............        278,000         --       126,000     152,000

Year ended December 31, 1996
   Allowance for doubtful accounts...........     $   30,000    $ 88,000     $ 24,000   $  94,000
   Allowance for doubtful note receivable....        225,000         --       225,000         --
   Deferred preservation costs...............        247,000     140,000      109,000     278,000


</TABLE>







                                                                 EXHIBIT 10.9(a)

                              EMPLOYMENT AGREEMENT

         THIS AGREEMENT made as of the 18th day of January,  1999 by and between
STEVEN G. ANDERSON (hereinafter referred to as "EMPLOYEE"),  and CRYOLIFE, INC.,
a Florida Corporation (hereinafter referred to as "EMPLOYER"):

                                   WITNESSETH:

         1.  Employment:  Employer  hereby employs  Employee and Employee hereby
accepts employment upon the terms and conditions as set forth hereinafter. It is
agreed that this  Employment  Agreement  shall  replace the previous  Employment
Agreement dated April 10, 1995.

         2. Term of  Employment:  Subject to the  provisions of  termination  as
hereinafter provided,  the term of this Agreement shall begin on the 18th day of
January,  1999,  and  terminate  on the 18th  day of  January,  2004  and  shall
automatically  be renewed for one  successive  five (5) year term unless  either
party  gives the other  notice to  terminate  the  Employment  Agreement  at the
expiration of the original term,  which notice must be given at least sixty (60)
days prior to the expiration of said original five year term.

         3.  Compensation:  The Employer shall pay to the Employee the following
compensation:

          (a)  A base  salary of  $442,750.00  per year  which may be  increased
               annually  during the term of this  agreement.  Said salary may
 be
               increased annually by the Compensation  Advisory Committee of the
               Company,  pursuant to its annual  review.  In this  agreement all
               references to "salary"  shall be defined as the "base salary" and
               any  increases  thereof  of the  Employee  at the time  involved,
               whether the amount set forth above,  or the amount  hereafter set
               by the said  Compensation  Advisory  Committee.  Nothing  in this
               agreement shall be deemed to preclude the Employee from receiving
               raises in salary or options to purchase  stock during the term of
               this  agreement.  The salary  will be  reviewed  annually  by the
               Compensation  Committee  of  the  Company,  being  guided  by the
               Radford study and his performance;

          (b)  Additional  compensation  may be paid to  Employee in the form of
               salary  increases  and stock option  grants,  depending  upon his
               performance as determined by Employer;

          (c)  The  Employee  may  receive an annual  bonus in  addition to said
               salary; and

          (d)  The Employer  agrees to  reimburse  the Employee for the costs of
               the motor  vehicle that he drives by making  payments to Employee
               to reimburse him for the down payment and monthly payments on the
               motor  vehicle  purchased  by  him,  together  with  payments  to
               reimburse him for the gasoline, oil and repairs of the Employee's
               motor  vehicle  and  for  all  other   reasonable  motor  vehicle
               expenses.  Employee  shall  maintain  the motor  vehicle  in good
               operating condition.


<PAGE>

         4. Duties: Employee is engaged as President and Chief Executive Officer
for the  Employer  and shall  serve as a Director  and  Chairman of the Board of
Directors,  and shall perform such duties of those  positions  including but not
limited to the following:

          (a)  Employee  shall  have  such  duties  as may from  time to time be
               assigned to him by the Employer;

          (b)  Employee  shall  devote his full time to the  performance  of his
               duties  as the  President  and  Chief  Executive  Officer  of the
               Employer  and shall  not enter  into  competition  with  Employer
               and/or any of its  subsidiaries or affiliates  during the term of
               this Agreement; and

          (c)  Employee's duties shall include acting as Chief Executive Officer
               for the Employer and he shall be responsible for the operation of
               all of the business of the Employer.  The requirements imposed in
               this  paragraph are not intended to be all inclusive and Employee
               will perform all of the duties  associated  with being  Chairman,
               President and Chief Executive  Officer for this  enterprise.  The
               titles "President", "CEO", and "Chairman" will not be assigned to
               any other person.

         5. Extent of Service:  Employee  shall be employed on a full time basis
and exercise his efforts to the optimum benefit of the Employer.  Employee shall
be granted a vacation of up to four (4) weeks per year and shall be eligible for
such  vacation upon the signing of this  agreement.  Scheduling of such vacation
shall be arranged at least fifteen (15) days in advance thereof if possible. Any
vacation  time unused  during any one year period of  employment  may be carried
forward to the next year.  Employee shall be compensated for any unused vacation
time remaining at the end of the contract.

         6. Illness and Incapacity:  Employee shall receive compensation for any
period of illness or incapacity during the terms of this Agreement,  at the same
rate provided under this agreement.

         7.  Disability  Insurance:  Employer  agrees to provide to the Employee
appropriate   disability   insurance  coverage,   providing  the  Employee  with
disability benefits  appropriate to his position in the company and his earnings
therefor.  Employee  agrees to obtain  quotations for  disability  insurance and
provide  them to  Employer  for its  consideration.  The  decision  as to  which
disability  insurance  carrier  to  select  remains  in the sole  discretion  of
Employer.  The coverage obtained shall provide  disability  benefits to Employee
appropriate to his income at the time of disability. The disability policy shall
be owned by the Employee,  but the annual premium shall be paid by the Employer.
The Employer shall have the right to terminate this Agreement if such illness or
incapacity  shall be of such a character as to totally  prohibit  Employee  from
rendering  substantially  all services to the Employer for a period of more than
one hundred  eighty  (180) days in one calendar  year,  by giving at least sixty
(60) days written  notice of intention to do so. For the purposes of determining
ability or inability to render  substantial  services,  the criterion to be used
shall be that which is used in  determining  total  disability  under the Social
Security  Act of 1934 as Amended.  If Employee  shall  resume his duties  within
sixty (60) days following receipt of such notice,  and shall perform such duties
on a regular  basis for 180  consecutive  days  thereafter,  this  Agreement and
Employee's  employment  shall  continue and the notice of intention to terminate
shall have no further force, effect or validity.


                                       2


<PAGE>


          8. Termination Upon Disability:  Employer may terminate the employment
of  Employee  in the  event  of the  disability  of  Employee.  As used  herein,
"Disability" shall mean a mental or physical condition of Employee which, in the
professional  determination  of an  independent  physician  chosen by  Employer,
renders  Employee  incapable of performing his duties under this Agreement for a
continuous  period of six (6) months or longer.  In the event  Employee  (or his
custodian)  disagrees  with  the  determination  of the  independent  physician,
Employee  may  obtain  the  determination  of  another   physician,   reasonably
acceptable to Employee and Employer, whose opinion shall be conclusive.

          9. Major Medical and Life Insurance:  Employer agrees to provide major
medical and life insurance coverage for Employee. The major medical policy shall
designate Employee's wife, Ann B. Anderson,  as an insured under the said policy
in addition to Employee.  Said insurance  coverage shall be provided to Employee
and his  wife,  Ann B.  Anderson,  during  the  employment  of  Employee  and as
otherwise provided for hereinafter. A life insurance policy shall be provided to
Employee by Employer provided Employee meets the requirements of the insurer for
coverage.  Said policy shall  provide  benefits in an amount up to two (2) times
Employee's current salary or more. Employee shall designate the beneficiaries of
said life  insurance  policy.  Employee  agrees to cooperate with the Company to
obtain  key-man life  insurance on  Employee's  life should  Employer  desire to
purchase same for its benefit.

         10. Death and Survivor Benefits: If Employee should die during the term
of his  employment,  the  employment is terminated and the Employer shall pay to
the spouse of the Employee, or other survivor designated by Employee,  including
the Employee's estate if so designated,  the compensation  which would otherwise
be  payable  to  Employee  through  to the end of the  month in which  his death
occurs,  plus one (1) year's salary.  The Employer shall have no other financial
obligations to Employee's  spouse or other designated  survivor,  or estate with
the exception of the provisions for health  insurance to Employee's wife, Ann B.
Anderson.  In the event of Employee's  demise prior to the  termination  of this
agreement,  Employer agrees to continue the major medical insurance as described
hereinabove for Employee's wife, Ann B. Anderson, for the duration of her life.

         11. Termination of Employment:  Notwithstanding any provision stated in
Paragraph 3  hereinabove,  the Employee may terminate this Agreement upon giving
adequate  notice  thereof  as  described  herein.  In  the  event  the  Employee
terminates this Agreement, he shall be required to give one hundred eighty (180)
days written notice.  Said termination shall be effective upon the expiration of
said one hundred eighty (180) days.

         Employer may terminate the employment of the Employee hereunder with or
without good cause (as defined  hereinbelow,  and also sometimes  referred to as
"cause") by giving one hundred eighty (180) days written notice of its intention
to do so. If the  termination  of the  employment  of Employee  is without  good
cause, Employer shall pay compensation to Employee consisting of the base salary
and any increase  thereof for the period  remaining on the  agreement or for two

                                       3


<PAGE>



(2) years  whichever  is greater.  If the Employer  gives notice of  termination
without good cause,  or if the  termination is without good cause,  the Employer
will be required  to pay to the  Employee  the sum due to Employee  for his base
salary, plus any increase thereof,  for the year(s) remaining on the contract or
for a period of twenty four (24)  months,  whichever is greater,  as  reasonable
compensation  for the  reminder  of the term of this  agreement  and its renewal
term.  The said  compensation  shall be paid in a lump sum  within  one  hundred
eighty (180) days from the date of the notice of  termination.  The  termination
shall be  effective  as of the date set forth by the  Employer  in the Notice of
Termination,  which may not be less than one  hundred  eighty  (180)  days after
delivery of the notice.

         In the event of termination  for good cause,  the Employee will be paid
his base salary and increases  thereof for one hundred eighty (180) days, but no
other  compensation  shall be due under this  agreement for the remainder of the
term of this agreement,  however, Employee shall be entitled to a hearing before
the board of directors of the Company  within one hundred eighty (180) days, and
Employee may sue for damages claiming the termination was not for good cause and
seek damages and he may pursue such other remedies as may be available.

         Employer may terminate  Employee's  employment under this agreement for
good cause  which shall mean (i)  Employee's  willful  and wanton  wrongful  act
having a substantial  material  adverse effect on the Employer;  (ii) Employee's
acts  amounting to gross  negligence to the material  detriment and  substantial
material  adverse  effect on the Employer;  (iii)  Embezzlement  of funds of the
Employer;  or (iv) Employee's  conviction of a felony. In order to terminate the
employment of Employee  pursuant to this paragraph,  Employer must first provide
Employee  with written  notice of  termination  which notice shall  specifically
identify the  circumstances  which  constitute  cause for termination as defined
herein.  In the event of termination for cause under the provisions set forth in
subsections  (i) or (ii) of this  paragraph,  Employee  shall  have one  hundred
eighty  (180)  days in which to cure such  default.  In the event the  Notice of
Termination  states  that it is "for good  cause",  then  during the one hundred
eighty (180) days,  Employee  shall be entitled to meet with the  directors at a
meeting  called  for the  purpose  of  reconsidering  the  termination.  At that
meeting,  the Employee may present such information or evidence as may bear upon
the issue of cause for termination.  Upon the Employee making such presentation,
the directors shall  reconsider the issue of termination  and determine  whether
the Employee is or is not terminated at the close of said directors' meeting. If
the Employer's notice of termination is for good cause the employee may make the
above  presentation  and if the  directors  do not  reconsider  and withdraw the
termination,  then the  Employee  may sue at law for  damages or may pursue such
other  remedies  available.  If the notice of  termination is withdrawn then the
Employee  will remain  employed  pursuant to this  agreement.  Nothing set forth
above shall  require that the Employee  request a meeting with the directors for
reconsideration  or present  any  evidence  at such a meeting.  If no meeting is
requested  by  Employee he shall be entitled to file suit at law for damages for
breach of contract or to pursue any other remedies available to him.

         In the event that Employer  terminates this  agreement,  the employment
shall cease one hundred  eighty  (180) days after such notice is  delivered  and
this agreement shall be terminated. The Employer reserves the right to discharge
the  Employee  without good cause and without  hearing  provided the Employee is
paid the base salary, plus any increases thereof for the period specified above,
together with any earned but unpaid  salary,  earned but unused  vacation  time,
bonus or other  compensation,  as of the date of the  termination.  Both parties
shall be bound to honor  any and all  bonuses,

                                       4

<PAGE>

allowances, unpaid but earned vacation time, loans and separate agreements which
have previously been specified in writing.  The Employer's notice of termination
must state whether the  termination is "for good cause" or "without good cause".
The parties  agree that any  termination  by the  Employer  which fails to state
whether it is "for good cause" or "without  good cause" shall be deemed as being
"without good cause" and shall be treated as a termination "without good cause".
The parties  agree that the  Employer  may not change its Notice of  Termination
from being "without good cause" to being "with good cause". Upon delivery of the
Notice of  Termination  by the  Employer to the  Employee,  Employee may request
reconsideration or he may sue at law for damages or he may do both.

          12. Personal Information: Employee agrees to provide the Employer with
complete  pertinent  information upon request.  Such information shall be in the
form of a completed application for employment as requested.  Employee agrees to
supplement or update such information in writing upon request of Employer.

          13.  Approval:  Employer  shall be the sole  judge as to  whether  the
Employee is performing his duties in a satisfactory manner.

         Employee  covenants and agrees that he will treat as  confidential  and
will not, without the prior written approval of Employer, use (other than in the
performance  of his  designated  duties of  Employer)  or disclose in any manner
either during or after the term of his employment hereunder any Trade Secret.

          All records,  notes, files,  memoranda,  reports,  price lists, client
lists,  drawings,  plans,  sketches,  documents,  equipment,  apparatus and like
items,  and all copies  thereof,  relating to the  business of Employer or Trade
Secrets,  which shall be prepared by Employee or which shall be  disclosed to or
which shall come into the  possession of the  Employee,  shall be and remain the
sole and exclusive  property of Employer.  Employee agrees that at any time upon
request from Employer, he will promptly deliver to Employer, as the case may be,
the originals and all copies of any of the foregoing that are in his possession,
custody or control, and any other property belonging to Employer.

          14.  Reproduction  Rights: The Employer shall have the exclusive right
to reproduce  any design or invention  completed by Employee  during the term of
his  employment  and to  reproduce  any design or invention  produced  from such
design  work,  or to make  any and all  modifications  to such  design  work and
modifications produced therefrom which the Employer, in its sole discretion, may
feel necessary or desirable.

         15.  Employee's  Warranties:  By  executing  this  Agreement,  Employee
warrants:

         (a)      That Employee shall not infringe upon any statutory copyright,
                  common law right,  proprietary  right,  patent  right,  or any
                  other right whatsoever in performing his duties;

         (b)      That any design work to be done by Employee  shall  contain no
                  matter contrary to law; and

                                       5

<PAGE>

         (c)      That  Employee  will  not  invade  the  right  of  privacy  by
                  depicting  persons or places in any design work without  first
                  obtaining the written  release of privacy rights from all such
                  persons or owners of such places and shall remit the originals
                  of such release to the Employer.

          Employee  agrees that the warranties  contained  herein are true as of
the date of the  execution of this  Employment  Agreement  and shall remain true
throughout the term of his employment,  and Employee further agrees to indemnify
and hold harmless the Employer from any and all claims  arising from breaches of
the aforesaid warranties.

          16. Intellectual Property: The Employee specifically waives any rights
he might be construed to have as a consequence of that industry convention which
grants  an  employee  the  right  to use for his,  in  whole  or in part,  after
termination of his  employment,  any  inventions,  innovations or designs,  etc.
(hereinafter  referred to as  "Intellectual  Property")  susceptible  to patent,
registrations,  copyright or other legal protection  (hereinafter referred to as
"Protection"),  whether  domestic or foreign,  which he may originate during the
term of his  employment,  using  facilities  or any  other  form  of  assistance
provided by the Employer.

          In the specialized case in which the Employee may originate on his own
time, on other than Employer's  premises,  and with no assistance from Employer,
including use of Employer's facilities, any Intellectual Property susceptible to
Protection,  it is  understood  that he shall have the right to exploit the same
for his personal account (provided he personally undertakes the expense involved
in establishing  Protection).  In such specialized case,  however,  the Employer
shall have, and is hereby granted, a fully-paid  royalty-free  license to use in
its own operation  such  Intellectual  Property for the period of employment and
for two (2) years thereafter.

          With further respect to any item of Intellectual Property developed in
the manner  defined by the  immediately  preceding  paragraph,  in the event the
Employee does not wish or is unable personally to pay for such Protection of any
Intellectual  Property,  the Employer  shall have the option to do so, but shall
not be required to do so, and shall thereafter enjoy the sole proprietorship and
ownership  of such  Intellectual  Property  without  any  duty or  liability  to
Employee.  The Employee shall make available to the Employer all the information
at his disposal relating to such Intellectual Property, and shall cooperate with
it in every way necessarily implied to obtain such Protection for the Employer.

         Employee further agrees to execute whatever  conveyances,  assignments,
bills  of sale or other  documents  that may at any  time  become  necessary  to
execute or to provide  whatever further  assurances  Employer deems necessary in
its sole discretion in order to perfect  Employer's  title to the rights to such
Intellectual Property that Employer has been granted by this Agreement. Employee
agrees not to  incorporate  in any  writings  composed by him such  Intellectual
Property  or any other  information  of a  proprietary  nature or trade  secrets
(including but not limited to ideas or items susceptible to Protection) that may

                                       6


<PAGE>


belong to the Employer or  subsequently  come to,  belong or be possessed by the
Employer without the prior written consent of the Employer, which consent may be
arbitrarily,  unreasonably or capriciously  withheld. In order to effectuate the
rights granted to the Employer,  pursuant to this paragraph,  Employee agrees to
submit all  tracts,  manuscripts,  texts and  writings  he intends to publish to
Employer  prior to submitting  them for  publication to any publisher or causing
them to be published himself.  In the event the Employer determines the material
submitted  violates the  provisions of this  paragraph,  the offending  portions
shall  be  deleted.  It is  further  provided  that  if  Employee  disputes  the
Employer's decision, the dispute shall be decided by arbitration pursuant to the
Florida Arbitration Code.

          17.  Restrictive  Covenant:  Employee  recognizes  that  opportunities
afforded him by Employer are valuable  assets and of great  personal  benefit to
him in his  line  of  work,  and  therefor,  provide  sufficient  basis  for the
restrictive covenants contained in this paragraph.  In recognition of the above,
and in further  consideration  of his employment by Employer,  Employee  further
agrees that during the term of this  Agreement and for a period of two (2) years
from the date of any  termination of his  employment,  whether by termination of
this  Agreement,  by wrongful  discharge,  or  otherwise,  shall not directly or
indirectly,  in the United States or on offshore islands,  engage in competition
which the Employer or its affiliates of which at the time of such termination is
conducting  or has  conducted  business,  nor in any State,  territory  or other
countries in which the Employee knows that the Employer intends to extend, carry
on, or is carrying on, business by expansion of its  activities.  Competition of
the Employer as referred to in this  paragraph  shall include but not be limited
to business of the Employer as it now exists or may exist in the future,  either
as an  individual on his own account,  as a partner,  joint  venture,  employee,
agent,  salesman  or  contractor  for  any  person;  an  officer,   director  or
stockholder  of a  corporation  or  otherwise.  Solicitation  or  acceptance  of
business  outside the restricted  territories  for purchase of,  shipment to, or
delivery of  materials in any of the  restricted  territories  shall  constitute
"engaging in business" in the restricted  territories and by all reasons of this
paragraph,  be a  violation  of this  paragraph.  This  covenant  on the part of
Employee shall be construed as an agreement  independent of any other  provision
of this  Agreement.  The  existence  of any claim or cause of action of Employee
against the Employer,  whether predicated on this Agreement or otherwise,  shall
not constitute a defense to the enforcement by the Employer of this covenant. It
is agreed by the parties hereto that if any portion of this non-compete covenant
is held to be  unreasonable,  arbitrary or against public  policy,  the covenant
herein shall be considered divisible both as to time and geographical area. Each
month of the specified  period shall be deemed a separate  period of time.  Each
state of the United States of America,  any other country, or territory shall be
deemed  a  separate  geographical  area so that  the  lesser  period  of time or
geographical   area  shall  remain   effective  so  long  as  the  same  is  not
unreasonable,  arbitrary,  or against  public  policy.  The parties hereto agree
that,  in the  event any  court  determines  the  specified  time  period or the
specified  geographical  area to be  unreasonable,  arbitrary or against  public
policy, then a lesser time period or geographical area which is determined to be
reasonable,  non-arbitrary and not against public policy may be enforced against
Employee.

          18.  Resolution  of  Disputes:  In case of any  conflicts or disputes,
normal  industry  practices shall be considered but the decision of the Employer
shall be final.

         19. Entire  Agreement:  This Agreement  represents the entire agreement
between the parties with respect to employment and any matters not  specifically
mentioned herein shall not be binding on the parties.

                                       7


<PAGE>


         20.  Governing  Law: This contract shall be governed by the laws of the
State of Florida.

         21. Miscellaneous: Whenever used, the singular number shall include the
plural,  the plural the  singular,  and the use of any gender shall  include all
genders.

         22.  Waiver of Breach:  The waiver by the  Employer  of a breach of any
condition of this  Agreement  by Employee  shall not be construed as a waiver of
any subsequent breach by Employee.

         23. Effective Date: This Agreement shall be effective as of January 18,
1999.

         24.  Notice:  Any notice  required or  permitted to be given under this
Agreement  shall  be  sufficient  if in  writing  and if  sent by  certified  or
registered  mail,  return  receipt  requested,  to the parties at the  following
addresses:

     To the Employer:                   CryoLife, Inc.
                                        c/o: Ronald McCall, Esquire
                                        Secretary/Treasurer
                                        1655 Roberts Boulevard, N.W.
                                        Kennesaw, Georgia 30144

     To the Employee:                   Steven G. Anderson
                                        President & CEO
                                        5040 Northside Drive
                                        Atlanta, Georgia 30327


         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
day and year first above written.


WITNESSES:                                CRYOLIFE, INC./EMPLOYER:

____________________________              BY:  /s/ Ronald D. McCall
                                               ---------------------
                                               RONALD D. MCCALL 
                                          It's:   Secretary/Treasurer
____________________________


                                          Attest:                 (SEAL)

                                          /s/  Suzanne K. Gabbert
                                               --------------------- 
                                               SUZANNE GABBERT
                                          It's:  Assistant Secretary


                                                    EMPLOYEE:

____________________________               /s/ Steven G. Anderson
                                               ---------------------
                                               STEVEN G. ANDERSON
____________________________               Print or type name of Employee



                                       8




                                                                 EXHIBIT 10.9(g)

                              EMPLOYMENT AGREEMENT

     In consideration of the promises hereinafter contained,  CryoLife,  Inc., a
Florida  corporation  ("we",  "our" and "us") and David M. Fronk ("you")  hereby
agree as of this 24th day of August, 1992 to the following:

     1. Employment. We hereby employ you and you hereby accept employment on the
terms and conditions set forth below. Your duties and compensation are set forth
on the Exhibit attached hereto.

     2. Extent of  Services.  During your  employment,  you agree to devote your
full and  exclusive  time and  attention  to your  employment  duties and not to
engage in any other  business  activity  which  conflicts  or competes  with our
business or which reduces your  effectiveness  in  performing  your duties under
this Agreement unless you have first obtained our prior written consent.

     3.  Benefits and Absences.  You are entitled to all benefits  offered by us
for  which  you  meet  the  eligibility  requirements.  You are  subject  to the
obligations  concerning  absences  due to  disability,  sick  leave,  and  other
absences,  described in the current  benefit  summary  schedule,  and as revised
hereafter.

     4. Term and Termination. Your employment shall commence on the date of this
Agreement.  Both you and we shall  have the right  upon
  giving 30 days  written
notice to the other to terminate with or without cause the employment under this
Agreement.  However,  if one party to this Agreement  terminates the employment,
the other  party may at his  option  effect  the  separation  immediately.  This
Agreement  shall  automatically  terminate  in the  event  of your  death.  Such
automatic  termination  shall  discharge  both  parties  hereto from any and all
further liability or responsibility to the other under this Agreement.

     5. Right to Change  Duties.  We reserve  the right to change the nature and
scope  of your  duties.  In the  event  of any  transfer  to  another  corporate
facility,  we shall  defray the  reasonable  cost of  transporting  you and your
family with household furnishings to your new location.

     6. Secrecy and  Noncompetition.  Your  employment and continued  employment
with us is  conditioned  upon your signing our standard  Secrecy and  Noncompete
Agreement  whose terms and  agreements  you agree to be bound by. You agree that
under no condition will any breach or infraction of this Agreement be assertable
as a defense to any action or  responsibility  incurred by you under the Secrecy
and Noncompete Agreement.

     7. Your  Warranties.  You present and warrant  that you will not utilize or
disclose any trade secrets or  proprietary  information of others to us and that
the only  secrecy  and/or  noncompetition  agreements  you have with  others are
identified on the attached exhibit.



<PAGE>


     8.  Miscellaneous.  This Agreement may not be changed or terminated  orally
and no change, termination or attempted waiver of the provisions hereof shall be
binding  unless in writing  and signed by the parties  against  whom the same is
sought to be enforced;  provided,  however,  that the  compensation  paid to you
hereunder  may be increased at any time by us without in any way  affecting  any
other term or  condition of this  Agreement  which in all other  respects  shall
remain in force and effect.  This Agreement shall be governed by the laws of the
State of Georgia.

         IN WITNESS  WHEREOF,  this  Agreement has been duly executed on the day
and year first above written.

                                             CRYOLIFE, INC.


                                             By: /s/ Steven G. Anderson
                                                 -------------------------------
                                             Its:  President


                                             EMPLOYEE


                                            
                                             /s/ David M. Fronk
                                             -----------------------------------





                                                                    EXHIBIT 13.1

                          MARKET PRICE OF COMMON STOCK

The  Company's  Common Stock is traded in the NYSE under the symbol "CRY." Prior
to July 15, 1997, the Company's  Common Stock was traded on the Nasdaq  National
Market under the symbol "CRYL." The following table sets forth,  for the periods
indicated,  the intra-day  high and low sale prices per share of Common Stock on
the NYSE or the Nasdaq National Market, as applicable.


1998                                    High                   Low        

- -----------------------------------------------------------------------
First quarter                           17 15/16               12 1/4
Second quarter                          18 1/4                 14 3/4
Third quarter                           16 1/4                 12 1/16
Fourth quarter                          15 11/16                9 3/16
- -----------------------------------------------------------------------


1997                                    High                   Low

- -----------------------------------------------------------------------
First quarter                           14 1/4                  8
Second quarter                          13 1/4                  7 5/8
Third quarter                           16 1/8                 11 1/4
Fourth quarter                          19                     13
- -----------------------------------------------------------------------




<PAGE>


SELECTED FINANCIAL INFORMATION (In thousands except share data) December 31.

<TABLE>
<CAPTION>

OPERATIONS                                          1998       1997        1996       1995       1994
- -----------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>         <C>        <C>        <C>    
      Revenues                                   $60,691    $50,571     $36,866    $29,226    $28,810
      Net income                                   6,486      4,725       3,927      2,202      1,266
      Research and development
           as a percent of revenues                 7.8%       7.8%        7.6%       9.0%       8.3%

EARNINGS PER SHARE (1),(2)
- -----------------------------------------------------------------------------------------------------
      Basic                                        $0.54      $0.49       $0.41      $0.23      $0.14
      Diluted                                      $0.53      $0.48       $0.40      $0.23      $0.14


YEAR-END FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------
      Total assets                               $98,390    $54,402     $34,973    $24,132    $21,417
      Working capital                             62,313     19,478      10,787     15,217     14,279
      Long-term liabilities                        8,577     17,846       2,799          0          0
      Shareholders' equity                        80,424     30,227      24,929     20,465     17,933
      Current ratio                                  8:1        4;1         3:1        5:1        5:1
      Shareholders'
 equity
           per diluted common shares (1),(2)       $6.56      $3.04       $2.52      $2.14      $1.91
</TABLE>






SELECTED QUARTERLY FINANCIAL INFORMATION (In thousands except share data)

<TABLE>
<CAPTION>
                                                     First        Second        Third      Fourth
REVENUES                                 Year      Quarter       Quarter      Quarter     Quarter
- --------------------------------------------------------------------------------------------------
<S>                                      <C>       <C>           <C>          <C>         <C>
                                         1998      $14,561       $15,554      $16,014     $14,562
                                         1997       10,411        12,641       14,569      12,950
                                         1996        8,372         9,644       10,211       8,639

NET INCOME
- -------------------------------------------------------------------------------------------------
                                         1998       $1,172        $2,048       $1,902      $1,364
                                         1997          952         1,160        1,458       1,155
                                         1996          782           988        1,261         896

EARNINS PER SHARE - DILUTED (1),(2)
- --------------------------------------------------------------------------------------------------
                                         1998         0.12          0.16         0.15        0.11
                                         1997         0.10          0.12         0.15        0.12
                                         1996         0.08          0.10         0.13        0.09
</TABLE>


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

(1)  Reflects adjustment for the 2-for-1 stock split effected June 28, 1996.

(2)  Presented, and where appropriate,  restated  to  conform to  Statement  128
   requirements.


<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

Overview

The Company was organized in 1984 to address market opportunities in the area of
biological  implantable  products and materials,  and today is the leader in the
cryopreservation  of viable  human  tissue  for  cardiovascular,  vascular,  and
orthopedic  applications.  A majority  of the  Company's  current  revenues  are
derived from the cryopreservation of human heart valves and conduits, reflecting
CryoLife's   initial   exclusive   focus  on  this  area.   The  Company   began
cryopreserving  aortic heart valves in 1984, pulmonary heart valves in 1986, and
mitral   heart   valves  in  1995.   CryoLife   has  also   expanded   into  the
cryopreservation of other human tissue, including vascular tissue and connective
tissue for the knee.

The Company pays a fee to an organ procurement agency or tissue bank at the time
such  organization  consigns human tissue to the Company.  The Company generates
revenues  from  cryopreservation  services  by charging  hospitals a fee,  which
covers the Company's  services,  the associated  procurement  fee and applicable
shipping  expenses.  The Company  records  revenue upon shipping  tissue.  Costs
associated with the procurement,  processing and storage of tissue are accounted
for as deferred  preservation costs on the Company's  consolidated balance sheet
and are expensed when the tissue is shipped.  The Company  continually  monitors
cryopreserved  tissue in its  possession  to  determine  its  viability.  Tissue
determined not to be suitable for implantation is disposed of and the associated
deferred  preservation  costs are  expensed.  As part of an effort to reduce its
working   capital  needs,   while   simultaneously   facilitating   the  use  of
cryopreserved  tissue,  the Company  provides the liquid nitrogen  freezers to a
number of  hospitals.  The  Company  retains  ownership  of the liquid  nitrogen
freezers  and,  consequently,   incurs  associated   depreciation  charges.  The
hospitals  are  responsible  for  operating  expenses  related to the use of the
liquid nitrogen freezers.

The Company has  expanded,  and intends to continue to expand,  its portfolio of
products and  services.  Much of this  expansion has been  accomplished  through
acquisitions  of  intellectual  property and  businesses.  In 1992,  the Company
purchased for $730,000 the exclusive distribution rights for a line of stentless
aortic  porcine heart valves and in 1996  purchased for $275,000 a patent for an
advanced  design  stentless  pulmonary  porcine  heart valve,  both of which the
Company  currently markets in Europe,  South America,  the Middle East and South
Africa.  Also in 1996, the Company purchased the patent for BioGlue,  a surgical
adhesive which the Company  currently  markets in Europe,  South America,  Asia,
South Africa and the Middle East, and the Company acquired the assets of UCFI, a
tissue  processor,  for $750,000 in cash and a $1.3 million note.  In 1997,  the
Company  acquired  Ideas for Medicine,  Inc.  ("IFM") and its line of single-use
medical devices for $4.5 million in cash, a $5.0 million  convertible  debenture
and a  commitment  to pay  additional  cash  consideration  (not to exceed $1.75
million) if certain target net revenues of IFM are exceeded.

On September 30, 1998 the Company completed the sale of substantially all of the
IFM product line and certain  related assets to Horizon Medical  Products,  Inc.
("Horizon"),  for $15 million in cash pursuant to an asset  purchase  agreement.

<PAGE>



Concurrently,  IFM and Horizon signed a  manufacturing  agreement which provides
for the  manufacture by IFM of specified  minimum dollar amounts of IFM products
to be purchased exclusively by Horizon over each of the four years following the
sale.  Thereafter,  responsibility  for such  manufacturing  is to be assumed by
Horizon.  The Company recorded deferred revenue at the transaction date totaling
$2.9  million,  representing  the  selling  price less the net book value of the
assets  sold,  which  included  $7.7  million of  goodwill,  net of  accumulated
amortization,  and the costs  related  to the sale.  The  revenue  was  deferred
because the sale and manufacturing  agreements  represent,  in the aggregate,  a
single  transaction  for which the related income should be recognized  over the
term of the manufacturing agreement.  Accordingly, the deferred revenue is being
reflected  in cost of goods sold over the  four-year  term of the  manufacturing
agreement in a manner which is expected to result in approximately equal margins
over  the  four-year  period  on the  products  manufactured  and sold by IFM to
Horizon. During 1998 amortization of deferred revenue totaled $387,000.

The composition of the Company's revenues is expected to change in future years,
reflecting,  among other things,  the  anticipated  growth in shipments of human
vascular tissue and human  connective  tissue for the knee, and the introduction
into  international  markets  of  BioGlue  Surgical  Adhesive  as well as  other
expected new products.

Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenues  increased 20% to $60.7 million in 1998 from $50.6 million in 1997. The
increase in revenues was primarily due to the growing  acceptance in the medical
community of  cryopreserved  tissues,  the Company's  ability to procure greater
amounts  of tissue,  price  increases  for  certain  cryopreservation  services,
revenues  attributable  to the  Company's  line of  single-use  medical  devices
following the IFM acquisition in March of 1997, and revenues attributable to the
Company's  introduction of BioGlue Surgical Adhesive in international markets in
April 1998.

Revenues from human heart valve and conduit cryopreservation  services increased
6% to $30.8  million in 1998 from $29.0  million in 1997,  representing  51% and
57%,  respectively,  of total  revenues  during such  periods.  This increase in
revenues  was  primarily  due to a 6% increase in the number of heart  allograft
shipments  due to an  increased  demand  and the  Company's  ability  to procure
greater amounts of tissue.

Revenues from human vascular tissue  cryopreservation  services increased 36% to
$14.3  million in 1998 from $10.5  million  in 1997,  representing  24% and 21%,
respectively,  of total revenues during such periods.  This increase in revenues
was  primarily  due  to a 37%  increase  in the  number  of  vascular  allograft
shipments  due to an  increased  demand  and the  Company's  ability  to procure
greater amounts of tissue.

Revenues from human  connective  tissue for the knee  cryopreservation  services
increased  63% to $7.7 million in 1998 from $4.7  million in 1997,  representing
13% and 9%, respectively,  of total revenues during such periods.  This increase



                                       2


<PAGE>

in revenues  was  primarily  due to a 50%  increase  in the number of  allograft
shipments due to increased  demand and the Company's  ability to procure greater
amounts  of  tissue.  Additional  revenue  increases  resulted  from  a  greater
proportion of the 1998 shipments consisting of cryopreserved menisci, which have
a  significantly  higher  per  unit  revenue  than the  Company's  cryopreserved
tendons, and price increases for the cryopreservation of menisci and tendons.

Revenues  from IFM  increased  1% to $5.7  million in 1998 from $5.6  million in
1997,  representing  9% and 11%,  respectively,  of total  revenues  during such
periods. This increase in revenues is due to 1998 having two extra months of IFM
revenue than 1997 due to the IFM acquisition closing on March 5, 1997, partially
offset by the sale of the IFM product line to Horizon  Medical  Products,  Inc.,
pursuant to which the Company  became an OEM  manufacturer  of such  products on
October 1, 1998.

Revenues from bioprosthetic  cardiovascular devices increased 33% to $764,000 in
1998 from  $576,000  in 1997,  representing  1% of total  revenues  during  such
periods.  This  increase in revenues was  primarily due to a 36% increase in the
number  of  bioprosthetic  cardiovascular  device  shipments  due  to  increased
manufacturing capacity. Revenues in 1998 also benefited from the introduction of
the CryoLife-Ross Pulmonary Valve into international markets in October 1998.

Revenues from BioGlue were $883,000 for 1998. The Company introduced the product
into international markets in April 1998.

Grant  revenues  increased  to  $512,000  in 1998 from  $162,000  in 1997.  This
increase in grant revenues is primarily  attributable to the SynerGraft research
and development programs.

Other income increased to $1,078,000 in 1998 from $290,000 in 1997. Other income
in 1998  relates  primarily  to  proceeds  from the sale of the  Company's  port
product line.

Cost of cryopreservation  services and products aggregated $25.3 million in 1998
compared to $17.8 million in 1997,  representing 42% and 35%,  respectively,  of
total cryopreservation and product revenues. The increase in 1998 of the cost of
cryopreservation  services and products as a percentage of revenues results from
a lesser  portion of 1998  revenues  being  derived  from human  heart valve and
conduit  cryopreservation  services,  which carry a  significantly  higher gross
margins  than other  cryopreservation  services,  from  increased  manufacturing
overhead costs associated with the Company's new manufacturing facilities,  from
the  switch  in  October  of 1998 to OEM  manufacturing  of  single-use  medical
devices, which generates lower gross margins than cryopreservation  services and
lower gross margins than the IFM products generated prior to the sale of the IFM
product line, compared with ten months of IFM sales in 1997, and from a one-time
charge  of  $500,000   associated   with  the  start-up  of  the   bioprosthetic


                                       3



<PAGE>

cardiovascular  device  manufacturing  facility.  The  increase  in the  cost of
cryopreservation services and products as a percentage of revenues was partially
offset by a decrease in the IFM products  sold in 1998 relative to those sold in
1997,  which  products  generate  lower  gross  margins  than   cryopreservation
services,  and the impact of the fourth quarter amortization of deferred revenue
resulting  from  the sale of the IFM  product  line,  which  has the  impact  of
reducing cost of goods sold.

General, administrative and marketing expenses increased 16% to $23.9 million in
1998, compared to $20.5 million in 1997, representing 40% and 41%, respectively,
of total  cryopreservation and product revenues in such periods. The increase in
expenditures in 1998 resulted from expenses  incurred to support the increase in
revenues  and  costs   associated   with  the   introduction   of  BioGlue  into
international markets.

Research  and  development  expenses  increased  19% to $4.7  million  in  1998,
compared to $3.9 million in 1997,  representing 8% of total cryopreservation and
product  revenues for each period.  Research and  development  spending  relates
principally  to  the  Company's  focus  on  its   bioadhesives   and  SynerGraft
technologies.

Net  interest  income was $820,000 in 1998  compared to net interest  expense of
$970,000 in 1997. This variance is due to the repayment of certain  indebtedness
with the proceeds from the follow-on equity offering completed in April 1998, as
well as the conversion of a portion of a convertible debenture into common stock
of the Company, and the receipt of interest income on the invested proceeds from
the follow-on equity offering (the "Offering").

The decline in the effective income tax rate to 25% in 1998 from 38% in 1997, is
due to the  implementation of certain income tax planning  strategies  including
the  recognition  of  approximately  $600,000 of research  and  development  tax
credits  during the fourth  quarter of 1998,  during which  period  studies were
completed which quantified the amounts related thereto.


Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenues  increased 37% to $50.6 million in 1997 from $36.9 million in 1996. The
increase in revenues was primarily due to the growing  acceptance in the medical
community of  cryopreserved  tissues,  the Company's  ability to procure greater
amounts of tissue,  price  increases for certain  cryopreservation  services and
revenues  attributable  to the  Company's  line of  single-use  medical  devices
following the IFM acquisition in March 1997.

     Revenues  from human  heart  valve and  conduit  cryopreservation  services
increased 17% to $29.0 million in 1997 from $24.8 million in 1996,  representing
57% and 67%, respectively, of total revenues during such years. This increase in
revenues was  primarily  due to a 16% increase in the number of heart  allograft
shipments and the Company's ability to procure greater amounts of tissue.

Revenues from human vascular tissue  cryopreservation  services increased 28% to
$10.5  million  in 1997 from $8.2  million  in 1996,  representing  21% and 22%,
respectively, of total revenues during such years. This increase in revenues was
primarily  due to a 22% increase in the number of vascular  allograft  shipments
resulting from the introduction of cryopreserved tissues for new procedures,  an
increased demand for the Company's  existing  cryopreservation  services and the
Company's ability to procure greater amounts of tissue.


                                       4


<PAGE>

Revenues from human  connective  tissue for the knee  cryopreservation  services
increased 38% to $4.7 million in 1997 from $3.4 million in 1996, representing 9%
of total revenues  during each year. This increase in revenues was primarily due
to a 19% increase in the number of allograft  shipments and a greater proportion
of  the  1997  shipments  consisting  of  cryopreserved  menisci,  which  have a
significantly higher per unit revenue than the Company's  cryopreserved tendons,
and the Company's ability to procure greater amounts of tissue.

Revenues  from the sale of  bioprosthetic  cardiovascular  devices  in 1997 were
$576,000  compared to $385,000 in 1996,  representing 1% of revenues during each
year. Other revenues  decreased to $460,000 in 1997 from $550,000 in 1996. Other
revenues in 1997 consisted primarily of research grant award revenues related to
the Company's SynerGraft technology.

Cost of  cryopreservation  services and products  increased to $17.8  million in
1997 from $12.6 million in 1996. Cost of cryopreservation  services and products
as a  percentage  of revenues  increased  to 35% in 1997 from 34% in 1996.  This
increase was primarily due to the increased  overhead costs  associated with the
new corporate  headquarters and the addition of the IFM product line,  partially
offset by  efficiencies  gained with the  increase  in the number of  allografts
processed.

General, administrative and marketing expenses increased 31% to $20.5 million in
1997 from $15.7  million in 1996,  representing  40% and 42%,  respectively,  of
total revenues during such years. The increased  expenses of approximately  $4.8
million were  primarily  attributable  to increased  costs  associated  with the
Company's  new  corporate  headquarters  and  increased  fees paid to  technical
representatives  and other marketing expenses relating to the growth in revenues
and increases in general overhead expenses to support the growth in revenues.

Research  and  development  expenses  increased  19% to $3.9  million  in  1997,
compared to $2.8 million in 1996,  representing 8% of total cryopreservation and
product  revenues  for  each  year.  The  Company's   research  and  development
expenditures  during 1997 were primarily for the development of bioadhesives for
surgical applications and its SynerGraft technology.

Seasonality

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


                                       5


<PAGE>


Liquidity and Capital Resources

At December 31, 1998 net working  capital was $62.3  million,  compared to $19.5
million at December  31,  1997,  with a current  ratio of 8 to 1. The  Company's
primary capital requirements arise out of general working capital needs, capital
expenditures  for facilities and equipment,  funding of research and development
projects and a common stock  repurchase  plan approved by the board of directors
in October of 1998.  The  Company  historically  has funded  these  requirements
through  bank  credit  facilities,  cash  generated  by  operations  and  equity
offerings.

Net cash provided by operating  activities  was $1.2 in 1998, as compared to net
cash  used in  operating  activities  of $2.2  million  in 1997.  This  increase
primarily  resulted from an increase in net income,  a decrease in the growth of
deferred preservation costs due to more stringent inventory management policies,
a decrease in the amount of accounts payable  liquidated in the first quarter of
1998 as compared to the first  quarter of 1997 due to shorter  accounts  payable
payment terms, and a decrease in income taxes receivable, partially offset by an
increase in  receivables  related to the increase in revenues and an increase in
inventories  to support the  increase in sales of  bioprosthetic  valves and the
introduction of BioGlue Surgical Adhesive.

Net cash used in investing  activities was $18.9 million in 1998, as compared to
net cash used in investing activities of $9.6 million in 1997. This increase was
primarily attributable to the purchase of investments with the proceeds from the
Company's  follow-on  equity offering and the absence of a business  acquisition
during  1998,  partially  offset  by the net  proceeds  from the sale of the IFM
product line.

Net cash provided by financing activities was $30.5 million in 1998, as compared
to $10.6 million in 1997.  This increase was primarily  attributable to proceeds
of $45.4  million  from the  Offering,  partially  offset  by the  repayment  of
borrowings on the Company's bank loans, and accrued interest  thereon,  totaling
$13.3 million.

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

The Company anticipates its cash, short-term investments and cash generated from
operations will be sufficient to meet its operating and development needs for at
least the next 12 months.  However,  the Company's  future liquidity and capital
requirements beyond that period will depend upon numerous factors, including the
timing of the Company's  receipt of FDA approvals to begin  clinical  trials for
its products currently in development, the resources required to further develop
its marketing and sales capabilities if, and when, those products gain approval,

                                       6


<PAGE>

the resources required to expand manufacturing  capacity and the extent to which
the Company's  products generate market  acceptance and demand.  There can be no
assurance the Company will not require additional  financing or will not seek to
raise  additional  funds through bank  facilities,  debt or equity  offerings or
other sources of capital to meet future requirements. These additional funds may
not be available when needed or on terms acceptable to the Company,  which could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

Year 2000

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

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

Third Party Impact Assessments: The Company has begun to verify the readiness of
its significant  suppliers  through the  distribution of a  questionnaire.  This
process was  substantially  completed  by January 1, 1999.  The Company does not
anticipate  that a lack of compliance of the vendors will  significantly  affect
the Company's daily operations.

Project Plan:  The Company began its compliance  strategy in October 1997.  With
the  exception of the  clinical  tracking  database,  all of the "off the shelf"
software  packages have been upgraded to compliant  releases.  Older  internally
developed  software  has been  replaced  with  new  systems  that are year  2000
compliant.  The remaining clinical tracking system will be internally rewritten,
and implemented by the end of the first quarter 1999. The Company  estimates all
modifications  and testing for year 2000 issues will be  completed  at a cost of
less than $50,000 including expenditures to date.

Contingency  Plan:  The  principal  risk  the  Company  faces  is a delay in the
implementation  of the new  clinical  tracking  system.  Although  the  clinical
tracking system is not critical to the day-to-day  operations of the Company, it
is important for FDA compliance regarding follow-up procedures after transplant.
A delay in the  implementation  of the new clinical tracking system would result
in the  Company  having  to rely on its paper  support  for  required  FDA data.
Although the Company is uncertain what the costs  associated  with a delay would
be or the related impact on operations,  liquidity and financial condition,  the
Company does not expect the impact to be material. The Company expects to have a
contingency plan completed by April 15, 1999.


                                       7


<PAGE>

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

Recent Accounting Pronouncements

In 1997 the Financial  Accounting  Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("Statement 130")
which  established  standards  for the  reporting  and display of  comprehensive
income and its components in a full set of comparative general-purpose financial
statements.   The   statement   became   effective  for  the  Company  in  1998.
Comprehensive  income is  defined  in  Statement  130 as net  income  plus other
comprehensive  income,  which,  under  existing  accounting  standards  includes
foreign  currency items,  minimum pension  liability  adjustments and unrealized
gains  and  losses  on  certain  investments  in  debt  and  equity  securities.
Comprehensive income disclosures are included in the Consolidated  Statements of
Shareholders' Equity and Comprehensive Income.

In June 1997, the FASB issued Statement No. 131 ("Statement 131"),  "Disclosures
about Segments of an Enterprise and Related Information",  which requires public
business  enterprises to disclose certain information about reportable operating
segments in complete  sets of  financial  statements  of the  enterprise  and in
condensed  financial  statements of interim  periods.  It also  requires  public
enterprises to present certain "enterprise-wide" information, including revenues
related to products  and services and  geographic  areas in which they  operate.
Management does not review operating results on a "component" basis as described
under the statement;  accordingly,  no separate  disclosures  have been made for
segment information during the year ended December 31, 1998.

Quantitative and Qualitative Disclosures About Market Risk

The Company's  interest  income and expense are most sensitive to changes in the
general level of U.S.  interest rates. In this regard,  changes in U.S. interest
rates affect the interest  earned on the  Company's  cash  equivalents  of $12.9
million and short-term  investments of $16.1 million in municipal obligations as
of  December  31,  1998 as well as interest  paid on its debt.  To mitigate  the
impact of fluctuations in U.S. interest rates, the Company  generally  maintains
80% to 90% of its debt as fixed  rate in  nature.  As a result,  the  Company is
subject to a risk that  interest  rates will  decrease  and the  Company  may be
unable to refinance its debt.

Forward-Looking Statement

This Annual Report includes  "forward-looking  statements" within the meaning of
Section 27A of the  Securities Act of 1933, as amended (the  "Securities  Act,")
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act") and the Private Securities  Litigation Reform Act of 1995. All statements,
other than statements of historical facts, including without limitation, (1) the
effects on the Company of year 2000 issues including  unanticipated  expenses in
connection  therewith,  (2) the Company's  ability to find an equity investor in

                                       8


<PAGE>

the FibRx  technology  and the  impact of such an  investment  on the  Company's
liquidity,  (3) the adequacy of the Company's  financing  arrangements  over the
next twelve months,  (4) the ability of the Synergraft  heart valve to grow with
the  recipient  and  provide   surgeons  with  a   near-permanent   heart  valve
replacement,  (5) the impact of CryoLife's  surgical adhesives on operating room
procedures  and (6)  forecasted  increases  in  international  BioGlue  Surgical
Adhesive  sales and other  statements  regarding  future  plans and  strategies,
anticipated events or trends and similar expressions concerning matters that are
not historical facts are forward-looking statements.  These statements are based
on certain assumptions and analyses made by the Company as well as other factors
it believes  are  appropriate  in the  circumstances.  However,  whether  actual
results and  developments  will  conform  with the  Company's  expectations  and
predictions is subject to a number of risks and uncertainties  which could cause
actual results to differ  materially  from the Company's  expectations,  many of
which  are  beyond  the  control  of  the  Company.  Consequently,  all  of  the
forward-looking  statements  made in this Annual  Report are  qualified by these
risks and uncertainies,  including without limitation, (1) government regulation
of the Company's  business,  (2) the  Company's  competitive  position,  (3) the
availability  of tissue for implant,  (4) the status of the  Company's  products
under development,  (5) the protection of the Company's  proprietary  technology
and (6) the  reimbursement of health care costs by third-party  payors and there
can be no assurance that the actual results or  developments  anticipated by the
Company will be realized or that they will have the expected  consequences to or
effects on the Company or its  business or  operations.  The Company  assumes no
obligation to update publicly any such forward-looking statements.




                                       9





<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

                                ERNST & YOUNG LLP

Board of Directors and Shareholders

CryoLife, Inc.

We have audited the accompanying  consolidated balance sheets of CryoLife,  Inc.
as of December 31, 1998 and 1997,  and the related  consolidated  statements  of
income,  shareholders'  equity and cash flows for each of the three years in the
period  ending   December  31,  1998.   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 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 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 1998 and 1997 consolidated  financial statements referred to
above  present  fairly,  in all material  aspects,  the  consolidated  financial
position of CryoLife,  Inc. at December 31, 1998 and 1997, and the  consolidated
results of its  operations  and its cash flows for each of the three years ended
December 31, 1998, in conformity with generally accepted accounting principles.




/s/ Ernst & Young LLP

Atlanta, Georgia
February 2, 1999






<PAGE>


                                                     
825065v1
                                 CryoLife, Inc.
                           Consolidated Balance Sheets
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
ASSETS
December 31,                                                        1998           1997
- ---------------------------------------------------------------------------------------
<S>                                                           <C>             <C> 
Current assets:
- ---------------------------------------------------------------------------------------
Cash and cash equivalents                                      $  12,885      $     111
Marketable securities, at market                                  26,713             40
Receivables:
    Trade accounts, less allowance for doubtful accounts of
      $256 in 1998 and $103 in 1997                               10,733          9,224
     Income taxes                                                     71            842
     Other                                                           383            271
- ---------------------------------------------------------------------------------------
Total receivables                                                 11,187         10,337
- ---------------------------------------------------------------------------------------

Deferred preservation costs, less allowances
   of $53 in 1998 and $152 in 1997                                14,239         12,257
Inventories                                                        3,385          1,761
Prepaid expenses                                                   1,945          1,260
Deferred income taxes                                              1,348             41
- ---------------------------------------------------------------------------------------
Total current assets                                              71,702         25,807
- ---------------------------------------------------------------------------------------

Property and equipment:
- ---------------------------------------------------------------------------------------
   Equipment                                                      12,145         10,533
   Furniture and fixtures                                          3,011          1,828
   Leasehold improvements                                         14,254          8,247
   Construction in progress                                        2,266          2,509
- ---------------------------------------------------------------------------------------
                                                                  31,676         23,117
   Less accumulated depreciation and amortization                 10,216          7,630
- ---------------------------------------------------------------------------------------
      Net property and equipment                                  21,460         15,487
- ---------------------------------------------------------------------------------------

Other assets:
- ---------------------------------------------------------------------------------------
Goodwill, less accumulated amortization
  of $215 in 1998 and $468 in 1997                                 1,685          9,809
Patents, less accumulated amortization
   of $660 in 1998 and $531 in 1997                                2,216          2,196
Other, less accumulated amortization
  of $566 in 1998 and $483 in 1997                                 1,327          1,103
- ---------------------------------------------------------------------------------------
Total assets                                                   $  98,390      $  54,402
- ---------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.




<PAGE>



                                 CryoLife, Inc.
                           Consolidated Balance Sheets
                      (in thousands, except per share data)

LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,                                                   1998        1997
- -------------------------------------------------------------------------------

Current liabilities:
- -------------------------------------------------------------------------------
Accounts payable                                          $   1,652    $  1,612
Accrued expenses                                              2,968         222
Accrued compensation                                            726         952
Accrued fees to technical service representatives               459         482
Accrued procurement fees                                      1,806       1,565
Current maturities of capital lease obligation                  224          --
Current maturities of long-term debt                            516       1,496
Deferred income                                               1,038          --
- -------------------------------------------------------------------------------
Total current liabilities                                     9,389       6,329
- -------------------------------------------------------------------------------

Deferred income, less current amount                          1,525          --
Deferred income taxes                                           410         980
Capital lease obligations, less current maturities            1,714          --
Revolving term loan                                              --       6,777
Convertible debenture                                         4,393       5,000
Other long-term debt                                            535       5,089
- -------------------------------------------------------------------------------
Total liabilities                                            17,966      24,175
- -------------------------------------------------------------------------------

Commitments and Contingencies

Shareholders' equity:
   Preferred stock $.01 par value per share;
     authorized 5,000 shares including 2,000
     shares of series A junior participating preferred
     stock; no shares issued.                                   --          --
   Common stock  $.01 par value per share;
     authorized 50,000 shares; issued 13,361
     shares in 1998 and 10,245 shares in 1997                   134         102
   Additional paid-in capital                                64,350      17,694
   Retained earnings                                         19,113      12,627
   Unrealized gain on marketable securities                     139          --
   Treasury stock; 845 shares in 1998 and 543
     shares in 1997, at cost                                (3,312)       (180)
   Note receivable from shareholder                              --        (16)
- -------------------------------------------------------------------------------
Total shareholders' equity                                   80,424      30,227
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity                $  98,390    $ 54,402
- -------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

                                       2


<PAGE>



                                 CryoLife, Inc.
                         Consolidated Income Statements
                      (in thousands, except per share data)


<TABLE>
<CAPTION>
Year Ended
December 31,                                             1998           1997             1996
- ---------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>    
Revenues:
- ---------------------------------------------------------------------------------------------
     Preservation services and products             $  60,179      $  50,409       $   36,678
     Research grants and licenses                         512            162              188
- ---------------------------------------------------------------------------------------------
                                                       60,691         50,571           36,866
- ---------------------------------------------------------------------------------------------
Costs and Expenses:
- ---------------------------------------------------------------------------------------------
     Preservation services and products                25,303         17,764           12,593
     General, administrative and marketing             23,907         20,548           15,673
     Research and development                           4,708          3,946            2,807
     Interest expense                                     670            978               72
     Interest income                                   (1,490)            (8)            (189)
     Other income, net                                 (1,078)          (290)            (173)
- ----------------------------------------------------------------------------------------------
                                                       52,020         42,938           30,783
- ---------------------------------------------------------------------------------------------
Income before income taxes                              8,671          7,633            6,083
Income tax expense                                      2,185          2,908            2,156
- ---------------------------------------------------------------------------------------------
Net income                                          $   6,486      $   4,725       $    3,927
- ---------------------------------------------------------------------------------------------
Earnings per share:
     Basic                                          $    0.54      $    0.49       $     0.41
- ---------------------------------------------------------------------------------------------
     Diluted                                        $    0.53      $    0.48       $     0.40
- ---------------------------------------------------------------------------------------------
Weighted average shares outstanding:
     Basic                                             11,974          9,642            9,505
- ---------------------------------------------------------------------------------------------
     Diluted                                           12,264          9,942            9,906
- ---------------------------------------------------------------------------------------------
</TABLE>

                                       
See accompanying notes to consolidated financial statements.


                                       3


<PAGE>
                                 CryoLife, Inc.
                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
Year Ended
December 31,                                                         1998           1997         1996
- -----------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C> 
Net cash flows from operating activities:
- -----------------------------------------------------------------------------------------------------
     Net income                                             $       6,486  $       4,725  $     3,927
- -----------------------------------------------------------------------------------------------------
     Adjustments to reconcile net income to net cash
         flows provided by (used in) operating activities:
         Deferred income recognized                                  (387)            --           --
         Depreciation of property and equipment                     2,586          1,842          973
         Amortization                                                 905            814          383
         Provision for doubtful accounts                              176             46          167
         Deferred income taxes                                     (1,948)           972          242
         Changes in operating assets and liabilities:
              Trade and other receivables                          (1,797)          (533)      (2,561)
              Income taxes                                            771           (438)        (614)
              Deferred preservation costs                          (1,982)        (5,079)      (1,053)
              Inventories                                          (3,010)          (864)         163
              Prepaid expenses and other assets                      (706)          (506)        (326)
              Accounts payable                                        295         (2,756)       1,197
              Accrued expenses                                       (158)          (468)         740
- -----------------------------------------------------------------------------------------------------
     Net cash flows provided by (used in) operating activities      1,231         (2,245)       3,238
- -----------------------------------------------------------------------------------------------------
Net cash flows from investing activities:
- -----------------------------------------------------------------------------------------------------
     Capital expenditures                                          (6,693)        (5,059)      (8,481)
     Cash paid for acquisitions, net of cash acquired                  --         (4,418)        (722)
     Net proceeds from sale of IFM product line                    15,000             --           --
     Other assets                                                    (752)          (148)        (939)
     Purchases of marketable securities                           (34,277)            --       (3,013)
     Sales of marketable securities                                 7,604              3        8,955
     Gross unrealized gain on marketable equity securities            210             --           --
- -----------------------------------------------------------------------------------------------------
     Net cash flows used in investing activities                  (18,908)        (9,622)      (4,200)
- -----------------------------------------------------------------------------------------------------
Net cash flows from financing activities:
- -----------------------------------------------------------------------------------------------------
     Principal payments of debt                                   (13,990)        (6,607)        (750)
     Proceeds from debt issuance                                    1,680         16,643        2,000
     Principal payments on obligations under capital leases          (203)            --           --
     Proceeds from exercise of options and issuance of stock       46,298             567         561
     Purchase of treasury stock                                    (3,350)            --           --
     Net payments on notes receivable from shareholders                16              5            5
- -----------------------------------------------------------------------------------------------------
     Net cash flows provided by financing activities:              30,451         10,608        1,816
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash                                        12,774         (1,259)         854
Cash and cash equivalents, beginning of year                          111          1,370          516
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                      $      12,885  $         111  $     1,370
- -----------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information - cash paid during the year for:
- -----------------------------------------------------------------------------------------------------
Interest                                                    $         742  $         920  $        34
Income taxes                                                        3,568          2,380        2,529
- -----------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
     Establishing capital lease obligation                  $       2,141  $          --  $        --
- -----------------------------------------------------------------------------------------------------
     Debt conversion into common stock                      $         608  $          --  $        --
- -----------------------------------------------------------------------------------------------------
     Purchase of property and equipment
       in accounts payable                                  $         185  $         440  $       888
- -----------------------------------------------------------------------------------------------------
     Note issued for patent                                 $          --  $          --  $       826
- -----------------------------------------------------------------------------------------------------
     Net cash paid for acquisition                          $          --  $       1,768  $       534
     Cost in excess of assets acquired                                 --          8,541        1,873
     Liabilities assumed                                               --           (891)        (435)
     Notes issued for assets acquired                                  --         (5,000)      (1,250)

- -----------------------------------------------------------------------------------------------------
     Fair value of assets acquired                          $          --  $       4,418   $      722
- -----------------------------------------------------------------------------------------------------
</TABLE>


                                       4

<PAGE>


                                 CryoLife, Inc.
    Consolidated Statements of Shareholders' Equity and Comprehensive Income
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                   
                                                                                                                    
                               Common Shares                                                    Notes                  
                                Outstanding      Additional            Unrealized             Receivables     Total 
                               -------------     Paid-In    Retainted   Gains on   Treasury      from     Shareholders'
                           Shares       Amount   Capital    Earnings  Investments   Stock   Shareholders     Equity
- ------------------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>     <C>         <C>            <C>    <C>           <C>         <C>    
Balance at December 31, 1995     9,431      $100    $16,568     $3,975         $28    $(180)        $(26)       $20,465
- ------------------------------------------------------------------------------------------------------------------------
Net income                          --        --         --      3,927          --       --           --          3,927
Unrealized gains on investments     --        --         --         --         (29)      --           --            (29)
                                                                                                             -----------
Comprehensive income                                                                                              3,898
Exercise of options                124         1        409         --          --       --           --            410
Employee stock purchase plan         2        --         21         --          --       --           --             21
Purchase of other assets            10        --        130         --          --       --           --            130
Payments on shareholder notes       --        --         --         --          --       --            5              5
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996     9,567       101     17,128      7,902          (1)    (180)         (21)        24,929
- ------------------------------------------------------------------------------------------------------------------------
Net income                          --        --         --      4,725          --       --           --          4,725
Unrealized gains on investments     --        --         --         --           1       --           --              1
                                                                                                              ----------
Comprehensive income                                                                                              4,726
Exercise of options                105         1        298         --          --       --           --            299
Employee stock purchase plan        30        --        268         --          --       --           --            268
Additions to shareholder notes      --        --         --         --          --       --          (21)           (21)
Payments on shareholder notes       --        --         --         --          --       --           26             26
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997     9,702       102     17,694     12,627          --     (180)         (16)        30,227
- ------------------------------------------------------------------------------------------------------------------------
Net income                          --        --         --      6,486          --       --           --          6,486
Unrealized gains on investments     --        --         --         --         139       --           --            139
                                                                                                              ----------
Comprehensive income                                                                                              6,625
Follow-on equity offering,
  net of $703 of offering costs  2,976        30     45,417         --          --       --           --         45,447
Exercise of options                100         1        338         --          --      121           --            460
Employee stock purchase plan        31        --        294         --          --       97           --            391
Convertible debenture               50         1        607         --          --       --           --            608
Purchase of treasury stock       (343)        --         --         --          --   (3,350)          --         (3,350)
Payment on shareholder note         --        --         --         --          --       --           16             16
========================================================================================================================
Balance at December 31, 1998    12,516      $134    $64,350    $19,113        $139  $(3,312)        $ --        $80,424
========================================================================================================================
</TABLE>


 See accompanying notes to the consolidated financial statements.

                                       5


<PAGE>




                         CRYOLIFE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Summary of Significant Accounting Policies

Nature of Business

Founded  in  1984,  CryoLife,   Inc.  (the  "Company")  is  the  leader  in  the
cryopreservation  of viable human tissues for transplant,  and is developing and
commercializing  additional  implantable and single use non-implantable  devices
for use in vascular,  cardiovascular and orthopaedic  applications.  The Company
markets its viable human  tissues in North and South  America,  Europe and Asia.
The Company's bioprosthetic implantable products include stentless porcine heart
valves  marketed in Europe,  South America,  the Middle East and South Africa as
well as a proprietary  project to  transplant  human cells onto the structure of
animal  tissue.  The Company also serves as an OEM  manufacturer  for single use
medical  devices for use in  vascular  surgical  procedures.  In  addition,  the
Company  develops  proprietary  implantable   bioadhesives,   including  BioGlue
surgical adhesive,  which it has begun commercializing for vascular applications
in Europe, South America, Asia, South Africa, and the Middle East. International
revenues were $4.0 million and $2.7 million for 1998 and 1997, respectively.

Principles of Consolidation

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

Reclassifications

Certain  prior  year  balances  have been  reclassified  to  conform to the 1998
presentation.

Use of Estimates

The  consolidated  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 and 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.  The carrying value of cash equivalents  approximates  fair
value.

Investments

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

Management  determines the appropriate  classification of debt securities at the
time of purchase and  reevaluates  such  designations  as of each balance  sheet
date.  Debt securities are classified as  held-to-maturity  when the Company has

                                       6


<PAGE>

the  positive   intent  and  ability  to  hold  the   securities   to  maturity.
Held-to-maturity  securities are stated at amortized  cost.  Debt securities not
classified as  held-to-maturity  or trading and marketable equity securities not
classified as trading are classified as  available-for-sale.  Available-for-sale
securities  are  stated at their  fair  values,  with the  unrealized  gains and
losses,  net of tax, reported in a separate  component of shareholders'  equity.
The  amortized  cost of debt  securities  classified  as  available-for-sale  is
adjusted for  amortization  of premiums and  accretion of discounts to maturity.
Such  amortization is included in investment  income.  Realized gains and losses
and  declines in value judged to be other than  temporary on  available-for-sale
securities  are included in investment  income.  The cost of securities  sold is
based  on  the  specific   identification  method.  Interest  and  dividends  on
securities classified as available-for-sale  are included in interest income. At
December 31, 1998 and 1997, all marketable equity securities and debt securities
were designated as available-for-sale.

Deferred Preservation Costs and Revenue Recognition

Tissue is procured from deceased human donors by organ procurement organizations
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,   tissue  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. The Company does not require collateral or other security
for its receivables.

Inventories

Inventories  are  comprised  of  single-use   medical   devices,   bioprosthetic
implantable products,  and implantable  bioadhesives 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 lives
of the  patents  (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 non-current  tangible
and  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.

                                       7

<PAGE>



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.

Research Grant and License Revenues

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

Earnings Per Share and Stock Split

In 1997 the Financial  Accounting  Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("Statement 128").  Statement
128 replaced the  calculation  of primary and fully  diluted  earnings per share
with basic and diluted  earnings per share.  Unlike primary  earnings per share,
basic earnings per share excludes any dilutive effects of options,  warrants and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  reported  fully diluted  earnings per share.  All earnings per share
amounts for all periods have been presented, and where appropriate,  restated to
conform to the Statement 128 requirements.

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 has been adjusted to reflect
such split.

Comprehensive Income

In 1997 the Financial  Accounting  Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("Statement 130")
which  established  standards  for the  reporting  and display of  comprehensive
income and its components in a full set of comparative general-purpose financial
statements.   The   statement   became   effective  for  the  Company  in  1998.
Comprehensive  income is  defined  in  Statement  130 as net  income  plus other
comprehensive  income,  which,  under existing  accounting  standards,  includes
foreign  currency items,  minimum pension  liability  adjustments and unrealized
gains  and  losses  on  certain  investments  in  debt  and  equity  securities.
Comprehensive income disclosures are included in the Consolidated  Statements of
Shareholders' Equity and Comprehensive Income.

                                       8

<PAGE>



2.  Follow-on Equity Offering

On  April 3,  1998 the  Company  completed  a  follow-on  equity  offering  (the
"Offering")  of  2,588,000  new  shares of its  common  stock  resulting  in net
proceeds of $39.4  million.  On April 16, 1998 the Company  issued an additional
387,500  shares of common  stock  pursuant  to the  underwriters'  overallotment
option  resulting in $6.0 million of additional  net proceeds to the Company.  A
portion of the net proceeds  were used to repay $13.3  million of principal  and
interest outstanding under the Company's bank loans.

3. Ideas For Medicine, Inc.

On March 5, 1997 the  Company  acquired  the stock of Ideas for  Medicine,  Inc.
("IFM"),   a  medical  device  company   specializing  in  the  manufacture  and
distribution of single use medical devices,  for  consideration of approximately
$4.5 million in cash and  approximately  $5.0 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.  Pursuant to the
purchase  agreement,  additional  consideration equal to 10 percent of IFM's net
annual  revenues in excess of $7.5 million is to be paid each year for a 10 year
period, limited to $1.75 million in the aggregate. The acquisition was accounted
for as a purchase;  accordingly, the results of operations have been included in
the accompanying 1998 and 1997  consolidated  income statements from the date of
acquisition.  Based on the  allocation  of the  purchase  price,  the  Company's
unaudited   condensed  pro  forma  results  of  operations  for  1997,  assuming
consummation  of the purchase as of January 1, 1997 and 1996, are as follows (in
thousands, except per share data):

                                    1997               1996
                                 ---------         ----------
Revenues                          $52,082            $43,574
Net income                          4,756              3,511
Earnings per share:
  Basic                             $0.49              $0.37
  Diluted                            0.48               0.35

In connection with this acquisition,  the Company also entered into a consulting
agreement with the former majority shareholder of IFM requiring monthly payments
to such shareholder of approximately $17,000 until March 2002.

On September 30, 1998 the Company completed the sale of substantially all of the
IFM product line and certain  related assets to Horizon Medical  Products,  Inc.
("Horizon"),  for $15 million in cash pursuant to an asset  purchase  agreement.
Concurrently,  IFM and Horizon signed a  manufacturing  agreement which provides
for the  manufacture by IFM of specified  minimum dollar amounts of IFM products
to be purchased exclusively by Horizon over each of the four years following the
sale.  Thereafter,  responsibility  for such  manufacturing  is to be assumed by
Horizon.

                                       9

<PAGE>



The Company  recorded  deferred  revenue at the  transaction  date totaling $2.9
million,  representing  the selling  price less the net book value of the assets
sold, which included $7.7 million of goodwill, net of accumulated  amortization,
and the costs related to the sale. The revenue was deferred because the sale and
manufacturing  agreements represent,  in the aggregate, a single transaction for
which the related income should be recognized over the term of the manufacturing
agreement. Accordingly, the deferred revenue is being reflected in cost of goods
sold over the four-year term of the manufacturing agreement in a manner which is
expected to result in  approximately  equal margins over the four-year period on
the products  manufactured and sold by IFM to Horizon.  During 1998 amortization
of deferred revenue totaled $387,000.

4.  Marketable Securities

The following is a summary of available-for-sale securities (in thousands):

                                                       
                                        Unrealized        Estimated
December 31, 1998        Cost         Holding Gains      Market Value
                       ------------- ----------------- -----------------
Municipal obligations  $     24,963  $             35  $         24,998
Equity securities            10,440               175            10,615
                       ------------  ----------------  ----------------
                       $     35,403  $            210  $         35,613
                       ============  ================  ================

                                        
                                        Unrealized        Estimated
December 31, 1997        Cost         Holding Gains      Market Value
                       ------------- ----------------- -----------------
Debt securities        $         40  $             --  $             40
                       ============  ================  ================


The  gross  realized  gains on sales of  available-for-sale  securities  totaled
$4,000  and $0 in 1998 and  1997,  respectively.  Differences  between  cost and
market of $210,000  (less  deferred taxes of $71,000) are included as a separate
component of shareholders' equity as of December 31, 1998.

At December 31, 1998 approximately $8.9 million of debt securities with original
maturities of 90 days or less at their  acquisition  dates were included in cash
and cash  equivalents.  At December  31,  1998  approximately  $16.1  million of
investments  mature  between  one and five  years.  The  market  values of these
securities approximate cost.

                                       10

<PAGE>



5.  Inventories

Inventories at December 31 are comprised of the following (in thousands):



                                      1998                 1997
                                   -----------         ---------
Raw materials                        $   1,296         $     262
Work-in-process                          1,037               358
Finished goods                           1,052             1,141
                                         -----             -----
                                     $   3,385         $   1,761
                                         =====             =====

6.  Long-Term Debt

Long-term debt at December 31 consists of the following (in thousands):

<TABLE>
<CAPTION>

                                                                                 1998              1997
                                                                           --------------------------------
<S>                                                                              <C>               <C>   
Revolving loan                                                                   $   --             $6,777

Term loan due in equal monthly  installments of $83,000 plus interest
at prime through December 31, 2002                                                   --              5,000

7% convertible debenture, due in March 2002                                       4,393              5,000

8.25% note payable due in equal annual installments of $250,000                     750              1,000

Note  payable  due in  2000  with  an  effective  interest  rate  
of 8%,  net of unamortized discount of $29,000 in 1998 
and $35,000 in 1997                                                                 301                585
                                                                                 ------             ------

                                                                                  5,444             18,362
Less current maturities                                                             516              1,496
                                                                                  -----             ------
Total long-term debt                                                             $4,928            $16,866
                                                                                 ======            =======
</TABLE>


On August 30, 1996 the Company  executed a $10 million  revolving loan agreement
(the  "Agreement")  with a bank which, as amended on June 12, 1998,  permits the
Company to borrow up to $2.0 million at either the bank's prime rate of interest
(7.75%  at  December  31,  1998)  or at  Adjusted  LIBOR,  as  defined,  plus an
applicable  LIBOR  margin.  The  Agreement  expires on December  31,  1999;  all
borrowings  outstanding  on that  date  convert  to a term loan to be paid in 60
equal monthly installments of principal plus interest at either the bank's prime
rate of interest or at Adjusted  LIBOR,  as defined,  plus an  applicable  LIBOR


                                       11


<PAGE>

margin. The Agreement contains certain restrictive covenants including,  but not
limited to,  maintenance of certain  financial ratios and a minimum tangible net
worth  requirement.  The  Agreement  is  secured  by  substantially  all  of the
Company's  assets,  including IFM's stock but excluding  intellectual  property.
Commitment  fees are paid  based  on the  unused  portion  of the  facility.  In
December  1997 the Company  amended the Agreement to also include a $5.0 million
term  loan  facility  with the bank at the  bank's  prime  rate of  interest  or
Adjusted LIBOR, as defined, plus an applicable LIBOR margin. In conjunction with
the Offering, the revolving and term loans were paid in full in April 1998.

In March  1997  the  Company  issued a $5.0  million  convertible  debenture  in
connection with the IFM  acquisition.  The debenture bears interest at 7% and is
due in March 2002. The debenture is convertible into common stock of the Company
at any time  prior to the due date at $12.08 per common  share.  In  conjunction
with the Offering,  $608,000 of the  convertible  debenture  was converted  into
50,000 shares of the Company's common stock on March 30, 1998.

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  veins for  transplant.  The Company  issued a $1.25
million note in  connection  with the  acquisition.  The note bears  interest at
prime, as adjusted annually on the anniversary date of the acquisition.

In April  1996  the  Company  issued a  $910,000  non-interest  bearing  note in
connection  with  the  acquisition  of its  BioGlue(R)  technology.  The note is
payable  in three  annual  installments  of  $290,000,  plus a final  payment of
$40,000 at maturity.

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

           1999                      $516
           2000                       285
           2001                       250
           2002                     4,393
                                    -----
                                   $5,444
                                    =====

7.    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 receivables and accounts payable approximate their fair values due to
the short term maturity of these instruments.

In 1997 the Company  entered into two  interest  rate swap  agreements  with the
lender  under the  Agreement,  maturing on dates  through  January  1999,  which
effectively  fixes the interest  rate on $2.0  million of  available  borrowings
through such dates.  The estimated  fair values of the  Company's  interest rate
swap agreements and its outstanding debt  approximate  their carrying amounts at
December 31, 1998.

                                       12

<PAGE>



8.  Leases

The Company leases equipment,  furniture,  and office space under various leases
with terms of up to 15 years.  Commencing  January 5, 1998 IFM leased office and
manufacturing  facilities  under a capital  lease for $24,125 per month  through
January 2008 from the former majority shareholder of IFM. Certain leases contain
escalation  clauses and renewal options for additional  periods.  Future minimum
lease payments under noncancelable leases as of December 31, 1998 are as follows
(in thousands):

                                              Capitalized           Operating
                                                Leases               Leases
- ------------------------------------------------------------------------------
 1999                                     $         371         $      1,369
 2000                                               310                1,368
 2001                                               290                1,281
 2002                                               290                  984
 2003                                               290                  966
 Thereafter                                       1,132                8,025
 ---------------------------------------------------------------------------
 Total minimum lease payments                     2,683         $     13,993
                                                                ============
 Less amount representing interest                  745
 ------------------------------------------------------
 Present value of net minimum
   lease payments                                 1,938
 Less current portion                               224
 -------------------------------------------------------
                                           $      1,714
 ======================================================

Property  acquired  under  capital  leases at December 31, 1998  consists of the
following (in thousands):


       Buildings                           $      1,987
       Furniture and fixtures                       150
                                           ------------
                                                  2,137
       Accumulated depreciation                     255
                                           ------------
                                           $      1,882
                                           ============

Total rental expense for operating leases amounted to $1,321,000, $1,282,000 and
$714,000 for 1998, 1997 and 1996, respectively.


                                       13

<PAGE>




9.  Stock Option Plans

The  Company  has stock  option  plans  which  provide  for grants of options to
employees  and  directors to purchase  shares of the  Company's  common stock at
exercise prices generally equal to the fair values of such stock at the dates of
grant,  which generally become  exercisable over a five-year  vesting period and
expire within ten years of the grant dates.  Under the 1993  Employee  Incentive
Stock  Option  Plan,  the 1998  Long-Term  Incentive  Plan,  and the amended and
restated  Non-employee  Director's Plan, the Company has authorized the grant of
options  of  up to  700,000,  300,000,  and  396,000  shares  of  common  stock,
respectively.  As of December 31, 1998 and 1997,  there were 569,000 and 306,000
shares of common stock reserved for future  issuance  under the Company's  stock
option plans. A summary of stock option transactions under the plans follows:

<TABLE>
<CAPTION>
                                                                    Exercise            Weighted Average
                                                 Shares              Price               Exercise Price
                                              --------------    -----------------    ------------------------
<S>                                           <C>                  <C>                          <C>   
Outstanding at December 31, 1995                  590,000            $2.25-7.74                  $ 4.21
Granted                                           247,000             8.5-18.43                   15.70
Exercised                                        (124,000)            2.26-7.26                    3.31
Canceled                                           (5,000)            2.25-3.75                    3.68
                                              --------------
Outstanding at December 31, 1996                  708,000            2.25-18.43                    7.36
Granted                                           201,000           10.25-15.88                   11.97
Exercised                                        (105,000)            2.25-7.50                    2.85
Canceled                                          (50,000)           2.25-16.75                   10.06
                                              --------------
Outstanding at December 31, 1997                  754,000            3.00-18.43                    8.95
Granted                                           331,000           12.00-17.13                   15.48
Exercised                                        (103,000)           3.12-10.25                    4.80
Canceled                                         (155,000)           3.12-18.43                   16.03
                                              ==============
Outstanding at December 31, 1998                  827,000            3.00-17.13                   10.73
                                              ==============
</TABLE>



The following table summarizes  information concerning currently outstanding and
exercisable options:


<TABLE>
<CAPTION>
                           Options Outstanding                                   Options Exercisable
- -----------------------------------------------------------------------------------------------------------

                                       Weighted Average       Weighted                          Weighted
Range of Exercise                          Remaining           Average                           Average
      Prices            Number         Contractual Life       Exercise          Number          Exercise
                      Outstanding                               Price         Exercisable         Price
- ------------------- ---------------- ---------------------- -------------- ------------------ --------------
<S>                     <C>                   <C>             <C>               <C>              <C>
$       3.00-7.75       293,000               1.5              $ 4.68           206,000          $ 4.50
       8.50-13.50       295,000               4.5               11.66           115,000           11.19
      14.19-17.13       239,000               5.4               17.01           184,000           17.05
</TABLE>


                                       14

<PAGE>


The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock Issued to Employees"  and related  Interpretations  ("APB
25") in accounting for its employee stock options  because,  as discussed below,
the alternative fair value accounting  provided for under Statement of Financial
Accounting  Standards  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 values
for these  options were  estimated  at the dates of grant using a  Black-Scholes
option pricing model with the following weighted-average assumptions:

                                        1998         1997         1996
                                  -------------------------------------------
Expected dividend yield                  0%           0%           0%
Expected stock price volatility         .520         .533         .561
Risk-free interest rate                5.30%         5.75%       6.51%
Expected life of options              3.8 Years    4.7 Years   4.8 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 values of the options
are amortized to expense over the options'  vesting  periods.  The Company's pro
forma information follows (in thousands, except per share data):

                                       1998         1997         1996
                                   --------------------------------------
Net income--as reported               $6,486       $4,725       $3,927
Net income--pro forma                 $5,705       $4,164       $3,542
Earnings per share--as reported:
   Basic                               $ .54        $ .49        $ .41
   Dilutive                            $ .53        $ .48        $ .40
Earnings per share--pro forma:
   Basic                               $ .48        $ .43        $ .37
   Dilutive                            $ .47        $ .42        $ .36



                                       15

<PAGE>



Other information concerning stock options follows:

                                                  1998       1997         1996
                                            ------------------------------------
Weighted average fair value of options  
  granted during the year                        $6.54      $6.69        $8.34
Number of shares as to which options are
   exercisable at end of year                  505,000    308,000      157,000

Because  Statement  123 is  applicable  only to options  granted  subsequent  to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.

10.  Shareholder Rights Plan

On November 27, 1995 the Board of Directors adopted a shareholder rights plan to
protect  long-term share value for the Company's  shareholders.  Under the plan,
the Board declared a distribution of one Right for each outstanding share of the
Company's  Common  Stock  to  shareholders  of  record  on  December  11,  1995.
Additionally,  the Company has further  authorized  and directed the issuance of
one Right with  respect to each  Common  Share  that  shall  become  outstanding
between  December  11, 1995 and the  earliest of the  Right's  exercise  date or
expiration date. Each Right entitles the registered  holder to purchase from the
Company  one-tenth of a share of a newly created  Series A Junior  Participating
Preferred  Stock,  at an exercise  price of $100.  The rights,  which  expire on
November 27, 2005, may be exercised only if certain  conditions are met, such as
the acquisition of 15 percent or more of the Company's  Common Stock by a person
or affiliated group ("Acquiring Person").

In the event the Rights  become  exercisable,  each Right will enable the owner,
other than the  Acquiring  Person,  to  purchase,  at the Right's  then  current
exercise price,  that number of shares of Common Stock with a market value equal
to twice the exercise price. In addition,  unless the Acquiring Person owns more
than 50% of the outstanding  shares of Common Stock,  the Board of Directors may
elect to  exchange  all  outstanding  Rights  (other  than  those  owned by such
Acquiring  Person)  at an  exchange  ratio of one  share  of  Common  Stock,  or
one-tenth of a Preferred Share per Right.

11.  Stock Repurchase

On October 14, 1998, the Company's Board of Directors  authorized the Company to
purchase up to 1 million shares of its common stock. The purchase of shares will
be made from time to time in open market or privately-negotiated transactions on
such terms as management deems appropriate. As of December 31, 1998, the Company
had purchased 343,000 shares of its common stock for an aggregate purchase price
of $3,350,000.

                                       16


<PAGE>



12.  Employee Benefit Plans

The Company has a 401(k) savings plan (the "Plan") providing retirement benefits
to all employees who have completed at least six months of service.  The Company
makes matching contributions of 50% of each participant's  contribution up to 5%
of each participant's salary. Total Company contributions approximated $241,000,
$139,000 and $123,000 for 1998, 1997, and 1996, 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 in
1998, 1997 or 1996.

On May 16, 1996 the Company's shareholders approved the CryoLife,  Inc. Employee
Stock Purchase Plan (the "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, 1998 and 1997 there were 543,000 and 566,000 shares of common stock
reserved under the ESPP and there had been 57,000 and 34,000 shares issued under
the plan, respectively.

13. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):

<TABLE>
<CAPTION>
<S>                                                  <C>            <C>           <C>   
                                                        1998           1997          1996
                                                     -----------    ----------    -----------
         Numerator for basic and diluted earnings
            per share - income available to common
            shareholders                                 $6,486        $4,725         $3,927               
                                                     ===========    ==========    ===========

         Denominator for basic earnings per share
            - weighted-average basis                     11,974         9,642          9,505
         Effect of dilutive stock options                   290           300            401
                                                     -----------    ----------    -----------
         Denominator for diluted earnings per
            share - adjusted weighted-average
            shares                                       12,264         9,942          9,906
                                                     ===========    ==========    ===========
         Basic earnings per share                        $ 0.54        $ 0.49         $ 0.41
                                                     ===========    ==========    ===========
         Diluted earnings per share                      $ 0.53        $ 0.48         $ 0.40
                                                     ===========    ==========    ===========
</TABLE>


                                       17


<PAGE>



14.  Income Taxes

Income tax expense consists of the following (in thousands):

                      1998              1997             1996
                ------------------ ---------------- ----------------
Current:
  Federal                  $3,854           $1,533           $1,573
  State                       279              403              341
                            -----            -----            -----  
                            4,133            1,936            1,914
Deferred                   (1,948)             972              242
                          -------            -----            -----
                           $2,185           $2,908           $2,156
                           ======           ======           ======


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  (in
thousands):

                                                1998      1997        1996
                                                ----      ----        ----

Tax expense at statutory rate                  $2,947     $2,593      $2,068
Increase (reduction) in income taxes
 resulting from:
 Change in valuation allowance for
    deferred tax assets                            --        (30)       (129)
 Entertainment expenses                            90         42          30
 State income taxes, net of federal benefit       173        266         241
 Non-taxable interest income                      (63)        --         (50)
 Research and development credits                (585)        --          --
 State and local tax refunds                     (256)        --          --
 Other                                           (121)        37          (4)
                                                 -----     -----       -----
                                                $2,185    $2,908      $2,156
                                                ======    ======      ======

                                       18

<PAGE>



The tax  effects  of  temporary  differences  which  give rise to  deferred  tax
liabilities and assets at December 31 are as follows (in thousands):

                                                              1998        1997
                                                          --------     -------
Long-term deferred tax liabilities/(assets):
   Depreciation                                             $1,537     $1,018
   Deferred income                                            (580)        --
   Intangible assets                                          (547)       (38)
                                                             -----       ----
                                                               410        980
Current deferred tax assets/(liabilities):
   Accrued expenses                                            872         --
   Deferred income                                             394         --
   Allowance for bad debts                                      97         --
   Deferred preservation costs and inventory reserves           20         58
   Unrealized gain on marketable securities                    (71)        --
   Other                                                        36       (17)
                                                            ------      -----
                                                             1,348         41
                                                             -----      -----
Net deferred tax assets /(liabilities)                        $938     $ (939)
                                                              ====     ======

15.  FDA Regulation

Human heart  valves  historically  have not been  subject to  regulation  by the
United States Food and Drug  Administration  (the "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.

16.  Executive Insurance Plan

Pursuant to 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 such executives.  The Company's
aggregate  premium  contributions  under this program were $43,000,  $38,000 and
$37,000 for 1998, 1997 and 1996, respectively.

                                       19


<PAGE>




17.  Equipment on Loan to Implanting Hospitals

The Company consigns liquid nitrogen freezers with certain implanting  hospitals
for tissue  storage.  The freezers are the property of the Company.  At December
31, 1998  freezers  with a total cost of  approximately  $1,540,000  and related
accumulated   depreciation  of  approximately   $901,000  were  located  at  the
implanting  hospitals'  premises.  Depreciation  is provided  over the estimated
useful lives of the freezers on a straight-line basis.


18.  Transactions with Related Parties

The Company  expensed  $68,000,  $65,000 and $39,000 during 1998, 1997 and 1996,
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.  The Company expensed  $75,000 in 1998 relating to consulting  services
performed by a member of the Company's  Board of Directors and a shareholder  of
the  Company.  The  Company  expensed $ 210,000  and  $175,000  in 1998 and 1997
relating to consulting services performed by a shareholder of the Company.


                                       20






                                                                    EXHIBIT 21.1

                         SUBSIDIARIES OF CRYOLIFE, INC.


Subsidiary                                   Jurisdiction
- ----------                                   ------------

Ideas for Medicine, Inc.                     Florida
CryoLife Technology, Inc.                    Nevada
CryoLife Foreign Sales, Inc.                 Barbados





                                                                    EXHIBIT 23.1

                         CONSENT OF INDEPENDENT AUDITORS



We consent to the  incorporation  by reference in this Annual Report (Form 10-K)
of  CryoLife,  Inc. of our report dated  February 2, 1999,  included in the 1998
Annual Report to Shareholders of CryoLife, Inc.

Our audits 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 audits. In
our  opinion,  as of  the  date  of our  report  referred  to in  the  preceding
paragraph,  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,
333-03513,  333-59853,  333-59849,  333-06141  and 333-34025 on Form S-8, of our
report  dated  February  2, 1999,  with  respect to the  consolidated  financial
statements  incorporated  herein by  reference,  and our report  included in the
preceding paragraph with respect to the financial statement schedule included in

this Annual Report (Form 10-K) of CryoLife, Inc.




Atlanta, Georgia
March 26, 1999




<TABLE> <S> <C>


<ARTICLE>5
<LEGEND>
THIS  SCHEDULE  CONTAINS  SUMMARY  FINANCIAL   INFORMATION  EXTRACTED  FROM  THE
FINANCIAL  STATEMENTS OF CRYOLIFE,  INC. FOR THE YEAR ENDED DECEMBER 31 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
       

<S>                                                          <C>

                                 
<PERIOD-TYPE>                                                 YEAR
<FISCAL-YEAR-END>                                             DEC-31-1998
<PERIOD-START>                                                JAN-01-1998
<PERIOD-END>                                                  DEC-31-1998
<CASH>                                                         12,885,000
<SECURITIES>                                                   26,713,000
<RECEIVABLES>                                                  10,733,000
<ALLOWANCES>                                                      256,000
<INVENTORY>                                                     3,385,000
<CURRENT-ASSETS>                                               71,702,000
<PP&E>                                                         31,676,000
<DEPRECIATION>                                                 10,216,000
<TOTAL-ASSETS>                                                 98,390,000
<CURRENT-LIABILITIES>                                           9,389,000
<BONDS>                                                         7,382,000
<PREFERRED-MANDATORY>                                                   0
<PREFERRED>                                                             0
<COMMON>                                                          134,000
<OTHER-SE>                                                     80,290,000
<TOTAL-LIABILITY-AND-EQUITY>                                   98,390,000
<SALES>                                                         7,353,000
<TOTAL-REVENUES>                                               60,691,000
<CGS>                                                           5,118,000
<TOTAL-COSTS>                                                  25,303,000
<OTHER-EXPENSES>                                               26,717,000
<LOSS-PROVISION>                                                  176,000
<INTEREST-EXPENSE>                                                670,000
<INCOME-PRETAX>                                                 8,671,000
<INCOME-TAX>                                                    2,185,000
<INCOME-CONTINUING>                                             6,486,000
<DISCONTINUED>                                                          0
<EXTRAORDINARY>                                                         0
<CHANGES>                                                               0
<NET-INCOME>                                                    6,486,000
<EPS-PRIMARY>                                                         .54
<EPS-DILUTED>                                                         .53

        


</TABLE>