UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q

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

For the Quarterly Period Ended September 30, 2006

| | TRANSITIONREPORT 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(State or other jurisdiction ofincorporation or organization) |  | 56-1581761(I.R.S. employeridentification no.) | 
| | --------------------------------------------------------------------- |  | --------------------------------------------- | 

| | 111 Pencader DriveNewark, Delaware(Address of principal executive
      offices) |  | 19702(Zip Code) | 
| | -------------------------------------------------------------------------------- |  | --------------- | 

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



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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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of large accelerated filer and accelerated filer in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer       Accelerated Filer       Non-Accelerated Filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes:      No:

As of September 30, 2006 there were 20,137,926 outstanding shares of the Registrants common stock, par value $.01 per share.






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STRATEGIC
  DIAGNOSTICS INC.

INDEX



Item
      
      
      
      PagePART
          I
      
      FINANCIAL
          INFORMATIONITEM
          1.
      
      Financial
          StatementsConsolidated
          Balance Sheets  September 30, 2006 and December 31, 2005
      2Consolidated
          Statements of Operations  Three and nine months endedSeptember
          30, 2006 and 2005
      3Consolidated
          Statements of Cash Flows  Nine months ended September 30, 2006
          and 2005
      4Notes
          to Consolidated Interim Financial Statements
      5ITEM
          2.
      
      Managements
          Discussion and Analysis of Financial Conditionand
          Results of Operations
      12ITEM
          3.
      
      Quantitative
          and Qualitative Disclosures About Market Risk
      17ITEM
          4.
      
      Controls
          and Procedures
      17PART
          II
      
      OTHER
          INFORMATIONITEM
          6.
      
      Exhibits
      18SIGNATURES
      
      
      19


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PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED
  BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)



September
          30,
      
      December
          31,2006
      
      2005ASSETSCurrent
          Assets :Cash
          and cash equivalents
      
      $
      9,660
      
      $
      10,009Receivables,
          net
      
      
      3,853
      
      
      3,242Inventories
      
      
      3,261
      
      
      3,212Deferred
          tax asset
      
      
      1,155
      
      
      1,048Other
          current assets
      
      
      671
      
      
      362Total
          current assets
      
      
      18,600
      
      
      17,873Property
          and equipment, net
      
      
      4,003
      
      
      3,884Other
          assets
      
      
      4
      
      
      3Deferred
          tax asset
      
      
      8,256
      
      
      8,101Intangible
          assets, net
      
      
      6,425
      
      
      6,800Total
          assets
      
      $
      37,288
      
      $
      36,661LIABILITIES
          AND STOCKHOLDERS EQUITYCurrent
          Liabilities :Accounts
          payable
      
      $
      534
      
      $
      464Accrued
          expenses
      
      
      1,191
      
      
      1,439Deferred
          revenue
      
      
      248
      
      
      207Current
          portion of long term debt
      
      
      211
      
      
      211Total
          current liabilities
      
      
      2,184
      
      
      2,321Long-term
          debt
      
      
      404
      
      
      562Stockholders
          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, 20,137,926 and
          19,916,635 issued and outstanding at September 30, 2006 and December
          31, 2005, respectively
      
      
      201
      
      
      200Additional
          paid-in capital
      
      
      38,582
      
      
      37,936Accumulated
          deficit
      
      
      (4,181
      )
      
      (4,374
      )Cumulative
          translation adjustments
      
      
      98
      
      
      16Total
          stockholders equity
      
      
      34,700
      
      
      33,778Total
          liabilities and stockholders equity
      
      $
      37,288
      
      $
      36,661


The
  accompanying notes are an integral part of these statements.

2

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STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)



Three
          MonthsEnded September 30,
      
      Nine
          MonthsEnded September 30,2006
      
      2005
      
      2006
      
      2005NET
          REVENUES:Product
          related
      
      $
      6,624
      
      $
      6,094
      
      $
      18,532
      
      $
      18,949Total
          net revenues
      
      
      6,624
      
      
      6,094
      
      
      18,532
      
      
      18,949OPERATING
          EXPENSES:Manufacturing
      
      
      2,965
      
      
      2,762
      
      
      8,633
      
      
      8,477Research
          and development
      
      
      666
      
      
      664
      
      
      1,959
      
      
      2,322Selling,
          general and administrative
      
      
      2,543
      
      
      2,348
      
      
      7,899
      
      
      7,113Total
          operating expenses
      
      
      6,174
      
      
      5,774
      
      
      18,491
      
      
      17,912Operating
          income
      
      
      450
      
      
      320
      
      
      41
      
      
      1,037Interest
          income, net
      
      
      101
      
      
      59
      
      
      275
      
      
      130Income
          before taxes
      
      
      551
      
      
      379
      
      
      316
      
      
      1,167Income
          tax expense
      
      
      219
      
      
      60
      
      
      123
      
      
      291Net
          income
      
      
      332
      
      
      319
      
      
      193
      
      
      876Basic
          net income per share
      
      $
      0.02
      
      $
      0.02
      
      $
      0.01
      
      $
      0.04Shares
          used in computing basic net income per share
      
      
      20,050,000
      
      
      19,850,000
      
      
      19,994,000
      
      
      19,680,000Diluted
          net income per share
      
      $
      0.02
      
      $
      0.02
      
      $
      0.01
      
      $
      0.04Shares
          used in computing diluted net income per share
      
      
      20,115,000
      
      
      20,063,000
      
      
      20,068,000
      
      
      19,793,000


The
  accompanying notes are an integral part of these statements.

3

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STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



Nine
          MonthsEnded September 30,2006
      
      2005Cash
          Flows from Operating Activities :Net
          income
      
      $
      193
      
      $
      876Adjustments
          to reconcile net income to net cash provided by (used in) operating
          activities :Depreciation
          and amortization
      
      
      749
      
      
      659Stock
          compensation expense
      
      
      235
      
      
      146Deferred
          income tax provision
      
      
      54
      
      
      291(Increase)
          decrease in :Receivables
      
      
      (611
      )
      
      (291
      )Inventories
      
      
      (49
      )
      
      (70
      )Other
          current assets
      
      
      (303
      )
      
      (273
      )Other
          assets
      
      
      (1
      )
      
      (3
      )Increase
          (decrease) in :Accounts
          payable
      
      
      70
      
      
      (475
      )Accrued
          expenses
      
      
      (248
      )
      
      100Deferred
          revenue
      
      
      41
      
      
      Net
          cash provided by operating activities
      
      
      130
      
      
      960Cash
          Flows from Investing Activities :Purchase
          of property and equipment
      
      
      (690
      )
      
      (322
      )Purchase
          of intangible assets
      
      
      (117
      )
      
      Net
          cash used in investing activities
      
      
      (807
      )
      
      (322
      )Cash
          Flows from Financing Activities :Proceeds
          from exercise of incentive stock options
      
      
      389
      
      
      1,335Proceeds
          from employee stock purchase plan
      
      
      15
      
      
      17Repayments
          on financing obligations
      
      
      (158
      )
      
      (158
      )Net
          cash provided by financing activities
      
      
      246
      
      
      1,194Effect
          of exchange rate changes on cash
      
      
      82
      
      
      (96
      )Net
          increase (decrease) in cash and cash equivalents
      
      
      (349
      )
      
      1,736Cash
          and cash equivalents, beginning of period
      
      
      10,009
      
      
      8,096Cash
          and cash equivalents, end of period
      
      $
      9,660
      
      $
      9,832Supplemental
          Cash Flow Disclosure :Cash
          paid for taxes
      
      
      28
      
      
      18Cash
          paid for interest
      
      
      37
      
      
      35


The
  accompanying notes are an integral part of these statements.

4

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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.

        DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


Business

Strategic Diagnostics Inc. and its subsidiaries (collectively, the Company) develop, manufacture and market antibody products and analytical test kits to a diverse customer base, across multiple industrial and human health markets. By applying its core competency of creating custom antibodies to assay development, the Company produces unique, sophisticated diagnostic testing and reagent systems that are responsive to customer diagnostic and information needs. Customers benefit with quantifiable return on investment by reducing time, labor, and/or material costs. All this is accomplished while increasing accuracy, reliability and actionability of essential test results. The Company is focused on sustaining this competitive advantage by leveraging its expertise in immunology, proteomics, bio-luminescence and other bio-reactive technologies to continue
its successful customer-focused research and development efforts.

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, 2005. In the opinion of management, the accompanying consolidated interim financial statements include all adjustments (all of which are of a normal recurring nature) necessary for a fair presentation of the results of operations.

Certain amounts have been reclassified to conform to the current periods presentation.

Revenue Recognition

Revenues composed of 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. Revenues associated with such products or services are recognized when persuasive evidence of an order exists, shipment of product has occurred or services have been provided, the price is fixed and determinable and collectibility is reasonably assured. Management is required to make judgments based on actual experience about whether or not collectibility is reasonably assured.

The Company enters into contracts related to the production of custom antibodies, which provide for the performance of defined tasks for a fixed price, with delivery of the product upon completion of production. The standard time to complete a project is typically longer than 30 days, but less than 12 months, and effort is expended over the life of the project. Revenues related to sales of custom antibody projects are recognized when a projects specifications have been met and the related materials have been shipped.

Fees associated with products and services added on to a custom antibody project subsequent to delivery of the initial project are billed monthly and recognized as revenue as the services and other deliverables are provided.

Use of Estimates

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

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New Accounting Pronouncements

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) 123R, Share-Based Payment, using the modified prospective transition method and, accordingly, has not retroactively adjusted results from prior periods. SFAS 123(R) revises SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123(R) requires that compensation costs related to share-based payment transactions be recognized in the financial statements.

In prior years, the Company applied the intrinsic-value-based method to account for its incentive plan stock options and had adopted only the disclosure requirements of SFAS No. 123. In recording stock-based compensation expense, the Company recognized in its consolidated financial statements the fair value of restricted stock, the intrinsic value of options wherein the current market price of the underlying stock, at the grant date, exceeded the exercise price and the discount from the market price of common stock acquired by employees under a stock purchase plan. Under SFAS 123(R), the Company recognizes stock-based compensation expense based on the fair value of both restricted stock and stock options and the employee discount. Stock-based compensation expense is recognized on a straight-line basis ratably over the respective vesting periods for restricted stock and stock
options, and in the period the employee discount is realized.

On December 27, 2005, the Board of Directors of the Company approved the accelerated vesting, effective as of December 31, 2005, of all unvested stock options granted to employees and non-employee directors from 2002 through 2005 under the Companys 2000 Stock Incentive Plan, as well as options granted to the Companys Chief Executive Officer under his original employment agreement. The acceleration of vesting of these options had the effect of reducing non-cash compensation expense that would have been recorded in the Companys statement of operations in future periods in anticipation of the adoption of SFAS 123(R). The Boards decision was based on factors including but not limited to the following: 48% of the options were out of the money; the options generally would vest over the next three years; and the Company had decided to rely on
restricted stock as opposed to options in future incentive compensation awards.

As a result of the acceleration, options to purchase approximately 381,000 shares of the Companys common stock (which represented 23% of the Companys then currently outstanding stock options) became exercisable on December 31, 2005. The accelerated options ranged in exercise price from $2.51 to $4.12 per share and, at December 31, 2005, the weighted average exercise price of the accelerated options was $3.41 per share. Of the 381,000 shares that became exercisable, approximately 199,000 of these shares were in the money as of December 27, 2005, meaning that the exercise price was at or below the price of the Companys common stock on that date. The weighted average exercise price of the in the money shares at that date was $3.02. The options subject to acceleration included options to purchase approximately 222,000 shares,in the
aggregate, held by executive officers and approximately 48,000 shares, in the aggregate, held by non-employee directors of the Company. Of these 270,000 shares, approximately 147,000 were in the money as of December 27, 2005. The fair value of the unvested portion of accelerated options at December 31, 2005 totaled $975 and would have been expensed in future years as follows: $682 in 2006, $228 in 2007 and $65 in 2008.

Consequently, the adoption of SFAS 123(R) did not have an impact on the Companys results of operations and financial position in the first quarter of 2006. However, as a result of the granting of options to the Board of Directors as part of their compensation package in May 2006, the Companys income before income taxes and net income for the three month period ended September 30, 2006 were lower by $16 and $10, respectively, and for the nine month period ended September 30, 2006 were lower by $61 and $37, respectively, than they would have been under the Companys previous accounting method for share-based compensation.

The Company also considers the effect of expected forfeitures of equity grants in recording stock-based compensation expense under SFAS 123(R). Under the new standard, the Company estimates an expected forfeiture rate for grants of equity instruments, and adjusts stock-based compensation expense for its effect. This estimate is adjusted at each reporting period to reflect expected forfeitures as equity instruments vest. Previously under APB Opinion No. 25, the Company recognized the actual effect of forfeitures when they occurred.

SFAS
    123(R) also requires that income tax benefits realized upon the exercise
    of certain stock options, or the vesting of restricted stock, be reported
    as financing cash flows. Previously, the tax benefits resulting from the
    income
    tax deduction,
    recognized for financial reporting purposes, were reported as operating cash
    flows.

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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 granted prior to the adoption of SFAS 123(R).



Three Months EndedSeptember 30,2005


      

        Nine Months EndedSeptember 30,2005Net income


      


      $


      332


      


      $


      876Add: Stock-based employee compensation expense included in reported net income, net of related tax effects

        

        

        53

        

        

        110Deduct:
          Total stock-based employee compensation expense determined under fair
          value based method for all awards, net of related tax effects

        

        

        (158

        )

        

        (550

        )Pro forma net income

        

        $

        227

        

        $

        436Earnings per share:Basicas reported

        

        $

        0.02

        

        $

        0.04Basicpro forma

        

        $

        0.01

        

        $

        0.02Dilutedas reported

        

        $

        0.02

        

        $

        0.04Dilutedpro forma

        

        $

        0.01

        

        $

        0.02


The
    weighted average fair value at the date of grant for options granted during
    the nine month period ended September 30, 2005 of $2.08 was estimated
    using the Black-Scholes valuation model. The assumptions used in the Black-Scholes
    model were as follows: no dividend(s) paid, expected volatility of 85% -
    86%, risk-free interest rate of 3.71%  3.85% and an expected option
    life of five years.

In
    July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
    in Income Taxes (FIN 48). FIN 48 prescribes detailed guidance
    for the financial statement recognition, measurement and disclosure of uncertain
    tax positions recognized in an enterprises financial statements in
    accordance with FASB Statement No. 109, Accounting for Income Taxes (SFAS
    No. 109). Tax positions must meet a more-likely-than-not recognition
    threshold at the effective date to be recognized upon the adoption of FIN
    48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning
    after December 15, 2006 and the provisions of FIN 48 will be applied to all
    tax positions accounted for under SFAS No. 109 upon initial adoption. The
    cumulative effect of applying the provisions of FIN 48 will be reported as
    an adjustment to the  opening balance of retained earnings for that fiscal
    year. The Company is currently evaluating the potential impact of FIN 48
    on its consolidated financial statements.

In
    September 2006, the Securities and Exchange Commission (SEC)
    issued Staff Accounting Bulletin No. 108, Considering the Effects of
    Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
    Statements (SAB No. 108) expressing the SEC staffs views
    regarding the process by which misstatements in financial statements are
    evaluated for purposes of determining whether financial statement restatement
    is necessary. SAB No. 108 is effective for the Company for its December 31,
    2006 annual financial statements. The Company is currently evaluating the
    potential impact of SAB No. 108 on its consolidated financial statements.

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Comprehensive Income (Loss)

Comprehensive income (loss) consists of the following for each period:



Three Months EndedSeptember 30,


      

        Nine Months EndedSeptember 30,2006


      

        2005


      

        2006


      

        2005Net income

        

        $

        332

        

        $

        319

        

        $

        193

        

        $

        876Currency translation adjustment

        

        

        13

        

        

        (15

        )

        

        82

        

        

        (96

        )Total comprehensive income

        

        $

        345

        

        $

        304

        

        $

        275

        

        $

        780




2.

        BASIC AND DILUTED INCOME PER SHARE:


Basic earnings per share (EPS) is computed by dividing net income available for common stockholders 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 into common shares.



Three Months EndedSeptember 30,

        

        Nine Months EndedSeptember 30,2006


      

        2005


      

        2006


      

        2005Weighted avg. common shares outstanding

        

        20,050,399

        

        19,849,603

        

        19,994,481

        

        19,679,680Shares used in computing basic net income per share

        

        20,050,399

        

        19,849,603

        

        19,994,481

        

        19,679,680Stock options

        

        64,974

        

        213,198

        

        73,046

        

        113,785Shares used in computing diluted net income per share

        

        20,115,373

        

        20,062,801

        

        20,067,527

        

        19,793,465




3.

        STOCK-BASED COMPENSATION


The Company has a stock incentive plan (the 2000 Plan), which authorizes the granting of incentive and nonqualified stock options and restricted stock. Under the 2000 Plan, executives, key employees and outside directors are eligible to receive awards of options to purchase common stock or restricted stock. Incentive stock options are granted at not less than 100% of fair market value at the date of grant (110% for stockholders owning more than 10% of the Companys common stock). Nonqualified stock options are granted at not less than 85% of fair market value at the date of grant. A maximum of 4,000,000 shares of common stock are issuable under the 2000 Plan. Stock options granted under the 2000 Plan have a maximum contractual term of 10 years. The 2000 Plan provides for accelerated vesting if there is a change of control (as defined in the 2000 Plan).

The Company also has an Employee Stock Purchase Plan (the ESPP). The ESPP allows eligible full-time employees to purchase shares of common stock at 90 percent of the lower of the fair market value of a share of common stock on the first or last day of the quarter. Eligible employees are provided the opportunity to acquire Company common stock during each quarter. No more than 661,157 shares of common stock may be issued under the ESPP. Such stock may be unissued shares or treasury shares of the Company or may be outstanding shares purchased in the open market or otherwise on behalf of the ESPP. Under SFAS 123(R), the Companys ESPP is compensatory.  Therefore, the Company is required to recognize compensation expense related to the fair value of equity shares at date of grant.

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Stock
    based compensation expense and the associated income tax benefit recognized
    is  for the three months ended September 30, 2006 totaled $61
    and $24, respectively, and for the nine month period ended September 30,
    2006 totaled $235 and $92, respectively. The expense and associated benefit
    are primarily related to stock options and the amortization of restricted
    stock awards. Cash received from options exercised and employee purchases
    of common stock under
    the ESPP
    totaled
    $323
    and $404
    for the three and nine month periods ended September 30, 2006, respectively.

The intrinsic value of options exercised during the three month and nine month periods ended September 30, 2006 was $227 and $274, respectively.

Information with respect to the activity of outstanding stock options granted under the 2000 Plan and options granted separately from the 2000 Plan for the nine months ended September 30, 2006 is summarized as follows:



Numberof Shares
      
      Price
          Range
      
      WeightedAverageExercisePriceBalance,
          December 31, 2005
      
      1,660,500
      
      $
      1.88
      
      -
      
      $
      6.94
      
      $
      3.68Issued
      
      55,895
      
      $
      3.80
      
      -
      
      $
      3.80
      
      $
      3.80Cancelled
      
      (109,666
      )
      $
      2.51
      
      -
      
      $
      4.08
      
      $
      3.78Exercised
      
      (182,000
      )
      $
      1.88
      
      -
      
      $
      2.65
      
      $
      2.14Balance,
          September 30, 2006
      
      1,424,729
      
      $
      1.88
      
      -
      
      $
      6.94
      
      $
      3.87


The fair value of each option award granted after the adoption of SFAS 123(R) is estimated on the date of grant using the Black-Scholes option valuation model and assumptions noted in the following table.



Three MonthsEndedSeptember 30, 2006

        

        Nine MonthsEndedSeptember 30, 2006Expected life

        

        5.5 years

        

        5.5 yearsExpected volatility

        

        68.2

        %

        68.2

        %Risk-free interest rate

        

        4.99

        %

        4.99

        %Dividend yield

        

        0.00

        %

        0.00

        %


The expected life of the options is based on the SAB 107 simplified method. Since the Companys common stock is thinly traded, the expected volatility is calculated based on the monthly closing price for the trailing six year period. The risk-free interest rate is based on the St. Louis Federal Reserve constant maturity daily series at a term consistent with the life of the option. The dividend yield is based on the fact that the Company does not expect to declare a dividend.

During the nine month period ended September 30, 2005 the Company granted options to purchase 146,500 shares with a weighted average grant date fair value of $3.01 per share.

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The following table provides additional information about the Companys stock options outstanding and exercisable at September 30, 2006:



Options
          OutstandingWeighted Average
      
      
      
      
      
      Options
          ExercisableWeighted AverageRange
          ofExercise Prices
      
      Numberof Options
      
      RemainingContractual Life
      
      ExercisePrice
      
      IntrinsicValue
      
      Numberof Options
      
      RemainingContractual Life
      
      ExercisePrice
      
      IntrinsicValue$1.88
          - $2.61
      
      112,334
      
      4.8
          Years
      
      $
      2.26
      
      $
      178,344
      
      112,344
      
      4.8
          Years
      
      $
      2.26
      
      $
      178,344$2.88
          - $4.69
      
      1,161,145
      
      6.3
          Years
      
      $
      3.72
      
      $
      299,195
      
      1,123,878
      
      6.3
          Years
      
      $
      3.72
      
      $
      297,331$5.17
          - $6.94
      
      151,250
      
      4.8
          Years
      
      $
      6.23
      
      $
      0
      
      151,250
      
      4.8
          Years
      
      $
      6.23
      
      $
      0$1.88
          - $6.94
      
      1,424,729
      
      6.0
          Years
      
      $
      3.87
      
      $
      477,539
      
      1,387,472
      
      6.0
          Years
      
      $
      3.87
      
      $
      475,675


A summary of the status of the Companys unvested restricted stock as of December 31, 2005 and changes during the nine month period ended September 30, 2006 is presented below.



Number ofShares

        

        WeightedAverageFair ValueUnvested at December 31, 2005

        

        121,013

        

        $

        3.46Vested

        

        (45,532

        )

        $

        3.69Forfeited

        

        (10,934

        )

        $

        2.68Unvested at September 30, 2006

        

        64,547

        

        $

        3.42


During
    the nine month period ended September 30, 2006, there was no restricted stock
    granted. At September 30, 2006, there were outstanding 189,500 shares of
    restricted stock with a value (based on the market price for the stock at
    the date of grant) totaling $694 and a weighted average remaining term of
    .63 years. Restricted stock granted is generally scheduled to vest over periods
    of two to three years. The cost of the grant is charged to operations over
    the vesting period. The total unamortized fair value of unvested restricted
    stock, at September 30, 2006, was $168. During the nine month period ended
    September 30, 2005, there were 44,700 shares of restricted stock granted
    with a weighted-average grant date fair value of $3.19 per share.

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4

        INVENTORIES:


The Companys inventories are valued at the lower of cost or market. For inventories that consist primarily of test kit components, bulk serum and antibody products, cost is determined using the first in, first out method. For inventories that consist of costs associated with the production of custom antibodies, cost is determined using the specific identification method. At September 30, 2006 and December 31, 2005, inventories consisted of the following:



September 30, 2006

        

        December 31, 2005Raw materials

        

        $


      1,372

        

        $


      1,181Work in progress

        

        

        355

        

        

        498Finished goods

        

        

        1,534

        

        

        1,533$

        3,261

        

        $

        3,212




5.

        INTANGIBLE ASSETS:


At September 30, 2006 and December 31, 2005, intangible assets consisted of the following:



September 30, 2006

        

        December 31, 2005

        

        LivesGoodwill

        

        $

        4,847

        

        $

        5,168

        

        N/AOther

        

        

        3,134

        

        

        3,017

        

        2-20Less  accumulated amortization

        

        

        (1,556

        )

        

        (1,385

        )Net intangible assets

        

        $

        6,425

        

        $

        6,800




6.

        DEBT:


On May 5, 2000, the Company entered into a financing agreement with a commercial bank. This agreement provides for up to a $5,000 revolving line of credit, none of which was outstanding and approximately $2,853 of which was available at September 30, 2006, 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 7.07% at September 30, 2006.

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, and was
    repayable over seven years, with principal payments that began on October
    1, 2002.
    At September 30, 2006, $615 was outstanding. 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, as defined. 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, 2006 was approximately 7.32%.

Under the terms of the above financing, the Company is required to meet certain quarterly financial covenants that include 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. Under the covenant, the Company met all of its financial covenants with respect to this indebtedness at September 30, 2006 and expects that it will be able to meet all of its financial covenants with respect to this indebtedness for 2006.

As of September 30, 2006 and December 31, 2005, the outstanding balance on all of the Companys commercial bank debt was $615 and $773, respectively. This indebtedness is secured by substantially all of the Companys assets.

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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 Strategic Diagnostics Inc. and its subsidiaries (the Company or SDI). These statements include, among others, statements regarding: the Companys intentions with respect to future spending on research and development; the development, market acceptance and sales of tests for food-borne pathogens and related growth media; the size and nature of demand in the markets for the Companys products and related effects on operating results; the need for water quality and toxicity tests; approval and validation by third parties of the Companys food pathogen tests; the performance of the Companys testing products; sales of the Companys antibodies; timing of new product introductions and other information that may be predictive of future
operating results; the Companys ability to reduce operating expenses; and the Companys ability to improve operating results thus enabling it to meet future loan covenants. In addition, 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 said 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 in product development, 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 U.S. Securities and Exchange Commission.

Background

We provide bio-services and industrial bio-detection services. Bio-services include providing custom antibody production services and antibody reagents to the diagnostic, pharmaceutical, bio-medical and academic research and development markets. Industrial bio-detection services include providing test kits for assessing the health, safety and quality of food, water and the environment.

Our primary core competency is the development and manufacture of antibodies. Such antibodies are used by medical diagnostic and pharmaceutical companies, research institutions and incorporated into test kits manufactured by us for the detection of a wide variety of substances related to food safety and water quality.

Our food safety product group includes tests to detect specific traits in genetically engineered plants, tests to detect Genetically Modified (GM) traits in food ingredients and food fractions, tests to detect naturally occurring fungi in grains (mycotoxins) and tests for food pathogens.

Our water quality product group includes tests to detect toxicity in drinking water, industrial process water and wastewater, and tests to detect specific traits in soil and other waste matter for use at environmental remediation projects, hazardous waste operations and other applications.

Our antibody product group provides a wide array of antibodies and antibody services, including hybridoma development, calibrators, antigens and reagents and the production of monoclonal and polyclonal antibodies. Such antibodies are incorporated into test kits we manufacture as described above and diagnostic and therapeutic products, and used in clinical research.

We sell products and services in the food safety, water quality and antibody market categories through our U.S. direct sales force, a network of over 50 distributors in Canada, Mexico, Latin America, Europe and Asia and our corporate partners. These products and services are sold to a wide range of customers including water utilities, food processors, pharmaceutical, biotechnology and diagnostic companies and major biomedical research centers.

Adoption of New Accounting Pronouncement

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) 123R, Share-Based Payment, using the modified prospective transition method and, accordingly, has not retroactively adjusted results from prior periods. SFAS 123(R) revises SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123(R) requires that compensation costs related to share-based payment transactions be recognized in the financial statements.

In prior years, the Company applied the intrinsic-value-based method to account for its incentive plan stock options and had adopted only the disclosure requirements of SFAS No. 123. In recording stock-based compensation expense, the Company recognized the costs of restricted stock in its consolidated financial statements and those options wherein the current market price of the underlying stock, at the grant date, exceeded the exercise price. Under SFAS 123(R), the Company recognizes stock-based compensation expense based on the fair value of both restricted stock and stock options. Stock-based compensation expense is recognized on a straight-line basis ratably over the respective vesting periods.

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On December 27, 2005, the Board of Directors of the Company approved the accelerated vesting, effective as of December 31, 2005, of all unvested stock options granted to employees and non-employee directors from 2002 through 2005 under the Companys 2000 Stock Incentive Plan, as well as options granted to the Companys Chief Executive Officer under his original employment agreement. The acceleration of vesting of these options had the effect of reducing non-cash compensation expense that would have been recorded in the Companys statement of operations in future periods in anticipation of the adoption of SFAS 123(R). The Boards decision was based on  factors including but not limited to the following: 48% of the options were out of the money; the options generally would vest over the next three years; and the Company had decided to rely on
restricted stock as opposed to options in future incentive compensation awards.

As a result of the acceleration, options to purchase approximately 381,000 shares of the Companys common stock (which represented 23% of the Companys then currently outstanding stock options) became exercisable on December 31, 2005. The accelerated options ranged in exercise price from $2.51 to $4.12 per share and, at December 31, 2005, the weighted average exercise price of the accelerated options was $3.41 per share. Of the 381,000 shares that became exercisable, approximately 199,000 of these shares were in the money as of December 27, 2005, meaning that the exercise price was at or below the price of the Companys common stock on that date. The weighted average exercise price of the in the money shares at that date was $3.02. The options subject to acceleration included options to purchase approximately 222,000 shares, in the
aggregate, held by executive officers and approximately 48,000 shares, in the aggregate, held by non-employee directors of the Company. Of these 270,000 shares, approximately 147,000 were in the money as of December 27, 2005. The fair value of the unvested portion of accelerated options at December 31, 2005 totaled $975 and would have been expensed in future years as follows: $682 in 2006, $228 in 2007 and $65 in 2008.

Consequently, the adoption of SFAS 123(R) did not have an impact on the Companys results of operations and financial position in the first quarter of 2006. However, as a result of the granting of options to the Board of Directors as part of their compensation package in May 2006, the Companys income before income taxes and net income for the three month period ended September 30, 2006 were lower by $16 and $10, respectively, and for the nine month period ended September 30, 2006 were lower by $61 and $37, respectively, than they would have been under the Companys previous accounting method for share-based compensation. The Company determines the fair values of stock options awarded by using the Black-Scholes valuation model.

The Company also considers the effect of expected forfeitures of equity grants in recording stock-based compensation expense under SFAS 123(R). Under the new standard, the Company estimates an expected forfeiture rate for grants of equity instruments, and adjusts stock-based compensation expense for its effect. This effect is adjusted to reflect actual forfeitures as equity instruments vest. Previously under APB Opinion No. 25, the Company recognized the actual effect of forfeitures when they occurred.

The new accounting standard also requires that certain income tax benefits realized upon the exercise of stock options, or the vesting of restricted stock, be reported as financing cash flows. Previously, the tax benefits resulting from the income tax deduction, recognized for financial reporting purposes, were reported as operating cash flows.

Results of Operations

Three Months Ended September 30, 2006 versus Three Months Ended September 30, 2005

Revenues
    for the third quarter of 2006 increased 8.7 percent to $6.6 million, compared
    to $6.1 million for the same period in 2005. The increase as compared to
    the third quarter of 2005 was driven by a 31.5 percent increase of sales
    in the water and environmental product group and a 16.5 percent increase
    in antibody revenue. These increases were offset by lower than expected sales
    of food pathogen tests through the Companys international distributor
    and attrition in argicultural products.

Gross profit (defined as total revenues less manufacturing costs) for the third quarter of 2006 was $3.7 million compared to $3.3 million in the year ago period. Gross margins were 55.2 percent and 54.7 percent for the third quarters of 2006 and 2005, respectively.

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Operating expenses for the third quarter of 2006 increased 6.9 percent to $6.2 million, compared to $5.8 million for the third quarter of 2005.

Research and development was $666,000, or 10.1 percent of net revenues, in the third quarter of 2006, compared to $664,000, or 10.9 percent of net revenues, in the third quarter 2005.

Selling, general and administrative (SG&A) expenses were $2.5 million for the third quarter of 2006, compared to $2.3 million for the same quarter in 2005. The overall increase in SG&A was attributed to the continued expansion of sales and marketing activities in support of the Companys new Genomic Antibodies platform and the launch of our new RapidChek® SELECTSalmonellatesting product.

Operating income for the third quarter of 2006 increased 40.6 percent to $450,000, compared to $320,000 for the third quarter of 2005.

The Company recorded interest income, net of interest expense, of $101,000 for the three months ended September 30, 2006 compared to $59,000 for the three months ended September 30, 2005, due to higher levels of invested cash during the 2006 period.

The Companys effective tax rate was 39.8 percent for the third quarter of 2006, compared to 15.8 percent for the third quarter of 2005. The 2005 quarter was below the federal and state statutory rates primarily due to research and development credits and the utilization of foreign net operating losses.

Pre-tax income increased 45.4 percent to $551,000 for the third quarter of 2006, compared to pre-tax income of $379,000 for the same period in 2005. Net income in the third quarter of 2006 was $332, 000, or $0.02 per diluted share, compared to net income of $319,000, or $0.02 per diluted share, for the same period in 2005. Diluted shares utilized in these computations were 20.1 million for the third quarters of both 2006 and 2005.

Nine Months Ended September 30, 2006 versus Nine Months Ended September 30, 2005

For the nine months ended September 30, 2006, revenues decreased 2.2 percent to $18.5 million, compared to $18.9 million for the same period in 2005.

Gross profit for the first nine months of 2006 was $9.9 million compared to $10.5 million for the same period in 2005. Gross margins were 53.4 percent and 55.3 percent for the nine months ended September 30, 2006 and 2005, respectively. Lower margins were primarily due to the added expenses incurred in the start-up of the Companys new Genomic Antibodies platform and the margin pressure  attributable to the ongoing, but anticipated, commoditization of products for GMO testing of grains and seed.

Operating expenses for the nine months ended September 30, 2006 increased 3.2 percent to $18.5 million, compared to $17.9 million for the same period of 2005.

Research
    and development spending was $2.0 million, or 10.6 percent of net revenues,
    in the first nine months of 2006, compared to $2.3 million, or 12.3 percent
    of net revenues, for the same period of 2005. For the nine months ended September
    30, 2005, research and development expense included a $358,000 investment
in software upgrades for the Microtox® test equipment.

SG&A
    expenses were $7.9 million for the first nine months of 2006, compared to
    $7.1 million for the same period in 2005. The overall increase in SG&A
    expenses was associated with the Companys previously announced plans
    to expand sales and marketing activities.

The Company recorded interest income, net of interest expense, of $275,000 for the nine months ended September 30, 2006 compared to $130,000 for the nine months ended September 30, 2005, due to higher levels of invested cash during the 2006 period.

The Companys effective tax rate was 38.9 percent for the nine months ended September 30, 2006, compared to 24.9 percent for the nine month period in 2005. The 2005 nine month period was below the federal and state statutory rates primarily due to research and development credits and the utilization of foreign net operating losses.

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Pre-tax income totaled $316,000 for the nine months ended September 30, 2006, compared to pre-tax income of $1.2 million for the same period in 2005. Net income for the first nine months of 2006 was $193,000, or $0.01 per diluted share, compared to net income of $876,000, or $0.04 per diluted share, for the same period in 2005. Diluted shares utilized in these computations were 20.1 million and 19.8 million for the nine months of 2006 and 2005, respectively.

Product Groups

Food Safety Products

Food safety revenues were $2.1 million in the third quarter of 2006, compared to $2.3 million in the third quarter of 2005, and were $6.4 million and $6.7 million for the nine months ended September 30, 2006 and 2005, respectively. The food safety product group includes the Companys sales of food pathogen tests and agricultural test products. Food pathogens comprise approximately 43 percent and 41 percent of the total product group for the three and nine month periods ended September 30, 2006, respectively, compared to approximately 39 percent and 34 percent, respectively, for the comparative periods in 2005. Revenue growth in the domestic food pathogen product line is up 29.3 percent year to date compared to the same period in 2005.

Water and Environmental Products

Water and environmental product revenues grew 31.5 percent to $1.4 million for the third quarter of 2006, compared to $1.1 million in the third quarter of 2005. For the nine months ended September 30, 2006 and 2005, water and environmental products revenues were $4.0 million and $3.9 million, respectively. All sales territories saw growth in the third quarter of 2006, though sales are down in the U.S. market by 7.6 percent for the first nine months of 2006. The Companys U.K. subsidiarys sales grew 19.7 percent during the first nine months of this year, compared to the same period in 2005 and, at September 30, 2006, comprised approximately 37 percent of the total product groups sales, compared to approximately 31 percent for the same period in 2005.

Antibody Products

Antibody revenues increased 16.5 percent to $3.1 million for the third quarter of 2006, compared to $2.7 million for the same quarter in 2005, and totaled $8.1 million in the nine months ended September 30, 2006, compared to $8.3 million for the same period in the prior year, a decrease of 2.4 percent for the nine month period. The Company did experience an improvement in its bulk monoclonal and polyclonal business during the third quarter of 2006 compared to the first two quarters of the year.

Liquidity and Capital Resources

The
    net cash provided by operating activities of $130,000 for the first nine
    months of 2006 was primarily the result of the earnings before interest,
    taxes, depreciation and amortization (EBITDA) reduced by increases in accounts
    receivable and other current assets, and decreases in accrued expenses. The
    increase in other current assets was primarily the result of the purchase
    of insurance for the 2006 business year, while the decrease in accrued expenses
    is primarily attributable to the reduction in accrued professional fees.

Net cash used in investing activities of $807,000 for the first nine months of 2006 was primarily related to the capital expenditures for the period and the acquisition in the second quarter of 2006 of a customer list from a manufacturer of an environmental Listeria test. This compares to net cash used in investing activities of $322,000 for the same period of 2005, which was driven by capital expenditures for the period. The capital expenditures for 2006 and 2005 are primarily related to purchases of laboratory and manufacturing equipment.

Net cash provided by financing activities of $246,000 for the nine months ended September 30, 2006 and net cash provided by financing activities for the same period of 2005 of $1.2 million were primarily driven by proceeds from the exercise of stock options, which was partially offset by net repayments of outstanding debt.

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The
    Companys working capital (current assets less current liabilities)
    increased $864,000 to $16.4 million at September 30, 2006 from $15.6
    million at December 31, 2005, primarily due to the changes in current assets
    and
    liabilities as described above. Outstanding debt decreased $158,000 from
    $773,000 at December 31, 2005 to $615,000 on September 30, 2006, due to scheduled
    repayments.

On May 5, 2000, the Company entered into a financing agreement with a commercial bank. This agreement provides for up to a $5.0 million revolving line of credit, none of which was outstanding and approximately $2.85 million of which was available at September 30, 2006, 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 7.07% at September 30, 2006.

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
    and is repayable over seven
    years, with principal payments that began on October 1, 2002.
    At September 30, 2006, $615,000 was outstanding. 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, 2006 was
    approximately 7.32%.

Under the terms of the above financing, the Company is required to meet certain quarterly financial covenants that include 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 met all of its financial covenants with respect to this indebtedness at September 30, 2006.

For
    the nine months ended September 30, 2006, the Company satisfied all of its
    cash requirements from cash provided by operating activities, cash available
    and on-hand and from the financing agreements described above. At September
    30, 2006, the Company had $404,000 in long-term debt and stockholders equity
    of $34.7 million. The Company has no material commitments for capital expenditures
    at September 30, 2006.

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 for at least the next 12 months. 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.

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The calculation of the Companys EBITDA measure (as discussed above), and the reconciliation of the Companys net cash provided by operating activities to its EBITDA measure for the nine month periods ended September 30, 2006 and 2005, respectively, is as follows (amounts in thousands):



Nine
          Months Ended September 30,2006
      
      2005Net
          cash provided by operating activities
      
      $
      130
      
      $
      960Changes
          in assets and liabilities:Receivables
      
      
      611
      
      
      291Inventories
      
      
      49
      
      
      70Other
          current assets
      
      
      303
      
      
      273Other
          assets
      
      
      1
      
      
      3Accounts
          payable
      
      
      (70
      )
      
      475Accrued
          expenses
      
      
      248
      
      
      (100
      )Deferred
          revenue
      
      
      (41
      )
      
      Net
          change in deferred income tax
      
      
      69
      
      
      Stock-based
          compensation expense
      
      
      (235
      )
      
      (146
      )Interest
          income, net
      
      
      (275
      )
      
      (130
      )EBITDA
      
      $
      790
      
      $
      1,696


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 $615,000 of outstanding indebtedness is at a variable rate of between 2% to 3% over the published London Interbank Offered Rate (LIBOR), based upon the Companys ratio of funded debt to EBITDA, and was 3% over LIBOR on average for the nine months ended September 30, 2006. At the Companys current level of indebtedness, each 1% change in the variable interest rate will have an effect of approximately $6,000 on the Companys annual interest expense charges.

The Company conducts operations in 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.

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 Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2006, our disclosure controls and procedures were effective 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.

(b) Change in Internal Control over Financial Reporting

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

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PART II  OTHER INFORMATION

Item
  6. 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. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002


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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.Date: November 13, 2006

        

        

        /s/ Matthew H. KnightMatthew H. KnightPresident, Chief Executive Officer(Principal Executive Officer)




Date:
    November 13, 2006

        

        

        /s/ Anthony J. SimonettaAnthony J. SimonettaVice President  Finance and Chief Financial Officer(Principal Financial and Accounting Officer)




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