EMBREX INC/NC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2002

Commission File No. 000-19495

(Exact name of registrant as specified in its charter)

North Carolina		56-1469825
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1040 Swabia Court, Durham, NC		27703
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone no. including area code: (919) 941-5185

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨

The number of shares of Common Stock, $0.01 par value, outstanding as of October 31, 2002 was 8,122,026.

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PART I	FINANCIAL INFORMATION:

Item 1:	Consolidated Financial Statements

	Consolidated Balance Sheets	3 of 20

	Consolidated Statements of Operations	4 of 20

	Consolidated Statements of Cash Flows	5 of 20

	Notes to Consolidated Financial Statements	6 of 20

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8 of 20

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	13 of 20

Item 4:	Controls and Procedures	14 of 20

PART II	OTHER INFORMATION:

Item 1:	Legal Proceedings	14 of 20

Item 2:	Changes in Securities	14 of 20

Item 3:	Defaults Upon Senior Securities	14 of 20

Item 4:	Submission of Matters to a Vote of Security Holders	14 of 20

Item 5:	Other Information	14 of 20

Item 6:	Exhibits and Reports on Form 8-K	14 of 20
Signatures		16 of 20
Certifications		17 of 20

PART I—FINANCIAL INFORMATION

Item 1—Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 30, 2002			December 31, 2001
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	7,520		$	3,907
Restricted cash		354			275
Accounts receivable—trade, net		5,860			7,128
Inventories:
Materials and supplies		1,568			1,361
Product		993			900
Other current assets		1,258			800

Total Current Assets		17,553			14,371
Inovoject^® Systems Under Construction		1,979			1,560
Inovoject^® Systems		33,369			32,555
Less accumulated depreciation		(26,342	)		(24,754	)

		7,027			7,801
Equipment, Furniture and Fixtures		14,097			12,123
Less accumulated depreciation and amortization		(5,308	)		(4,172	)

		8,789			7,951
Other Assets:
Goodwill, patents and exclusive licenses of patentable technology (net of accumulated amortization of $155 in 2002 and $144 in 2001)		756			752
Other long-term assets		1,882			1,623

Total Assets	$	37,986		$	34,058

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	510		$	1,210
Accrued expenses		1,892			3,245
Deferred revenue		16			28
Product warranty accrual		291			218

Total Current Liabilities		2,709			4,701
Long-term debt, less current portion		45			43
Shareholders’ Equity
Common Stock, $.01 par value:
Authorized—30,000,000 shares Issued and outstanding—8,141,113 net of 1,229,716 treasury shares and 7,998,168 net of 1,175,216 treasury shares at September 30, 2002 and December 31, 2001, respectively		93			90
Additional paid-in capital		61,513			59,932
Accumulated other comprehensive loss		(1,562	)		(776	)
Accumulated deficit		(9,966	)		(15,730	)
Treasury stock		(14,846	)		(14,202	)

Total Shareholders’ Equity		35,232			29,314

Total Liabilities and Shareholders’ Equity	$	37,986		$	34,058

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Three Months Ended September 30						Nine Months Ended September 30
	2002			2001			2002			2001
Revenues
Inovoject^® System revenue	$	10,535		$	9,690		$	29,957		$	29,475
Product sales		764			1,024			2,314			2,503
Other revenue		360			757			1,591			1,053

Total Revenues		11,659			11,471			33,862			33,031
Cost of Product Sales and Inovoject^® System Revenues		4,496			4,734			12,952			13,579

Gross Profit		7,163			6,737			20,910			19,452
Operating Expenses
General and administrative		1,627			1,774			4,661			5,167
Sales and marketing		632			694			1,833			1,930
Research and development		2,807			2,072			7,594			5,727

Total Operating Expenses		5,066			4,540			14,088			12,824
Operating Income		2,097			2,197			6,822			6,628
Other Income (Expense)
Interest income		61			77			160			175
Interest expense		(5	)		(10	)		(13	)		(24	)
Foreign Currency Gain (Loss)		(37	)		1			(21	)		(21	)

Total Other Income		19			68			126			130

Income Before Taxes		2,116			2,265			6,948			6,758
Income Taxes		337			160			1,183			673

Net Income	$	1,779		$	2,105		$	5,765		$	6,085

Net Income per share of Common Stock:
Basic	$	0.22		$	0.26		$	0.71		$	0.76
Diluted	$	0.21		$	0.24		$	0.66		$	0.70
Number of Shares Used in Per Share Calculation:
Basic		8,156			8,077			8,104			8,020
Diluted		8,519			8,728			8,748			8,659

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30
	2002			2001
Operating Activities
Net income	$	5,765		$	6,085
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,517			3,317
Gain on sale of fixed assets		(4	)

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