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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Form 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2003

 

Commission File No. 000-19495

 

 

Embrex, Inc.

(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 July 25, 2003 was 8,158,893.

 

Table of Contents

EMBREX, INC.

 

INDEX

 

     Page

Part I

     

Financial Information:

     

Item 1: Consolidated Financial Statements

     

Consolidated Balance Sheets

    3 of 21

Consolidated Statements of Operations

    5 of 21

Consolidated Statements of Cash Flows

    6 of 21

Notes to Consolidated Financial Statements

    7 of 21

Item 2:

     

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   10 of 21

Item 3:

     

Quantitative and Qualitative Disclosures About Market Risk

   16 of 21

Item 4:

     

Controls and Procedures

   16 of 21

Part II

     

Other Information:

     

Item 1: Legal Proceedings

   17 of 21

Item 2: Changes in Securities

   17 of 21

Item 3: Defaults Upon Senior Securities

   17 of 21

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

   17 of 21

Item 5: Other Information

   18 of 21

Item 6: Exhibits and Reports on Form 8-K

   18 of 21

Signatures

   20 of 21

Exhibit Index

   21 of 21

 

2

Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1—Consolidated Financial Statements

 

Embrex, Inc.

 

Consolidated Balance Sheets             
(Dollars in thousands)             
    

June 30,

2003

     December 31,
2002
  
     (unaudited)        

ASSETS

                 

Current Assets

                 

Cash and cash equivalents

    $ 9,283     $ 8,039  

Restricted cash

      259       255  

Accounts receivable—trade, net

      7,233       6,565  

Inventories:

                 

Materials and supplies

      1,626       1,603  

Product

      1,109       937  

Other current assets

      2,535       1,409  
    
 

Total Current Assets

      22,045       18,808  

Land

      147       129  

Devices under construction

      1,406       1,651  

Devices

      37,082       34,825  

Less accumulated depreciation

      (28,493 )     (27,162 )
    
 
       8,589       7,663  

Equipment, Furniture and Fixtures

      18,948       14,942  

Less accumulated depreciation and amortization

      (6,786 )     (5,781 )
    
 
       12,162       9,161  

Other Assets:

                 

Goodwill, patents and exclusive licenses of patentable technology (net of accumulated amortization of $338 in 2003 and $275 in 2002)

      2,386       2,158  

Other long-term assets

      2,675       2,443  
    
 

Total Assets

    $ 49,410     $ 42,013  

LIABILITIES AND SHAREHOLDERS’ EQUITY

                 

Current Liabilities

                 

Accounts payable

    $ 714     $ 755  

Accrued expenses

      5,164       3,742  

Deferred revenue

      689       39  

Product warranty accrual

      260       267  

Current portion of capital lease obligations

      4       -0-  
    
 

Total Current Liabilities

      6,830       4,803  

Capital Lease Obligations, less current portion

      12       -0-  

Long-term debt, less current portion

      47       46  

Shareholders’ Equity

                 

Common Stock,$.01 par value:

                 

Authorized—30,000,000 shares Issued and outstanding—8,158,893 net of 1,344,716 treasury shares and 8,162,362 net of 1,241,716 treasury shares at June 30, 2003 and December 31, 2002, respectively

      94       93  

Additional paid-in capital

      62,335       61,895  

Accumulated other comprehensive loss

      (709 )     (1,273 )

Accumulated deficit

      (3,399 )     (8,559 )

Treasury stock

      (15,801 )     (14,992 )

Total Shareholders’ Equity

      42,520       37,164  
    
 

Total Liabilities and Shareholders’ Equity

    $ 49,410     $ 42,013  
    
 

 

3

Table of Contents

Embrex, Inc.

 

Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

     Three Months Ended
June 30
     Six Months Ended
June 30
  
     2003
     2002
     2003
     2002
  

Revenues

                                 

Device revenues

    $ 11,579     $ 9,818     $ 21,690     $ 19,421  

Product sales

      409       722       1,062       1,550  

Other revenue

      125       305       259       1,231  
    
 
 
 

Total Revenues

      12,113       10,845       23,011       22,202  

Cost of Device Revenues and Product Sales

      5,333       4,379       9,486       8,455  
    
 
 
 

Gross Profit

      6,780       6,466       13,525       13,747  

Operating Expenses

                                 

General and administrative

      1,174       1,369       3,256       3,033  

Sales and marketing

      724       540       1,501       1,201  

Research and development

      2,608       2,445       4,910       4,788  
    
 
 
 

Total Operating Expenses

      4,506       4,354       9,667       9,022  

Operating Income

      2,274       2,112       3,858       4,725  

Other Income (Expense)

                                 

Interest income

      31       59       88       99  

Interest expense

      (4 )     (4 )     (1 )     (8 )

Foreign currency gain/(loss)

      (34 )     -0-       11       16  

Other Income

      3,791       -0-       3,791       -0-  
    
 
 
 

Total Other Income

      3,784       55       3,889       107  
    
 
 
 

Income Before Taxes

      6,058       2,167       7,747       4,832  

Income Taxes

      2,173       450       2,587       846  
    
 
 
 

Net Income

    $ 3,885     $ 1,717     $ 5,160     $ 3,986  
    
 
 
 

Net Income per share of Common Stock:

                                 

Basic

    $ 0.48     $ 0.21     $ 0.63     $ 0.49  

Diluted

    $ 0.46     $ 0.19     $ 0.62     $ 0.45  

Number of Shares Used in Per Share Calculation:

                                 

Basic

      8,143       8,125       8,194       8,078  

Diluted

      8,379       8,985       8,381       8,863  

 

4

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Embrex, Inc.

 

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

    

Six Months Ended

June 30

  
     2003
     2002
  

Operating Activities

                 

Net income

    $ 5,160     $ 3,986  

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Depreciation and amortization

      2,597       2,333  

Loss on sale of fixed assets

      (6 )     (7 )

Change in deferred tax asset

      (300 )     -0-  

Changes in operating assets and liabilities:

                 

Accounts receivable, inventories and other current assets

      (1,993 )     523  

Accounts payable, accrued expenses, deferred revenue and warranty accrual

      2,023       (1,120 )
    
 

Net Cash Provided By Operating Activities

      7,481       5,715  

Investing Activities

                 

Land acquisition

      (18 )     -0-  

Purchases of devices, equipment, furniture and fixtures

      (6,202 )     (2,250 )

Additions to patents and other non-current assets

      (213 )     (232 )
    
 

N