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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2007
 o
    
    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.
  
 Delaware
    
    56-1581761(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)111 Pencader DriveNewark, Delaware
    
    19702(Address of principal executive offices)
    
    (Zip Code)
 (302) 456-6789
 
  þ o
  o o þ
  o þ




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STRATEGIC DIAGNOSTICS INC.
 INDEX
 Item
    
    PagePART I FINANCIAL INFORMATIONITEM 1. Financial StatementsConsolidated Balance Sheets  June 30, 2007 and December 31, 2006
    
    
    2Consolidated Statements of Operations  Three and six months ended June 30, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows  Six months ended June 30, 2007 and 2006
    
    
    4Notes to Consolidated Interim Financial Statements
    
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16ITEM 4. Controls and Procedures
    
    
    17PART II OTHER INFORMATION
    
    
    18ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    18ITEM 6. Exhibits
    
    
    18SIGNATURES
    
    
    18Certifications of the Chief Executive OfficerCertifications of the Chief Financial OfficerCertifications of the Chief Executive Officer, pursuant to Section 906Certifications of the Chief Financial Officer, pursuant to Section 906
  1




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##### 



PART I.  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
  
 June 30,
    
    December 31,2007
    
    2006ASSETSCurrent Assets :Cash and cash equivalents
    
    $
    10,622
    
    
    $
    10,892Receivables, net
    
    
    3,706
    
    
    
    3,678Inventories
    
    
    4,070
    
    
    
    3,178Deferred tax asset
    
    
    1,275
    
    
    
    831Other current assets
    
    
    827
    
    
    
    492Total current assets
    
    
    20,500
    
    
    
    19,071Property and equipment, net
    
    
    4,934
    
    
    
    4,058Other assets
    
    
    7
    
    
    
    3Deferred tax asset
    
    
    7,667
    
    
    
    8,484Intangible assets, net
    
    
    6,190
    
    
    
    6,337Total assets
    
    $
    39,298
    
    
    $
    37,953LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities :Accounts payable
    
    $
    443
    
    
    $
    541Accrued expenses
    
    
    1,551
    
    
    
    1,455Deferred revenue
    
    
    160
    
    
    
    133Current portion of long term debt
    
    
    211
    
    
    
    211Total current liabilities
    
    
    2,365
    
    
    
    2,340Long-term debt
    
    
    246
    
    
    
    351Non-current taxes payable
    
    
    89
    
    
    
    Total non-current liabilities
    
    
    335
    
    
    
    351Stockholders 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,
20,356,424 and 20,192,402 issued and outstanding
at June 30, 2007 and December 31, 2006, respectively
    
    
    204
    
    
    
    202Additional paid-in capital
    
    
    39,278
    
    
    
    38,605Accumulated deficit
    
    
    (2,996
    )
    
    
    (3,690
    )Cumulative translation adjustments
    
    
    112
    
    
    
    145Total stockholders equity
    
    
    36,598
    
    
    
    35,262Total liabilities and stockholders equity
    
    $
    39,298
    
    
    $
    37,953
  2




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Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    6,725
    
    
    $
    5,640
    
    
    $
    13,372
    
    
    $
    11,908OPERATING EXPENSES:Manufacturing
    
    
    2,647
    
    
    
    2,728
    
    
    
    5,224
    
    
    
    5,668Research and development
    
    
    764
    
    
    
    596
    
    
    
    1,461
    
    
    
    1,293Selling, general and administrative
    
    
    3,099
    
    
    
    2,793
    
    
    
    5,761
    
    
    
    5,356Total operating expenses
    
    
    6,510
    
    
    
    6,117
    
    
    
    12,446
    
    
    
    12,317Operating income (loss)
    
    
    215
    
    
    
    (477
    )
    
    
    926
    
    
    
    (409
    )Interest income (expense), net
    
    
    116
    
    
    
    91
    
    
    
    226
    
    
    
    174Income (loss) before taxes
    
    
    331
    
    
    
    (386
    )
    
    
    1,152
    
    
    
    (235
    )Income tax expense
(benefit)
    
    
    127
    
    
    
    (155
    )
    
    
    458
    
    
    
    (96
    )Net income (loss)
    
    
    204
    
    
    
    (231
    )
    
    
    694
    
    
    
    (139
    )Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    0.03
    
    
    $
    (0.01
    )Shares used in computing basic
net income (loss) per share
    
    
    20,334,000
    
    
    
    19,970,000
    
    
    
    20,272,000
    
    
    
    19,966,000Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.01
    )
    
    $
    0.03
    
    
    $
    (0.01
    )Shares used in computing diluted
net income (loss) per share
    
    
    20,619,000
    
    
    
    19,970,000
    
    
    
    20,466,000
    
    
    
    19,966,000
  3




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Six MonthsEnded June 30,2007
    
    2006Cash Flows from Operating Activities :Net income (loss)
    
    $
    694
    
    
    $
    (139
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities :Depreciation and amortization
    
    
    603
    
    
    
    497Share-based compensation expense
    
    
    218
    
    
    
    174Deferred income tax provision
    
    
    398
    
    
    
    (60
    )(Increase) decrease in :Receivables
    
    
    (28
    )
    
    
    114Inventories
    
    
    (892
    )
    
    
    11Other current assets
    
    
    (335
    )
    
    
    (507
    )Other assets
    
    
    (4
    )
    
    
    Increase (decrease) in :Accounts payable
    
    
    (98
    )
    
    
    1Accrued expenses
    
    
    98
    
    
    
    (296
    )Deferred revenue
    
    
    27
    
    
    
    113Non-current taxes payable
    
    
    89
    
    
    
    Net cash provided by (used in) operating activities
    
    
    770
    
    
    
    (92
    )Cash Flows from Investing Activities :Purchase of property and equipment
    
    
    (1,360
    )
    
    
    (258
    )Purchase of intangible assets
    
    
    
    
    
    
    (117
    )Net cash used in investing activities
    
    
    (1,360
    )
    
    
    (375
    )Cash Flows from Financing Activities :Proceeds from exercise of incentive stock options
    
    
    447
    
    
    
    69Proceeds from employee stock purchase plan
    
    
    11
    
    
    
    12Repayments on financing obligations
    
    
    (105
    )
    
    
    (106
    )Net cash provided by (used in) financing activities
    
    
    353
    
    
    
    (25
    )Effect of exchange rate changes on cash
    
    
    (33
    )
    
    
    69Net decrease in Cash and Cash Equivalents
    
    
    (270
    )
    
    
    (423
    )Cash and Cash Equivalents, Beginning of Period
    
    
    10,892
    
    
    
    10,009Cash and Cash Equivalents, End of Period
    
    $
    10,622
    
    
    $
    9,586Supplemental Cash Flow Disclosure :Cash paid for taxes
    
    
    130
    
    
    
    8Cash paid for interest
    
    
    19
    
    
    
    25
  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
  Basis of Presentation and Interim Financial Statements
  Revenue Recognition
    Use of Estimates
  5




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New Accounting Pronouncements
        6




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Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    204
    
    
    $
    (231
    )
    
    $
    694
    
    
    $
    (139
    )Currency translation adjustment
    
    
    18
    
    
    
    59
    
    
    
    (33
    )
    
    
    10Total comprehensive income (loss)
    
    $
    222
    
    
    $
    (172
    )
    
    $
    661
    
    
    $
    (129
    )
 2. BASIC AND DILUTED INCOME PER SHARE
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Weighted avg.
common shares
outstanding
    
    
    20,334,106
    
    
    
    19,970,459
    
    
    
    20,271,733
    
    
    
    19,965,579Shares used in
computing basic
net income per share
    
    
    20,334,106
    
    
    
    19,970,459
    
    
    
    20,271,733
    
    
    
    19,965,579Stock options
    
    
    284,478
    
    
    
    
    
    
    
    193,955
    
    
    
    Shares used in
computing diluted
net income per share
    
    
    20,618,584
    
    
    
    19,970,459
    
    
    
    20,465,688
    
    
    
    19,965,579
 3. SHARE-BASED COMPENSATION
  7




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock options
    
    $
    94
    
    
    $
    45
    
    
    $
    130
    
    
    $
    45Employee stock purchase plan
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    1Restricted stock units
    
    
    41
    
    
    
    63
    
    
    
    84
    
    
    
    128Total share-based compensation expense
    
    $
    136
    
    
    $
    108
    
    
    $
    218
    
    
    $
    174
   8




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Weighted
    
    AggregateNumber
    
    
    
    
    
    Average Remaining
    
    Instrinsicof Shares
    
    Price Range
    
    Contractual term
    
    ValueBalance, December 31, 2006
    
    
    1,469,729
    
    
    $
    1.88       -             $6.94Granted
    
    
    173,000
    
    
    $
    3.46       -             $4.65Cancelled / Forfeited
    
    
    (190,534
    )
    
    $
    3.05       -             $6.94Exercised
    
    
    (151,600
    )
    
    $
    1.88       -             $3.96Balance, June 30, 2007
    
    
    1,300,595
    
    
    $
    2.50       -             $6.94
    
    
    6.3 years
    
    $
    992Vested and excercisable at
June 30, 2007
    
    
    1,079,970
    
    
    $
    2.50       -             $6.94
    
    
    5.6 years
    
    $
    881Expected to vest as of
June 30, 2007
    
    
    1,284,895
    
    
    $
    2.50       -             $6.94
    
    
    6.3 years
    
    $
    985
   Options Outstanding
    
    
    Options ExercisableWeighted Average
    
    
    
    
    
    
    Wtd. AverageRange of
    
    Number of
    
    
    Remaining
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseExercise Prices
    
    Shares
    
    
    Contractual Life
    
    
    Price
    
    
    Shares
    
    
    Price$2.50 - $2.88
    
    
    155,700
    
    
    3.8      Years
    
    $
    2.74
    
    
    
    155,700
    
    
    $
    2.74$3.05 - $4.36
    
    
    1,073,895
    
    
    6.6      Years
    
    $
    3.86
    
    
    
    885,268
    
    
    $
    3.84$4.55 - $6.94
    
    
    71,000
    
    
    7.8      Years
    
    $
    4.80
    
    
    
    39,002
    
    
    $
    4.93$2.50 - $6.94
    
    
    1,300,595
    
    
    6.3      Years
    
    $
    3.78
    
    
    
    1,079,970
    
    
    $
    3.72
 9




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Weighted AverageGrant Date
    
    AggregateShares
    
    Fair Value
    
    Intrinsic ValueNon-vested RSUs at December 31,
2006
    
    
    85,222
    
    
    $
    3.71Granted
    
    
    27,000
    
    
    $
    3.46Vested
    
    
    (6,000
    )
    
    $
    3.05Non-vested RSUs at June 30, 2007
    
    
    106,222
    
    
    $
    3.68
    
    
    $
    391RSUs expected to vest at June
30, 2007
    
    
    103,522
    
    
    $
    3.69
    
    
    $
    382
  4. INVENTORIES
  June 30, 2007
    
    
    December 31, 2006Raw materials
    
    $
    1,263
    
    
    $
    1,221Work in progress
    
    
    860
    
    
    
    653Finished goods
    
    
    1,947
    
    
    
    1,304Net inventories
    
    $
    4,070
    
    
    $
    3,178
 5. INTANGIBLE ASSETS
  June 30, 2007
    
    
    December 31, 2006
    
    
    LivesGoodwill
    
    $
    4,796
    
    
    $
    4,822
    
    
    N/AOther
    
    
    3,134
    
    
    
    3,134
    
    
    2-20Less  accumulated amortization
    
    
    (1,740
    )
    
    
    (1,619
    )Net intangible assets
    
    $
    6,190
    
    
    $
    6,337
 10




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6. DEBT
     11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Background
       12




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Results of Operations
 Three Months Ended June 30, 2007 versus Three Months Ended June 30, 2006
          Six Months Ended June 30, 2007 versus Six Months Ended June 30, 2006
   13




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Product Groups
 Antibody Products
  Food Safety Products
   Water and Environmental Products
  14




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Liquidity and Capital Resources
           15




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Non-GAAP Financial Measures
   Six Months Ended June 30,2007
    
    
    2006Net cash (used in) provided by operating
activities
    
    $
    770
    
    
    $
    (92
    )Changes in assets and liabilities:Receivables
    
    
    28
    
    
    
    (114
    )Inventories
    
    
    892
    
    
    
    (11
    )Other current assets
    
    
    335
    
    
    
    507Other assets
    
    
    4
    
    
    
    Accounts payable
    
    
    98
    
    
    
    (1
    )Accrued expenses
    
    
    (98
    )
    
    
    296Deferred revenue
    
    
    (27
    )
    
    
    (113
    )Non-current taxes payable
    
    
    (89
    )
    
    
    Net change in deferred income tax
    
    
    60
    
    
    
    (36
    )Share-based compensation expense
    
    
    (218
    )
    
    
    (174
    )Interest income, net
    
    
    (226
    )
    
    
    (174
    )EBITDA
    
    $
    1,529
    
    
    $
    88
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   16




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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 upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of June 30, 2007, 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
  17




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PART II  OTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders
  Name of Nominee
    
    Votes For
    
    
    Votes WithheldMorton Collins
    
    
    18,128,874
    
    
    
    47,346Matthew H. Knight
    
    
    18,138,718
    
    
    
    37,502Grover C. Wrenn
    
    
    18,134,618
    
    
    
    41,602
 
 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 193431.2
    
    Certifications of the Chief Financial Officer of Strategic
Diagnostics Inc. required by Rule 13a-14(a) under the Securities
Exchange Act of 193432.1
    
    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 200232.2
    
    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
 
 SIGNATURES
  STRATEGIC DIAGNOSTICS INC.Date: August 13, 2007
    /s/ Matthew H. KnightMatthew H. KnightPresident, Chief Executive Officer

(Principal Executive Officer)Date: August 13, 2007
    /s/ Stanley A. FronczkowskiStanley A. FronczkowskiVice President  Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) 18