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UNITED
  STATESSECURITIES
  AND EXCHANGE COMMISSIONWashington,
  DC 20549

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FORM
  10-Q

(Mark One)

| | QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
| | ---------------------------------------------------------------------------------------------------

For
  the Quarterly Period Ended September 30, 2004

| | 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 000-22400

STRATEGIC
  DIAGNOSTICS INC.(Exact
  name of Registrant as specified in its charter)

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|Delaware                                       |  | 56-1581761               
|---------------------------------------------- |  | -------------------------
|(State
      or other jurisdiction of          |  | (I.R.S.
      employer   
|incorporation
      or organization)           |  | identification
      no.)
|                                               |  |                          
|111
      Pencader Drive, Newark, Delaware     |  | 19702                    
|(Address
      of principal executive offices) |  | (Zip
      Code)         

Registrants
  telephone number, including area code:(302)
  456-6789

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 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 |  | No
|--- |  | --

Indicate by check
  mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2
  of the Exchange Act).

|Yes |  | No
|--- |  | --

As of September
  30, 2004 there were 19,252,465 outstanding shares of the Registrants common
  stock, par value $.01 per share.

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STRATEGIC
  DIAGNOSTICS INC.

INDEX

|Item                                             | Page                                                                                                                    
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------
|                                                 |                                                                                                                         
|PART
            I – FINANCIAL
      INFORMATION |                                                                                                                         
|                                                 |                                                                                                                         
|ITEM
      1.                                    | Financial
      Statements (Unaudited)                                                                                  
|                                                 |                                                                                                                         
|                                                 | Consolidated
      Balance Sheets  September 30, 2004 and December
      31, 2003                                      
|                                                 |                                                                                                                         
|                                                 | Consolidated
            Statements of Operations – Three months and nine months ended
      September 30, 2004 and 2003
|                                                 |                                                                                                                         
|                                                 | Consolidated
      Statements of Cash Flows – Nine months ended September
      30, 2004 and 2003                       
|                                                 |                                                                                                                         
|                                                 | Notes
      to Consolidated Interim Financial Statements                                                                
|                                                 |                                                                                                                         
|ITEM
      2.                                    | Managements
      Discussion and Analysis of Financial Conditionand
      Results of Operations                        
|                                                 |                                                                                                                         
|ITEM
      3.                                    | Quantitative
      and Qualitative Disclosures About Market Risk                                                        
|                                                 |                                                                                                                         
|ITEM
      4.                                    | Controls
      and Procedures                                                                                           
|                                                 |                                                                                                                         
|PART
      II – OTHER INFORMATION                | 18                                                                                                                      
|                                                 |                                                                                                                         
|ITEM
      6.                                    | Exhibits
      and Reports on Form 8-K                                                                                  
|                                                 |                                                                                                                         
|SIGNATURES                                       | 20                                                                                                                      

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**PART
  I. – FINANCIAL INFORMATION**

**ITEM
  1.         FINANCIAL STATEMENTS**

STRATEGIC
  DIAGNOSTICS INC. AND SUBSIDIARY

CONSOLIDATED
      BALANCE SHEETS(in thousands, except share and per share data)
(unaudited)

|                                           |                                                                                                                                                                                        |                                                  | September
      30, |        | December
      31, |       
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------- | ------ | ------------------ | ------
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           |                                                                                                                                                                                        |                                                  | 2004                |        | 2003               |       
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|ASSETS                                     |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|Current
      Assets:                      |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           | Cash
      and cash equivalents                                                                                                                                                        | $                                                | 7,444               |        | $                  | 5,158 
|                                           | Receivables,
      net                                                                                                                                                                 |                                                  | 3,629               |        |                    | 3,795 
|                                           | Inventories                                                                                                                                                                            |                                                  | 3,113               |        |                    | 3,230 
|                                           | Deferred
      tax asset                                                                                                                                                               |                                                  | 965                 |        |                    | 1,336 
|                                           | Other
      current assets                                                                                                                                                             |                                                  | 463                 |        |                    | 502   
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           |                                                                                                                                                                                        | Total current
      assets                       |                     | 15,614 |                    |       
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|Property
      and equipment, net          |                                                                                                                                                                                        | 3,593                                            |                     |        | 3,947              |       
|Other
      assets                         |                                                                                                                                                                                        | 3                                                |                     |        | 3                  |       
|Deferred
      tax asset                   |                                                                                                                                                                                        | 8,385                                            |                     |        | 8,347              |       
|Intangible
      assets, net               |                                                                                                                                                                                        | 6,838                                            |                     |        | 6,957              |       
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           |                                                                                                                                                                                        | Total assets                                     | $                   | 34,433 |                    | $     
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|LIABILITIES
      AND STOCKHOLDERS EQUITY |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|Current
      Liabilities:                 |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           | Accounts
      payable                                                                                                                                                                 | $                                                | 711                 |        | $                  | 788   
|                                           | Accrued
      expenses                                                                                                                                                                 |                                                  | 1,638               |        |                    | 1,342 
|                                           | Current
      portion of long term debt                                                                                                                                                |                                                  | 321                 |        |                    | 211   
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           |                                                                                                                                                                                        | Total current
      liabilities                  |                     | 2,670  |                    |       
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|Long-term
      debt                       |                                                                                                                                                                                        | 825                                              |                     |        | 983                |       
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|Stockholders
      Equity:                |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           | Preferred
      stock, $.01 par value, 20,920,648 shares authorized, no shares issued or
      outstanding                                                                             |                                                  | —                   |        |                    | —     
|                                           | Common
        stock, $.01 par value, 35,000,000 shares authorized, 19,252,465 and 19,200,488
        issued and outstanding at September 30, 2004 and December 31, 2003, respectively |                                                  | 192                 |        |                    | 192   
|                                           | Additional
      paid-in capital                                                                                                                                                       |                                                  | 36,267              |        |                    | 36,140
|                                           | Accumulated
      deficit                                                                                                                                                              |                                                  | (5,425              | )      |                    | (6,262
|                                           | Deferred
      compensation                                                                                                                                                            |                                                  | (178                | )      |                    | (192  
|                                           | Cumulative
      translation adjustments                                                                                                                                               |                                                  | 82                  |        |                    | 73    
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           |                                                                                                                                                                                        | Total stockholders
      equity                 |                     | 30,938 |                    |       
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       
|                                           |                                                                                                                                                                                        | Total liabilities
      and stockholders equity | $                   | 34,433 |                    | $     
|                                           |                                                                                                                                                                                        |                                                  |                     |        |                    |       

The
  accompanying notes are an integral part of these statements.

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STRATEGIC
  DIAGNOSTICS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
  (in thousands, except share and per share data)(unaudited)

|                                                                  |                                           |                                | Three
      Months        |       | Nine
      Months         |      
|----------------------------------------------------------------- | ----------------------------------------- | ------------------------------ | ------------------------- | ----- | ------------------------- | -----
|                                                                  |                                           |                                | Ended
      September 30, |       | Ended
      September 30, |      
|                                                                  |                                           |                                |                           |       |                           |      
|                                                                  |                                           |                                | 2004                      |       | 2003                      |      
|                                                                  |                                           |                                |                           |       |                           |      
|NET
      REVENUES:                                               |                                           |                                |                           |       |                           |      
|                                                                  | Product
      related                     | $                              | 5,546                     |       | $                         | 6,414
|                                                                  | Contract
      and other                  |                                | —                         |       |                           | 2    
|                                                                  |                                           |                                |                           |       |                           |      
|                                                                  |                                           | Total
      net revenues       |                           | 5,546 |                           |      
|                                                                  |                                           |                                |                           |       |                           |      
|OPERATING
      EXPENSES:                                         |                                           |                                |                           |       |                           |      
|                                                                  | Manufacturing                             |                                | 2,487                     |       |                           | 3,045
|                                                                  | Research
      and development            |                                | 610                       |       |                           | 652  
|                                                                  | Selling,
      general and administrative |                                | 2,114                     |       |                           | 2,266
|                                                                  |                                           |                                |                           |       |                           |      
|                                                                  |                                           | Total
      operating expenses |                           | 5,211 |                           |      
|                                                                  |                                           |                                |                           |       |                           |      
|                                                                  |                                           | Operating
      income         |                           | 335   |                           |      
|Interest
      income (expense), net                              |                                           | 17                             |                           |       | (11                       | )    
|                                                                  |                                           |                                |                           |       |                           |      
|Income
      before taxes                                         |                                           | 352                            |                           |       | 442                       |      
|                                                                  |                                           | Income tax
      expense       |                           | 81    |                           |      
|                                                                  |                                           |                                |                           |       |                           |      
|Net
      income                                                  |                                           | 271                            |                           |       | 264                       |      
|                                                                  |                                           |                                |                           |       |                           |      
|Basic
      net income per share                                  | $                                         | 0.01                           |                           | $     | 0.01                      |      
|                                                                  |                                           |                                |                           |       |                           |      
|Shares
      used in computing basic net
      income per share   |                                           | 19,250,000                     |                           |       | 18,989,000                |      
|                                                                  |                                           |                                |                           |       |                           |      
|Diluted
      net income per share                                | $                                         | 0.01                           |                           | $     | 0.01                      |      
|                                                                  |                                           |                                |                           |       |                           |      
|Shares
      used in computing diluted net
      income per share |                                           | 19,432,000                     |                           |       | 19,541,000                |      
|                                                                  |                                           |                                |                           |       |                           |      

The
  accompanying notes are an integral part of these statements.

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STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARY

CONSOLIDATED
  STATEMENTS OF CASH FLOWS(in
  thousands)
  (unaudited)

|                                                                                          |   | Nine
           Months
Ended September 30, |  
|----------------------------------------------------------------------------------------- | - | ------------------------------------------ | -
|                                                                                          |   |                                            |  
|                                                                                          |   | 2004                                       |  
|                                                                                          |   |                                            |  
|                                                                                          |   |                                            |  
|Cash Flows
       from Operating Activities:                                              |   |                                            |  
|Net income                                                                                | $ | 837                                        |  
|Adjustments
    to reconcile net income to net cash
    provided by operating activities: |   |                                            |  
|Depreciation and amortization                                                             |   | 712                                        |  
|Deferred income tax provision                                                             |   | 333                                        |  
|(Increase) decrease in:                                                                   |   |                                            |  
|Receivables                                                                               |   | 166                                        |  
|Inventories                                                                               |   | 117                                        |  
|Other current assets                                                                      |   | 39                                         |  
|Other assets                                                                              |   | —                                          |  
|Increase (decrease) in:                                                                   |   |                                            |  
|Accounts payable                                                                          |   | (77                                        | )
|Accrued expenses                                                                          |   | 296                                        |  
|                                                                                          |   |                                            |  
|Net cash provided by operating activities                                                 |   | 2,423                                      |  
|Cash Flows from Investing Activities:                                                     |   |                                            |  
|Purchase of property and equipment                                                        |   | (182                                       | )
|Purchase of intangible assets                                                             |   | —                                          |  
|                                                                                          |   |                                            |  
|Net cash used in investing activities                                                     |   | (182                                       | )
|Cash Flows from Financing Activities:                                                     |   |                                            |  
|Proceeds from exercise of incentive stock options                                         |   | 73                                         |  
|Proceeds from employee stock purchase plan                                                |   | 11                                         |  
|Proceeds from issuance of long and short term debt                                        |   | 551                                        |  
|Repayments on financing obligations                                                       |   | (599                                       | )
|                                                                                          |   |                                            |  
|Net cash provided by (used in) financing activities                                       |   | 36                                         |  
|Effect of exchange rate changes on cash                                                   |   | 9                                          |  
|Net increase in cash and cash equivalents                                                 |   | 2,286                                      |  
|Cash and cash equivalents, beginning of period                                            |   | 5,158                                      |  
|                                                                                          |   |                                            |  
|Cash and cash equivalents, end of period                                                  | $ | 7,444                                      |  
|                                                                                          |   |                                            |  
|Supplemental Cash Flow Disclosure:                                                        |   |                                            |  
|Cash paid for taxes                                                                       |   | 5                                          |  
|Cash paid for interest                                                                    |   | 38                                         |  
|                                                                                          |   |                                            |  

The accompanying notes are an integral part of these statements

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STRATEGIC
  DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES
  TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (in thousands,
  except share and per share data)
  (unaudited)

|1. | BACKGROUND:
|-- | -----------

Business

Strategic
  Diagnostics Inc. and its subsidiaries (the Company) develop, manufacture
  and market immunoassay and bioluminescence-based test kits for rapid and cost-effective
  detection of a wide variety of substances in the food safety and water quality
  markets and provide antibody and immunoreagent research, development and production
  services.


Basis
  of Presentation and Interim Financial Statements

The accompanying
  unaudited consolidated interim financial statements of the Company have been
  prepared by the Company pursuant to the rules and regulations of the Securities
  and Exchange Commission regarding interim financial reporting. Accordingly,
  they do not include all the information and footnotes required by generally
  accepted accounting principles for complete financial statements and should
  be read in conjunction with the Companys Annual Report on Form 10-K for
  the fiscal year ended December 31, 2003. In the opinion of management, the accompanying
  consolidated financial statements include all adjustments (all of which are
  of a normal recurring nature) necessary for a fair presentation of the results
  of operation.


Revenue
  Recognition

Product related
  revenues are composed of the sale of immunoassay-based test kits and the sale
  of certain antibodies and immunochemical reagents. Revenue from sales of immunoassay-based
  test kits and certain antibodies and immunochemical reagents are recognized
  upon the shipment of the product and transfer of title or when related services
  are provided. For the nine months ended September 30, 2004 and 2003, revenues
  from these sales represented 79% and 78%, respectively, of total Company revenues.


Revenues from
  sales of certain antibodies and immunochemical reagents are recognized under
  the percentage of completion method and are recorded based on the percentage
  of costs or time incurred through the reporting date versus the estimate for
  the entire contract or project. For the nine months ended September 30, 2004
  and 2003, revenues from these sales represented 21% of total Company revenues.


Contract revenues
  are recognized upon the completion of contractual milestones. For the nine months
  ended September 30, 2003 these sales represented 1% of total Company revenues.


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Use
  of Estimates

The preparation
  of the consolidated financial statements requires management of the Company
  to make a number of estimates and assumptions relating to the reported amount
  of assets and liabilities and disclosure of contingent assets and liabilities
  at the date of the consolidated financial statements and the reported amounts
  of revenues and expenses during the period. These estimates include those made
  in connection with assessing the valuation of accounts receivable, inventories,
  deferred tax assets and percentage of completion projects for revenue recognition.
  Actual results could differ from these estimates.


Comprehensive
  Income

Comprehensive
  income consists of the following for each period:


|                                      | Three
      Months EndedSeptember
      30, |     | Nine
      Months EndedSeptember
      30, |  
|------------------------------------- | ------------------------------------------- | --- | ------------------------------------------ | -
|                                      |                                             |     |                                            |  
|                                      | 2004                                        |     | 2003                                       |  
|                                      |                                             |     |                                            |  
|Net income                            | $                                           | 271 |                                            | $
|Currency
      translation adjustment |                                             | (5  | )                                          |  
|                                      |                                             |     |                                            |  
|Total comprehensive
      income      | $                                           | 266 |                                            | $
|                                      |                                             |     |                                            |  

|   |                                                 
|-- | ------------------------------------------------
|2. | BASIC
      AND DILUTED INCOME (LOSS) PER SHARE:

Basic earnings
  per share (EPS) is computed by dividing net income available for common shareholders
  by the weighted-average number of common shares outstanding during the period.
  Diluted EPS is similar to basic EPS, except that the dilutive effect of converting
  or exercising all potentially dilutive securities is also included in the denominator.
  The Companys calculation of diluted EPS includes the dilutive effect of
  exercising stock options and warrants into common shares.


As of September
  30, 2004, options to purchase 2,255,000 shares of the Companys common
  stock were outstanding, with options to purchase approximately 1,501,000 shares
  exercisable. Listed below are the basic and diluted share calculations.


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|                                                          | Three Months Ended |  | Nine Months Ended | 
|--------------------------------------------------------- | ------------------ |  | ----------------- | 
|                                                          | September 30,      |  | September 30,     | 
|                                                          |                    |  |                   | 
|                                                          | 2004               |  | 2003              | 
|                                                          |                    |  |                   | 
|Average common shares outstanding                         | 19,250,125         |  | 18,988,923        | 
|Shares
    used in computing basic net income per share   | 19,250,125         |  | 18,988,923        | 
|                                                          |                    |  |                   | 
|Stock options                                             | 180,936            |  | 550,614           | 
|Warrants                                                  | 1,040              |  | 1,040             | 
|                                                          |                    |  |                   | 
|Shares
    used in computing diluted net income per share | 19,432,101         |  | 19,540,577        | 
|                                                          |                    |  |                   | 



|3. | STOCK-BASED
    COMPENSATION
|-- | ----------------------------

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock Based Compensation-Transition and Disclosures.
This statement amends the requirements of SFAS No. 123, Accounting for Stock
Based Compensation. As permitted by SFAS No. 148, the Company applies the intrinsic-value-based
method to account for its fixed-plan stock options. Compensation expense is recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. The Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and has adopted only
the disclosure requirements
of SFAS No. 123, Accounting for Stock-Based Compensation. Under the
Companys employee share option plans, the Company grants employees and
outside directors stock options at an exercise price equal to the fair market
value at the date of grant. No compensation expense is recorded with respect
to such stock option grants. Compensation expense with respect to stock awards
granted to all others is measured based upon the fair value of such awards and
is charged to expense
over the vesting period.


The following table illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all outstanding and unvested
awards in each period.


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|                                                                                                                                                                    |   | Three Months Ended |   |   | Nine Months Ended |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | - | - | ----------------- | -
|                                                                                                                                                                    |   | September 30,      |   |   | September 30,     |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|                                                                                                                                                                    |   | 2004               |   |   | 2003              |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Net income, as reported                                                                                                                                             | $ | 271                |   | $ | 264               |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Add:
           Stock-based employee compensation expense includedin
    reported net income, net of related tax effects                                            |   | —                  |   |   | 7                 |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Deduct:
           Total stock-based employee compensation expensedetermined
           under fair value based method for all awards, netof
    related tax effects |   | (273               | ) |   | (189              | )
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Pro forma net income (loss)                                                                                                                                         | $ | (2                 | ) | $ | 82                |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Earnings per share:                                                                                                                                                 |   |                    |   |   |                   |  
|Basicas reported                                                                                                                                                   | $ | 0.01               |   | $ | 0.01              |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Basicpro forma                                                                                                                                                     | $ | —                  |   | $ | —                 |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Dilutedas reported                                                                                                                                                 | $ | 0.01               |   | $ | 0.01              |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|Dilutedpro forma                                                                                                                                                   | $ | —                  |   | $ | —                 |  
|                                                                                                                                                                    |   |                    |   |   |                   |  
|                                                                                                                                                                    |   |                    |   |   |                   |  

|4. | INVENTORIES:
|-- | ------------

The Companys inventories, which consist primarily of test kit components, bulk serum and antibody products, are valued at the lower of cost or market. Cost is determined using the first in, first out method.  At September 30, 2004 and December 31, 2003, inventories consisted of the following:


|                 |   | September
    30, 2004 |  |   | December
    31, 2003 | 
|---------------- | - | ---------------------- |  | - | --------------------- | 
|                 |   |                        |  |   |                       | 
|Raw materials    | $ | 1,399                  |  | $ | 1,246                 | 
|Work in progress |   | 465                    |  |   | 578                   | 
|Finished goods   |   | 1,249                  |  |   | 1,406                 | 
|                 |   |                        |  |   |                       | 
|                 | $ | 3,113                  |  | $ | 3,230                 | 
|                 |   |                        |  |   |                       | 
|                 |   |                        |  |   |                       | 

|5. | INTANGIBLE
    ASSETS:
|-- | ----------------------

At September
30, 2004 and December 31, 2003, intangible assets consisted of the following:


|                                    |   | September
    30, 2004 |   |   | December
    31, 2003 |  
|----------------------------------- | - | ---------------------- | - | - | --------------------- | -
|                                    |   |                        |   |   |                       |  
|Goodwill                            | $ | 5,168                  |   | $ | 5,168                 |  
|Other                               |   | 2,800                  |   |   | 2,800                 |  
|Less  accumulated
    amortization |   | (1,130                 | ) |   | (1,011                | )
|                                    |   |                        |   |   |                       |  
|Net intangible assets               | $ | 6,838                  |   | $ | 6,957                 |  
|                                    |   |                        |   |   |                       |  

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|6. | DEBT:
|-- | -----

On May 5, 2000, the Company entered into a financing agreement with a commercial
bank. This agreement provides for a $4,000 term loan, all of which had been paid
on or before December 31, 2002, and for a revolving line of credit of up to $5,000,
none of which was outstanding and approximately $2,575 of which was available
at September 30, 2004, based on eligible assets.


The revolving line of credit bears a variable interest rate of between 1.75%
and 2.75% over the London Interbank Offered Rate (LIBOR) depending upon the ratio
of the Companys funded debt to EBITDA, and is subject to a borrowing base
determined by the Companys eligible accounts receivable. The Companys
annual effective rate of interest on this line of credit, taking into account
the variable interest rate and LIBOR, was approximately 3.39% at September 30,
2004.


On December 13, 2001 the Company entered into an agreement with a commercial
bank to finance the construction of new facilities at its Windham, Maine location.
This agreement provided for up to $1,500 in financing, $1,036 of which was outstanding
at September 30, 2004, and is repayable over seven years, with principal payments
that began on October 1, 2002. The loan bears a variable interest rate of between
2% and 3% over LIBOR depending upon the ratio of the Companys funded debt
to EBITDA. Payments are due monthly, with equal amortization of principal payments
plus interest. The Companys annual effective rate of interest on this loan
at September 30, 2004 was approximately 3.64%.


Under the terms of the above financings, the Company is required to meet certain
quarterly financial covenants. The loan covenants were modified to a minimum
quick ratio of 2.25 and a minimum tangible net worth of $22,500 for the first
three quarters of 2003, and the Company met the requirements during those periods.
Beginning with the fourth quarter of 2003, the original provisions of the loan
agreement regarding financial covenants became operative, namely a ratio of EBITDA
to current maturities of debt plus interest and cash paid for taxes greater than
1.50 and a ratio of funded debt to EBITDA not to exceed 3.25. The Company was
not in compliance with these fourth quarter 2003 covenants at December 31, 2003.
In February 2004, the Company and the lender agreed to amend the terms of the
EBITDA covenants, effective as of December 31, 2003, to exclude the impact of
up to $3,315 of charges the Company incurred in the fourth quarter 2003, and
therefore, the Company met the covenant requirements for the fourth quarter 2003.
Under the amended covenant, the Company was in compliance with these required
ratios at September 30, 2004 and expects that it will be able to meet all of
its financial covenants with respect to this indebtedness for the next twelve
months.


As of September 30, 2004, the outstanding balance on all of the Companys
commercial bank debt was $1,036. This indebtedness is secured by substantially
all of the Companys assets.


In February 2004, the Company entered into an agreement to finance its 2004 insurance
premiums with a commercial lender. The agreement provides for $551 in insurance
premium financing, of which approximately $110 was outstanding at September 30,
2004. Payments are due in ten equal monthly payments ending November 1, 2004.
This insurance premium loan bears a fixed annual interest rate of 4.75%.


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

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements reflecting the current
expectations of the Company. When used in this Form 10-Q, the words anticipate, enable, estimate, intend, expect, believe, potential, may, will, should, project and
similar expressions as they relate to the Company are intended to identify these
forward-looking statements. Investors are cautioned that all forward-looking
statements involve risks and uncertainties, which may cause actual results to
differ from those anticipated at this time. Such risks and uncertainties include,
without limitation, changes in demand for products, delays and increased costs
in product development and introduction, delays in market acceptance of new products,
retention of customers, attraction and retention of management and key employees,
adequate supply of raw materials, inability to obtain or delays in obtaining
third party approvals or required government approvals, the ability to meet increased
market demand, competition, protection of intellectual property, non-infringement
of intellectual property, seasonality, the ability to obtain financing and other
factors more fully described in the Companys public filings with the Securities
and Exchange Commission.


Background

The Company develops, manufactures and markets immunoassay and bioluminescence-based
test kits for rapid and cost-effective detection of a wide variety of substances
in the food safety and water quality markets and also provides antibody and immunoreagent
research, development and production services to medical diagnostic and pharmaceutical
companies, as well as research institutions.


Since inception, the Company and its predecessors have, in addition to conducting
internal research and development of new products, entered into research and
development agreements with multiple corporate partners that have led to the
introduction of various products to the food safety, water quality and other
markets. The Company expects that internal research and development projects,
primarily in the food safety area, will continue to represent a larger percentage
of its research and development expenditures. The Company believes that its competitive
position has been enhanced through the combination of talent, technology and
resources resulting from the relationships it developed and the acquisitions
it concluded during the past five years. These relationships and acquisitions
have enabled the Company to achieve meaningful economies of scale for the products
it offers through the utilization of its consolidated facilities in Newark, Delaware,
for the manufacture of test kits and antibodies, its facility located in Oceanside,
California, for the manufacture of instruments, and its facility located in Windham,
Maine for the manufacture of antibodies.


On July 8, 2002, the Company purchased certain assets of Molecular Circuitry, Inc. (MCI). The purchased assets consist primarily of various proprietary growth media technology that will be used in combination with the Companys diagnostic tests for food-borne pathogens, including
SalmonellaandE.
coli. The assets
purchased also include the sales and marketing rights to the ruminant feed test
product line that the Company and MCI had been jointly developing.


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The Company believes that its products in the food safety and water quality testing
markets fill potentially large, unmet needs for rapid, easy-to-use analytical
methods. The Company also believes that its products and technology currently
being developed have broad application in diverse markets including the food
and beverage and water treatment industries. The Company believes that an established
product base, quality manufacturing expertise, experienced sales and marketing
organization, established network of distributors, corporate partner relationships
and proven research and development expertise will be critical elements of its
potential future success.


Results of Operations

Three Months Ended September 30, 2004 versus September 30, 2003


Revenues for the third quarter of 2004 decreased 14% to $5.5 million, compared
to $6.4 million for the third quarter of 2003.


Food safety revenues decreased 18% to $1.7 million in the third quarter of 2004,
compared to $2.0 million for the third quarter of 2003. Sales of the Companys
products to detect the StarLink trait decreased to $329,000 for the third
quarter of 2004, compared to $541,000 in the same period in the prior year. Production
of the StarLink trait was discontinued in 2001, and the Company expects
the volume of testing for this trait to diminish at a more rapid rate.


Tests for detecting other genetically modified traits in both grain and seed
were less than sales expectations for the quarter. The Company has seen some
attrition due to changes in customer sample requirements for statistical analysis
of test results. It is not clear how record harvests may offset these changes
through the end of the year.


Food pathogen tests continued to see rapid growth during the quarter. Food pathogen test sales, led by sales of test kits forE. coli, SalmonellaandListeria, grew by 91% during the third quarter of 2004 as compared to the third quarter of 2003. The Company believes that this increase, from the 46% growth rate experienced in the second quarter of 2004 when compared to the second quarter of 2003, is a reflection of the ongoing adoption of the product line, and the introduction of the Companys newListeriatest in June 2004.  TheListeriatest kit, the first product of the Companys new DesignChek process, appears to be gaining rapid industry acceptance.


Water quality revenues decreased 16% to $1.4 million for the third quarter of
2004 compared to $1.6 million for the same quarter in the prior year. This decline
relates primarily to sales in the U.S. In Europe, water quality revenues grew
32% in the third quarter of 2004 compared to the third quarter of 2003. Sales
in the U.S. reflect an overall slowing in environmental testing and remediation,
which is consistent with the market trends. EPA projects have historically been
one of the key drivers of the field test kit business, and current federal spending
cuts in the environmental area have negatively impacted the Companys sales.


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Sales of the Companys Microtox®testing instruments were down in the third quarter of 2004 compared to the third quarter of 2003.  Testing to secure water quality against intentional or unintentional contamination is just being considered as part of the food industrys response to bio-terror threats. TheMicrotox®water program has demonstrated excellent performance in securing water quality. The Company is actively involved in promoting the technology and believes that this program may represent a best practice, as manufacturers begin to apply the same quality assurance standards to water as they do to other ingredients.


Antibody revenues decreased 9% to $2.5 million for the third quarter of 2004
compared to $2.8 million for the same quarter in the prior year. This decrease
reflects a decline in demand for polyclonal antibody services in the third quarter
of 2004 compared to the same period in the prior year, and also reflects the
Companys continuing efforts to minimize business that results in low margins.


Gross profits (total revenues less manufacturing expenses) decreased to $3.1
million in the third quarter of 2004, compared to $3.4 million in the third quarter
of 2003. Gross margin percentages increased to 55% in the third quarter 2004
as compared to 53% for the same quarter in 2003. The decline in gross profits
reflects the lower revenue levels in the third quarter of 2004 when compared
to the third quarter of 2003. The improvement in gross margin percentages reflects
lower manufacturing expenses as described below.


Manufacturing expenses decreased $558,000, or 18%, to $2.5 million in the third
quarter of 2004 compared to $3.0 million in the same quarter of 2003. The decline
primarily reflects the lower revenue levels in the third quarter of 2004 period
as compared to the third quarter of 2003, and the benefit of the Companys
ongoing efforts on manufacturing process improvement and supply chain management.


Research and development spending was $610,000 or 11% of net revenues for the
third quarter of 2004, compared to $652,000 or 10% of net revenues in the prior
year third quarter.


Selling, general and administrative expenses decreased $152,000 to $2.1 million
for the third quarter of 2004 compared to $2.3 million in the same quarter in
the prior year, due to general overall expense control.


The Company recorded interest income of $17,000 in the third quarter of 2004
compared to interest expense of $11,000 in the prior year third quarter primarily
due to higher levels of invested cash during the 2004 period.


Income before taxes totaled $352,000 in the third quarter of 2004 compared to
$442,000 in the prior year third quarter.


The Companys effective tax rate of 23% for the third quarter of 2004 is
below the federal and state statutory rates primarily due to research and development
credits and the utilization of foreign net operating losses not previously benefited.


Net income in the third quarter of 2004 was $271,000, or $0.01 per diluted share,
compared to net income of $264,000, or $0.01 per diluted share, in the third
quarter of 2003.


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Nine Months Ended September 30, 2004 versus September 30, 2003


Revenues for the nine months ended September 30, 2004, decreased 10% to $17.3
million, compared to $19.3 million for the same period in 2003.


Food safety revenues increased 5% to $5.2 million for the nine months ended September 30, 2004, compared to $5.0 million for the same period in the prior year. Food pathogen test sales, led by sales of test kits forE. coli, SalmonellaandListeria, grew by 60% for the nine months ended September 30, 2004, as compared to the respective same period in the prior year. Sales of the Companys products to detect genetically modified (GM) traits, other than StarLink, increased by 11% for the nine months ended September 30, 2004, as compared to the same period in the prior year. The increase primarily reflects the Companys execution of a sizeable sale associated with tests for soybean trait detection in the Brazilian market.


Increases in food safety revenues were partially offset by continued reductions
in StarLink test kit sales, which were approximately $857,000 in the first
nine months of 2004 compared to $1.3 million in the same period in the prior
year. Production of the StarLink trait was discontinued in 2001, and the
Company expects the volume of testing for this trait to diminish at a more rapid
rate.


Water quality revenues decreased 17% to $4.5 million for the nine months ended
September 30, 2004, compared to $5.5 million for the same period in the prior
year. This decline reflects a decrease in the number of remediation projects
and correlated use of on-site testing. Also contributing to the decline was pricing
pressure from direct competitors and lab-based testing services and the Companys
efforts to discontinue production and sales of low margin products, including
several build to order test kits.


For the nine month period ended September 30, 2004 compared to the same period
in the prior year, revenues associated with sales of the CompanysMicrotox®luminometers were flat, reflecting ongoing sales where application technology is well established.  The Company has developed new applications for securing water quality in food and beverage applications and is actively engaged in developing this new market.  Revenues associated with sales of the Companys Deltatox® luminometers were down approximately $115,000 for the nine month period ended September 30, 2004 compared to the same period in the prior year.  This decline was primarily due to large one time sales in 2003 associated with an Orange terror alert.


Antibody revenues decreased 13% to $7.6 million in the nine months ended September
30, 2004, compared to $8.8 million for the same period in the prior year. This
decrease reflects a decline in demand for polyclonal antibody services in the
first nine months of 2004 compared to the same period in the prior year. The
number of customers has remained constant, but the number of customer projects
has dropped from the high levels experienced in the first nine months of 2003.
This decrease also reflects the Companys continuing efforts to minimize
business that results in low margins, including the discontinuation or reduction
of work under three management agreements for monoclonal antibody services. Included
in the antibody revenues in the nine months ended September 30, 2004 is $249,000
of revenue associated with the Companys sale of certain catalog inventories
that were written-off in the fourth quarter of 2003.


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Gross profits
  (total revenues less manufacturing expenses) for the nine months ended September
  30, 2004 declined $718,000, or 7%, to $9.8 million as compared to $10.6 million
  for the same period in the prior year. The decline reflects the lower revenue
  levels in the 2004 period as compared to the same period in 2003. Gross margin
  percentages increased for the nine months ended September 30, 2004, to 57%
  as compared to 55% in the same period of 2003. The improvement in gross margin
  percentages for the nine months ended September 30, 2004 is primarily related
  to lower manufacturing expenses, as described below, and $249,000 in revenue
  associated with the Companys sale of certain antibody inventories that
  were written-off in the fourth quarter of 2003.


Manufacturing expenses for the nine months ended September 30, 2004 declined
$1.3 million, or 15%, to $7.5 million as compared to $8.8 million for the same
period in the prior year. The decline primarily reflects the lower revenue levels
in the 2004 period as compared to the same period in 2003 and lower costs resulting
from Companys ongoing efforts in manufacturing process improvement and
supply chain management.


Research and development spending was $1.9 million, or 11% of net revenues, for
the nine months ended September 30, 2004, compared to $2.0 million, or 10% of
net revenues, for the same period in the prior year.


Selling, general and administrative expenses decreased $482,000 to $6.8 million
in the nine months ended September 30, 2004, compared to $7.3 million in the
same period of the prior year. Included in the selling, general and administrative
expenses for the nine month period ended September 30, 2003, was a $315,000 provision
for severance and related
expenses associated with the Companys termination of its former CEO in
May 2003. Also in the nine months ended September 30, 2004, the Company benefited
from the recovery of a $100,000 receivable it had written off in 2001.


The Company recorded interest income of $31,000 for the nine months ended September
30, 2004 compared to interest expense of $34,000 for the nine months ended September
30, 2003, due to higher levels of invested cash during the 2004 period.


Income before taxes totaled $1.2 million for the nine months ended September
30, 2004, compared to $1.3 million for the nine months ended September 30, 2003.


The Companys effective tax rate of 28% for the nine months ended September
30, 2004 is below the federal and state statutory rates primarily due to research
and development credits and the utilization of foreign net operating losses not
previously benefited.


Net income for the nine months ended September 30, 2004 was $837,000, or $0.04
per diluted share, compared to net income of $810,000, or $0.04 per diluted share,
in for the nine months ended September 30, 2003.


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Liquidity and Capital Resources

Net cash provided by operating activities of $2.4 million and $2.2 million for the nine months ended September 30, 2004 and 2003, respectively, was primarily the result of the earnings before interest, taxes, depreciation and amortization (EBITDA).  See Non-GAAP Financial Measures below.


Net cash used in investing activities of $182,000 and $270,000 for the nine months
ended September 30, 2004 and 2003, respectively, was primarily driven by capital
expenditures for office and manufacturing equipment during the periods.


Net cash provided by financing activities increased to $36,000 for the nine months
ended September 30, 2004 from net cash used in financing activities of $39,000
for the nine months ended September 30, 2003, primarily due to the higher proceeds
from the issuance of short-term debt to finance the Companys 2004 insurance
premiums with a commercial lender, net of scheduled repayments on this financing
as well as scheduled repayments on existing bank debt.


The Companys working capital, which equals current assets less current liabilities,
increased to $12.9 million at September 30, 2004, compared to $11.7 million at
December 31, 2003. Outstanding debt decreased $48,000 from $1.2 million at December
31, 2003 to $1.1 million on September 30, 2004, primarily due to the scheduled
repayments on the insurance premium financing and existing bank debt.


On May 5, 2000, the Company entered into a financing agreement with a commercial
bank. This agreement provides for a $4.0 million term loan, all of which had
been paid on or before December 31, 2002, and for a revolving line of credit
of up to $5.0 million, none of which was outstanding and approximately $2.6 million
of which was available at September 30, 2004, based on eligible assets. The revolving
line of credit bears a variable interest rate of between 1.75% and 2.75% over
LIBOR depending upon the ratio of the Companys funded debt to EBITDA, and
is subject to a borrowing base determined by the Companys eligible accounts
receivable. The Companys annual effective rate of interest on this line
of credit, taking into account the variable interest rate and LIBOR, was approximately
3.39% at September 30, 2004. On December 13, 2001 the Company entered into an
agreement with a commercial bank to finance the construction of new facilities
at its Windham, Maine location. This agreement provided for up to $1.5 million
in financing, $1.0 million of which was outstanding at September 30, 2004, and
is repayable over seven years, with principal payments that began on October
1, 2002. The loan bears a variable interest rate of between 2% and 3% over LIBOR
depending upon the ratio of the Companys funded debt to EBITDA. Payments
are due monthly, with equal amortization of principal payments plus interest.
The Companys annual effective rate of interest on this loan at September
30, 2004, was approximately 3.64%. Under the terms of the above financing, the
Company is required to meet certain quarterly financial covenants. The loan covenants
were modified to a minimum quick ratio of 2.25 and a minimum tangible net worth
of $22.5 million for the first three quarters of 2003, and the Company met the
requirements during those periods. Beginning with the fourth quarter of 2003,
the original provisions of the loan agreement regarding financial covenants became
operative, namely a ratio of EBITDA to current maturities of debt plus interest
and cash paid for taxes greater than 1.50 and a ratio of funded debt to EBITDA
not to exceed 3.25.


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The Company was not in
compliance with these fourth quarter 2003 covenants at December 31, 2003. In
February 2004, the Company and the lender agreed to amend the terms of the EBITDA
covenants, effective as of December 31, 2003, to exclude the impact of up to
$3.3 million of charges the Company incurred in the fourth quarter of 2003, and
therefore, the Company met the covenant requirements for the fourth quarter of
2003. Under the amended covenant, the Company was in compliance with these required
ratios at September 30, 2004 and expects that it will be able to meet all of
its financial covenants with respect to this indebtedness for the next twelve
months.


Based upon its cash on hand, credit facilities, current product sales and the
anticipated sales of new products, the Company believes it has, or has access
to, sufficient resources to meet its operating requirements at least through
October 2005. The Companys ability to meet its long-term capital needs will
depend on a number of factors, including compliance with existing and new loan
covenants, the success of its current and future products, the focus and direction
of its research and development programs, competitive and technological advances,
future relationships with corporate partners, government regulation, the Companys
marketing and distribution strategy, its successful sale of additional common
stock and/or the Company successfully locating and obtaining other financing,
and the success of the Companys plan to make future acquisitions. Accordingly,
no assurance can be given that the Company will be able to meet the future liquidity
requirements that may arise from these inherent and similar uncertainties.


Non-GAAP Financial Measures



The
    Company presents an EBITDA measure as the Company believes this provides
    investors and the Companys management with additional information to
    measure the Companys liquidity. EBITDA measures are not a measure of
    performance under GAAP, and therefore should not be considered in isolation
    or as a substitute for net income or cash flows from operations. Additionally,
    the Companys EBITDA calculations may differ from the EBITDA calculations
    for other companies.


The calculation of the
Companys EBITDA measure (as discussed above), and the reconciliation of
the Companys EBITDA measure to net cash provided by operating activities
for the nine months ended September 30, 2004 and 2003, respectively, is as follows
(amounts in thousands):


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|                                          |               | Nine Months Ended |  
|----------------------------------------- | ------------- | ----------------- | -
|                                          | September 30,
|                                          |              
|                                          | 2004          |                   |  
|                                          |               |                   |  
|Net cash provided by operating activities | $             | 2,423             |  
|Changes in assets and liabilities:        |               |                   |  
|Receivables                               |               | (166              | )
|Inventories                               |               | (117              | )
|Other current assets                      |               | (39               | )
|Other assets                              |               | —                 |  
|Accounts payable                          |               | 77                |  
|Accrued expenses                          |               | (296              | )
|Interest income (expense), net            |               | (31               | )
|                                          |               |                   |  
|EBITDA                                    | $             | 1,851             |  
|                                          |               |                   |  

Item 3.         Quantitative
and Qualitative Disclosures About Market Risk

The Company has exposure to changing interest rates, and is currently not engaged
in hedging activities. Interest on approximately $1.0 million of outstanding
indebtedness is at a variable rate of between 2% to 3% over the published LIBOR,
based upon the Companys ratio of funded debt to EBITDA, and was 3% over
LIBOR on average for the year. At the Companys current level of indebtedness,
each 1% change in the variable interest rate will have an effect of $10,000 on
the Companys
annual interest expense charges.


The Company conducts operations in the United Kingdom. The consolidated financial
statements of the Company are denominated in U.S. dollars and changes in exchange
rates between foreign countries and the U.S. dollar will affect the translation
of financial results of foreign subsidiaries into U.S. dollars for purposes of
recording the Companys consolidated financial results. Historically, the
effects of translation have not been material
to the consolidated financial results.


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Item 4.         Controls
      and Procedures

|(a) | Evaluation
      of Disclosure Controls and Procedures
|--- | ------------------------------------------------------

Our management,
    with the participation of our Chief Executive Officer and Chief Financial
    Officer, evaluated the effectiveness of our disclosure controls and procedures,
    as defined in Rule 13a-15(e) under the Securities Act of 1934, as amended,
    as of the end of the period covered by this report. Based on that evaluation,
    the Chief Executive Officer and Chief Financial Officer concluded that our
    disclosure controls and procedures as of the end of the period covered by
    this report are functioning effectively to provide reasonable assurance that
    the information required to be disclosed by us in reports filed under the
    Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
    and reported within the time periods specified in the SECs rules and forms,
    and that information required to be disclosed by us in the reports we file
    or submit under the Securities Exchange Act of 1934, as amended, is accumulated
    and communicated to our management, including our principal executive and
    financial officers, or persons performing similar functions, as appropriate
    to allow timely decisions regarding required disclosure. A controls system,
    no matter how well designed and operated, cannot provide absolute assurance
    that the objectives of the controls system are met, and no evaluation of
    controls can provide absolute assurance that all control issues and instances
    of fraud, if any, within a company have been detected.


|(b) | Change
      in Internal Control over Financial Reporting
|--- | ---------------------------------------------------------

No change
    in our internal control over financial reporting occurred during our most
  recent fiscal quarter that has materially affected, or is reasonably likely
  to materially affect, our internal control over financial reporting.


PART
  II  OTHER INFORMATION

Item
      6.         Exhibits and Reports
  on Form 8-K

|(a) | Exhibits
|--- | --------

|     |  |                                                                                                                                                                                                     
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certifications
       of the Chief Executive Officer of Strategic Diagnostics Inc. required
       by Rule 13a-14(a) under the Securities Exchange Act of 1934                                      
|     |  |                                                                                                                                                                                                     
|31.2 |  | Certifications
       of the Chief Financial Officer of Strategic Diagnostics Inc. required
       by Rule 13a-14(a) under the Securities Exchange Act of 1934                                      
|     |  |                                                                                                                                                                                                     
|32.1 |  | Certification
       of the Chief Executive Officer of Strategic Diagnostics Inc. pursuant
       to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley
       Act of 2002
|     |  |                                                                                                                                                                                                     
|32.2 |  | Certification
       of the Chief Financial Officer of Strategic Diagnostics Inc. pursuantto
       18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-OxleyAct
       of 2002  

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|(b) | Reports
      on Form 8-K
|--- | -------------------------

The Company
  did not file any reports on Form 8-K during the third quarter of 2004, but did
  furnish the following reports:

On August 5,
  2004, the Company furnished a report on Form 8-K pursuant to Item 7 and Item
  9, announcing its financial results for the quarter ended June 30, 2004.

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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.

|      |                        | STRATEGIC
      DIAGNOSTICS INC.                                                                                                      | 
|----- | ---------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | 
|      |                        |                                                                                                                                       | 
|      |                        | /s/ Matthew
      H. Knight                                                                                                           | 
|      |                        |                                                                                                                                       | 
|      |                        | Matthew
      H. Knight
      President, Chief Executive Officer 
      (Principal Executive Officer)                                 | 
|Date: | November
      5, 2004 |                                                                                                                                       | 
|      |                        |                                                                                                                                       | 
|      |                        | /s/ Stanley
      J. Musial                                                                                                           | 
|      |                        |                                                                                                                                       | 
|      |                        | Stanley
      J. Musial
      Vice President  Finance and Chief Financial Officer
      (Principal Financial and Accounting Officer) | 
|Date: | November
      5, 2004 |                                                                                                                                       | 
|      |                        |                                                                                                                                       | 

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