Form 10-Q

                       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 March 31, 2000

                          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       (IRS Employer
              incorporation or organization)     Identification No.)


                    1035 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
                                       ----   ----

The number of shares of Common Stock, $0.01 par value, outstanding as of April
30, 2000 was 7,866,711.

<PAGE>
<TABLE>
<CAPTION>
                                  EMBREX, INC.
                                      INDEX

Part I                                                                                             Page
                                                                                                   ----
        Financial Information:

            Item 1:  Financial Statements

<S>                                                                                               <C>   <C>
                Consolidated Balance Sheets........................................................3 of 13

                Consolidated Statements of Operations..............................................4 of 13

                Consolidated Statements of Cash Flows..............................................5 of 13

                Notes to Consolidated Financial Statements.........................................6 of 13

            Item 2:

                Management's Discussion and Analysis of
                Financial Condition and Results of Operations......................................7 of 13

            Item 3:

                Quantitative and Qualitative Disclosures
                About Market Risk.................................................................10 of 13

Part II

        Other Information:

        Item 1: Legal Proceedings.................................................................10 of 13

        Item 2: Changes in Securities.............................................................10 of 13

        Item 3: Defaults Upon Senior Securities...................................................10 of 13

        Item 4: Submission of Matters to a Vote of Security Holders...............................10 of 13

        Item 5: Other Information.................................................................11 of 13

        Item 6: Exhibits and Reports on Form 8-K..................................................11 of 13

        Signatures................................................................................12 of 13

        Exhibit Index.............................................................................13 of 13
</TABLE>

<PAGE>

PART I - FINANCIAL INFORMATION
   Item 1 - Financial Statements
<TABLE>
<CAPTION>

                                  Embrex, Inc.
                                  ------------

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

                                                                                  MARCH 31         DECEMBER 31
                                                                                   2000               1999
                                                                             ---------------     ---------------
                                                                                (UNAUDITED)
<S>                                                                           <C>                 <C>
ASSETS
CURRENT ASSETS
    Cash and cash equivalents...............................................  $       4,442       $       4,799
    Restricted cash........................................................             275                 275
Accounts receivable - trade.................................................          4,777               4,751
    Inventories:
        Materials and supplies...........................................             1,396               1,562
        Product  ...........................................................            805                 827
    Other current assets.................................................             1,394                 822
                                                                           -----------------       ------------
        TOTAL CURRENT ASSETS................................................         13,089              13,036

INOVOJECT(R) SYSTEMS UNDER CONSTRUCTION....................................           1,033                 978

INOVOJECT(R) SYSTEMS.........................................................        28,092              27,386
Less accumulated depreciation...............................................        (20,477)            (19,804)
                                                                               -------------         -----------
                                                                                      7,615               7,582

EQUIPMENT, FURNITURE AND FIXTURES ..........................................          7,627               7,195
    Less accumulated depreciation and amortization.........................          (3,137)             (2,906)
                                                                              --------------        ------------
                                                                                      4,490               4,289
OTHER ASSETS:
        Patents and exclusive licenses of patentable technology..............           132                 348
        Other long term assets................................................          293                   0
                                                                              --------------    ----------------
TOTAL ASSETS    ..............................................................    $  26,652          $   26,233
                                                                                 ===========         ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
    Accounts payable........................................................   $        307        $        538
    Accrued expenses........................................................          2,890               2,738
    Deferred revenue.......................................................             382                 584
    Product warranty accrual...............................................             401                 394
Current portion of capital lease obligations..............................              263                 568
    Line of credit ........................................................           2,029                 356
                                                                             ---------------          ----------
        TOTAL CURRENT LIABILITIES..........................................           6,272               5,178

CAPITAL LEASE OBLIGATIONS, less current portion.........................                 20                  20
SHAREHOLDERS' EQUITY
    Common Stock,$.01 par value:
        Authorized - 30,000,000 shares
        Issued and outstanding - 7,903,990 net of 718,300 treasury shares and
        7,922,627 net of 499,600 treasury shares at March 31, 2000
            and December 31, 1999, respectively...........................               86                  84
    Additional paid-in capital..............................................         56,126              55,231
    Accumulated other comprehensive income................................                9                  37
    Accumulated deficit.....................................................        (28,485)            (30,328)
    Treasury stock.......................................................            (7,376)             (3,989)
                                                                            ----------------     ---------------
        TOTAL SHAREHOLDERS' EQUITY..........................................         20,360              21,035
                                                                                ------------         ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................   $    26,652          $   26,233
                                                                                ============         ==========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                      Embrex, Inc.
                                                      ------------


CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                                        THREE MONTHS ENDED
                                                                                              MARCH 31
                                                                                        ------------------------
                                                                                        2000                1999
                                                                                        ----                ----
<S>                                                                               <C>                  <C>
REVENUES
    INOVOJECT(R) SYSTEM revenue............................................       $    8,814          $    7,690
Product sales   ...........................................................              371                 246
Other revenue   ...........................................................              106                  80
                                                                                    ---------              -----
        TOTAL REVENUES...................................................              9,291               8,016
COST OF PRODUCT SALES AND INOVOJECT(R) SYSTEM REVENUES......................            3898               3,226
                                                                                    ---------              -----
          GROSS PROFIT....................................................             5,393               4,790

OPERATING EXPENSES
    General and administrative............................................             1,408               1,824
    Sales and marketing..................................................                441                 166
    Research and development...........................................                1,488               1,324
                                                                                  ----------               -----
        TOTAL OPERATING EXPENSES..........................................             3,337               3,314

OPERATING INCOME..........................................................             2,056               1,476
OTHER INCOME (EXPENSE)
    Interest income.....................................................                  60                  80
    Interest expense......................................................               (37)               (135)
                                                                                  ----------               -----
        TOTAL OTHER INCOME (EXPENSE)......................................                23                 (55)
                                                                                  ----------               -----
        INCOME BEFORE TAXES...............................................             2,079               1,421
INCOME TAXES    .........................................................                236                 284
                                                                                 -----------                 ---
        NET INCOME .......................................................       $     1,843           $   1,137
                                                                                 ===========          ==========

NET INCOME PER SHARE OF COMMON STOCK:
    Basic.................................................................       $      0.23         $      0.14
    Diluted..............................................................        $      0.21         $      0.14

NUMBER OF SHARES USED IN PER SHARE CALCULATION:
    Basic.................................................................             7,945               8,293
    Diluted...............................................................             8,733               8,368

</TABLE>

                                       4

<PAGE>
<TABLE>
<CAPTION>
                                  Embrex, Inc.
                                  ------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
                                                                              THREE MONTHS ENDED
                                                                                   MARCH 31
                                                                           -----------------------
                                                                              2000          1999
                                                                           ---------     ---------

<S>                                                                           <C>      <C>
Operating Activities
    Net Income..........................................................      1,843    $ 1,137
    Adjustments to reconcile net income to net cash provided by (used in)
    operating activities:
        Depreciation and amortization ...................................     1,069        926
        Changes in operating assets and liabilities:
            Accounts receivable, inventories and other current assets ...      (410)       225
            Accounts payable and accrued expenses .......................      (273)      (215)
                                                                            -------    -------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...............................     2,229      2,073

Investing Activities
    Purchases of short-term investments .................................         0          0
    Purchases of Inovoject(R) systems, equipment, furniture and fixtures .   (1,356)    (1,333)
    Decrease in patents and other noncurrent assets .....................       (79)        (9)
                                                                            -------    -------
NET CASH USED IN INVESTING ACTIVITIES ...................................    (1,435)    (1,342)

Financing Activities
    Issuance of Common Stock ............................................       896        162
    Net proceeds from line of credit ....................................     1,672          0
    Payments on long-term debt ..........................................         0        (10)
    Payments on capital lease obligations ...............................      (305)    (1,182)
Repurchase of Common Stock ..............................................    (3,387)         0
                                                                            -------    -------
NET CASH USED IN FINANCING ACTIVITIES ...................................    (1,124)    (1,030)
                                                                            -------    -------

Decrease In Cash And Cash Equivalents ...................................      (330)      (299)
Currency Translation Adjustments ........................................       (27)      (147)
Cash and cash equivalents at beginning of period ........................     4,799      7,167
                                                                            -------    -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..............................   $ 4,442    $ 6,721
                                                                            =======    =======
</TABLE>
                                       5

<PAGE>


                                  EMBREX, INC.
                                    FORM 10-Q
                                 March 31, 2000


NOTES TO CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited)

Note 1 - Basis of Presentation

The accompanying unaudited financial statements include the accounts of Embrex,
Inc. and its wholly owned subsidiaries, Embrex Europe Limited, Embrex BioTech
Trade (Shanghai) Co., Ltd. and Inovoject do Brasil Ltda. (collectively referred
to as the Company) and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these
do not include all of the information and notes required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
financial condition and results of operations have been included. Operating
results for the three-month period ended March 31, 2000 are not necessarily
indicative of the results that may be attained for the entire year. For further
information, refer to the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1999.

Note 2 - Net Income Per Share

Basic net income per share was determined by dividing net income available for
common shareholders by the weighted average number of common shares outstanding
during each period presented. Diluted net income per share reflects the
potential dilution that could occur assuming conversion or exercise of all
issued and unexercised stock options and warrants.

Note 3 - Comprehensive Income

In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (SFAS 130). This statement establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
In accordance with SFAS 130, the Company has determined total comprehensive
income, net of tax, to be $1.8 million and $1.0 million for the three months
ended March 31, 2000 and 1999, respectively. Embrex's total comprehensive income
represents net income plus the after-tax effect of foreign currency translation
adjustments for the periods presented.




                                       6
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

The following discussion and analysis should be read in conjunction with the
Company's financial statements and related notes appearing elsewhere in this
report.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2000 and 1999

Consolidated revenues for the first quarter totaled $9.3 million, representing
an increase of 16% over 1999 first quarter revenues of $8.0 million.

Inovoject(R) system revenues amounted to $8.8 million for the 2000 first
quarter, an increase of 15% over 1999 first quarter revenues of $7.7 million.
Most of the 2000 and 1999 Inovoject(R) system revenues were generated from
Inovoject(R) system lease fees. The growth in Inovoject(R) system revenues was
primarily attributable to increased injection activities in North American
hatcheries as well as additional Inovoject(R) systems and injection activity in
Europe, Asia and Latin America.

Sales of Bursaplex(R), the Company's proprietary vaccine for the treatment of
avian infectious bursal disease (IBD), was the principal source of $371,000 of
product revenue in the 2000 first quarter and $246,000 in the 1999 first
quarter. The Company's ability to generate revenue from product sales has been
constrained by the previously announced delay associated with obtaining British
regulatory approval for the sale of Bursamune(R) in the United Kingdom by Fort
Dodge Animal Health ("Ft. Dodge"), a division of American Home Products Corp.
(see below), lower levels of breeder and broiler flock vaccination rates, and
fewer reported incidences of bursal disease in the United States. Product sales
increased 51% during the first quarter of 2000 compared to product sales during
the first quarter of 1999 primarily due to increased sales in Asia.

The first-quarter decrease in gross margin from 60% in 1999 to 58% in 2000
resulted from changing the classification of various international start-up
operating expenses to cost of revenue. This change reflects the increased
commercial installations of the Inovoject(R) system as well as sales of
Bursaplex(R) IN OVO bursal disease vaccine in these markets. Operating income
was not affected.

Total operating expenses amounted to $3.3 million for each of the first quarter
of 2000 and the first quarter of 1999. General and administrative expenses were
$0.4 million less during the first quarter of 2000 due to corporate activities
relative to first quarter 1999 and the classification of international start-up
expenses from general and administrative expenses to both sales and marketing
expenses and cost of revenue. Sales and marketing expenses were $0.2 million
more during the first quarter of 2000 than the same period in 1999 due to
increased new business activity and the classification of international start-up
expenses from general and administrative expenses to sales and marketing
expenses. Research and development expenses were $0.2 million more during the
first quarter 2000 than the first quarter 1999 due to activities primarily
attributable to programs focused on Inovoject(R) system improvements and
enhancements, and biological product development.

Net interest income amounted to $23,000 for the first quarter of 2000 compared
to interest expense of $55,000 for the first quarter of 1999. The $78,000 change
is attributable to the reduction of interest expense related to capital lease
obligations.

                                       7
<PAGE>
Inovoject(R) system revenue growth and improved operating income resulted in a
$706,000 increase in net income, tO $1.8 million in the first quarter of 2000
compared to $1.1 million during the comparable period in 1999. Diluted net
income per common share was $0.21 for 2000 first quarter based on 8.7 million
average shares outstanding, compared to diluted net income of $0.14 per share
based on 8.4 million average shares outstanding in the first quarter 1999. The
change in diluted average shares outstanding from 1999 to 2000 is due to the
increase in the number of in-the-money stock options included in the diluted
average shares calculation. This follows an appreciation in the price of the
Company's Common Stock during the second half of 1999 and the first quarter of
2000, as well as Common Stock repurchases.

The Company estimates that as of March 31, 2000, it was vaccinating in excess of
80% of the broiler birds grown in the United States during the first three
months of 2000. Given its market penetration, the Company expects only moderate
Inovoject(R) system revenue growth in this market. Overall, management expects
moderate growth throughout the balance of 2000 relative to levels achieved in
1999. This growth is expected to come primarily from existing Inovoject(R)
system operations in the United States and Canada and new Inovoject(R) system
operations in other countries, and secondarily from sales of the Company's
Bursaplex(R) product to poultry producers. The Company currently has
Inovoject(R) systems either installed or on trial in 29 countries, including the
United States and Canada.

Bursaplex(R), a product which uses the Company's Viral Neutralizing Factor
(VNF(R)) technology to form an antibody-vaccine virus complex when combined with
an infectious bursal disease (IBD) virus, was granted approval from the United
States Department of Agriculture (the "USDA") in 1997 for IN OVO (in-the-egg)
use, specifically for administration via the Company's Inovoject(R) system. To
date, regulatory approval for Bursaplex(R) has been received in nine countries
besides the United States and regulatory approval is pending in 13 countries.

Bursamune(R), which also utilizes the Company's VNF(R) technology, is an IBD
vaccine produced by Cyanamid Websters, A unit of Ft. Dodge, a division of
American Home Products Corp., and which is being marketed by Ft. Dodge in
certain European countries and, upon receipt of regulatory approvals, will be
marketed in the rest of Europe, the Middle East and Africa under Ft. Dodge's
trade name Bursamune(R). In June 1997, Ft. Dodge indicated that its U.K.
application for IN OVO regulatory approval of Bursamune(R) had been
provisionally refused. The Company has worked with Ft. Dodge, which is
responsible for obtaining the necessary approvals for Bursamune(R) in both the
U.K. and other European Community markets, to respond to the U.K. regulatory
authority requests for data with respect to Bursamune(R). On April 13, 2000 the
Company announced that Ft. Dodge had received marketing authorization from the
Veterinary Products Committee in the United Kingdom for the IN OVO
administration of Bursamune(R) to broiler chickens. To date, Bursamune(R) has
received regulatory approval in South Africa, Spain and the United Kingdom and
has received temporary authorization in France. Although Embrex has received
regulatory approval for Bursaplex(R) and Bursamune(R) in some markets, there is
no assurance that the remaining approvals will be obtained.

For the rest of 2000, the goals of management are to maintain revenue growth and
profitability, to continue efforts to achieve worldwide placements of the
Inovoject(R) system, to obtain regulatory approvals and initiate marketing of
Bursaplex(R) in these markets, to continue development of proprietary IN OVO
vaccines and to develop enhancements to the Inovoject(R) system. Growth in
Inovoject(R) systems and product revenues during 2000 will be dependent on the
rate at which markets outside the United States accept Inovoject(R) system
technology, and the timing of regulatory approvals for Bursaplex(R) and
Bursamune(R) as well as regulatory approval and market acceptance of other
vaccines for IN OVO delivery. In addition, normal fluctuations in the market
price of grain, domestic and international

                                       8
<PAGE>

consumption levels of chicken, the number of eggs set by poultry producers and
the supply of broiler chicken eggs, country-specific regulations and economic
conditions, and export opportunities for the Company's U.S. customers may impact
the timing and quantity of egg injections and the corresponding IN OVO delivery
of vaccines.

CHANGES IN FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

At March 31, 2000, the Company's cash and cash equivalents amounted to $4.4
million, down $357,000 from $4.8 million on hand at year-end 1999.

Operating activities generated $2.2 million in cash during the first three
months of 2000. Cash was provided by net income of $1.8 million and depreciation
of $1.1 million, and was reduced by increases in accounts receivable,
inventories and other current assets of $0.4 million and by reductions in
accounts payable and accrued expenses of $0.3 million.

During the first quarter, investing activities used $1.4 million of cash,
principally for additional Inovoject(R) systems.

Financing activities used $1.1 million, of which $3.7 million was used for
Common Stock repurchases and repayment of capital lease obligations. This was
offset by $0.9 million received from the issuance of Common Stock through stock
option exercises and $1.7 million drawn down from the Company's line of credit
facility.

As of March 31, 2000, the Company had outstanding purchase commitments of
approximately $4.8 million related to the production of the Company's
Bursaplex(R) product, VNF(R) for the manufacture of Bursaplex(R) and
Bursamune(R) AND materials and supplies for the construction and maintenance of
its Inovoject(R) systems.

In April 1999, the Company obtained a $6.0 million secured revolving line of
credit from its bank. This line of credit may be used for working capital
purposes and has a term of 18 months. At March 31, 2000 the unused amount of
this line of credit facility amounted to $4.0 million.

During the first quarter of 2000 the Company acquired 230,500 shares of its
Common Stock for $3.4 million at an average price of $14.69 per share. Since the
share repurchase program began in the fourth quarter of 1998, the Company at
March 31, 2000 had repurchased 718,300 shares of its Common Stock for $7.4
million at an average price of $10.27 per share. Management has been authorized
by the Board of Directors to purchase up to 10 percent of outstanding shares, or
up to approximately 830,000 shares over 18 months in open market or privately
negotiated transactions.

Based on its current operations, management believes that available cash and
cash equivalents, together with cash flow from operations and its bank line of
credit, will be sufficient to meet its foreseeable cash requirements in support
of its operations, including necessary capital investments, continued global
expansion, funding new product development and repurchase of its common stock.

                                       9
<PAGE>
FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements, including statements with
respect to future products, services, markets and financial results. These
statements involve risks and uncertainties that could cause actual results to
differ materially. Risks include without limitation the Company's ability to
penetrate new markets, the degree of market acceptance of new products, the
outcome of the Company's patent litigation appeal, the complete commercial
development of potential future products or the ability to obtain regulatory
approval of products. Such approval is dependent upon a number of factors, such
as results of trials, the discretion of regulatory officials, and potential
changes in regulations. Additional information on these risks and other factors,
which could affect the Company's financial results, is included in the Company's
Form 10-K filed with the Securities and Exchange Commission (SEC) and other
filings with the SEC, including the Company's Forms 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A portion of the Company's operations are in jurisdictions outside North
America. The Company leases Inovoject(R) systems and sells products in Europe,
Asia and Latin America. As a result, the Company's financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which the Company distributes its
products. At March 31, 2000, the Company's operations outside North America were
not material to the Company's consolidated results as a whole, and a significant
change in currency exchange rates or economic conditions in the jurisdictions
outside North America in which the Company operates would not have a material
effect on the Company's consolidated financial results.


PART II.    OTHER INFORMATION

Item 1. Legal Proceedings


        For a description of certain patent infringement proceedings initiated
        by the registrant and related legal proceedings, see the registrant's
        Form 10-K for the year ended December 31, 1999 filed with the Securities
        and Exchange Commission on March 24, 2000.


Item 2. Changes in Securities

        Not applicable.


Item 3. Defaults Upon Senior Securities

        Not applicable.


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

        Not applicable.

                                       10
<PAGE>

Item 5. Other Information

        Not applicable.

Item 6. Exhibits and Reports on Form 8-K

        (a)  Exhibits

             27. Financial Data Schedule

        (b)  Reports on Form 8-K.

            On February 22, 2000, the registrant filed a Form 8-K reporting that
            on February 14, 2000, the registrant entered into a letter agreement
            among the registrant, Micro Cap Partners, L.P., Palo Alto Investors,
            Inc. and William L. Edwards, a copy of which was filed on such Form
            8-K.




                                       11
<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.


Date:   May 12, 2000


                                     EMBREX, INC.


                                     By: /s/ Randall L. Marcuson
                                        ----------------------------------
                                     Randall L. Marcuson
                                     President and Chief Executive Officer



                                     By: /s/ Don T. Seaquist
                                        -----------------------------------
                                     Don T. Seaquist
                                     Vice President, Finance and Administration



                                       12
<PAGE>


                                  EMBREX, INC.
                               File No. 000-19495

                                    Form 10-Q
                            For the Quarterly Period
                              Ended March 31, 2000



                                  EXHIBIT INDEX



Exhibit
-------


27.      Financial Data Schedule



                                       13