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, 2008
 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
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ  o þ




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STRATEGIC DIAGNOSTICS INC.
 INDEX
 Item
    
    PagePART I FINANCIAL INFORMATIONITEM 1. Financial StatementsConsolidated Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    2Consolidated Statements of Operations  Three and six months ended June 30, 2008 and 2007
    
    
    3Consolidated Statements of Cash Flows  Six months ended June 30, 2008 and 2007
    
    
    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
    
    
    18ITEM 4. Controls and Procedures
    
    
    18PART II OTHER INFORMATION
    
    
    19ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    19ITEM 6. Exhibits
    
    
    19SIGNATURES
    
    
    19
 1




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##### 



PART I.  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
  
 June 30,
    
    December 31,2008
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    11,356
    
    
    $
    12,988Receivables, net
    
    
    3,952
    
    
    
    4,110Inventories
    
    
    3,964
    
    
    
    4,204Deferred tax asset
    
    
    662
    
    
    
    1,201Other current assets
    
    
    966
    
    
    
    521Total current assets
    
    
    20,900
    
    
    
    23,024Property and equipment, net
    
    
    5,477
    
    
    
    5,481Other assets
    
    
    4
    
    
    
    7Deferred tax asset
    
    
    8,529
    
    
    
    7,389Goodwill, net
    
    
    4,173
    
    
    
    4,201Intangible assets, net
    
    
    1,727
    
    
    
    1,847Total assets
    
    $
    40,810
    
    
    $
    41,949LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    425
    
    
    $
    569Accrued expenses
    
    
    1,830
    
    
    
    1,866Deferred revenue
    
    
    10
    
    
    
    5Current portion of long-term debt
    
    
    1,946
    
    
    
    611Total current liabilities
    
    
    4,211
    
    
    
    3,051Long-term debt
    
    
    
    
    
    
    1,640Other non-current liabilities
    
    
    130
    
    
    
    130Total non-current liabilities
    
    
    130
    
    
    
    1,770Stockholders 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,
20,485,947 and 20,410,540 issued and outstanding
at June 30, 2008 and December 31, 2007, respectively
    
    
    205
    
    
    
    205Additional paid-in capital
    
    
    40,025
    
    
    
    39,594Accumulated deficit
    
    
    (3,923
    )
    
    
    (2,830
    )Cumulative translation adjustments
    
    
    162
    
    
    
    159Total stockholders equity
    
    
    36,469
    
    
    
    37,128Total liabilities and stockholders equity
    
    $
    40,810
    
    
    $
    41,949
  2




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Three Months
    
    
    Six MonthsEnded June 30,
    

    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    6,584
    
    
    $
    6,725
    
    
    $
    13,739
    
    
    $
    13,372OPERATING EXPENSES:Manufacturing
    
    
    3,184
    
    
    
    2,647
    
    
    
    6,306
    
    
    
    5,224Research and development
    
    
    921
    
    
    
    764
    
    
    
    1,861
    
    
    
    1,461Selling, general and administrative
    
    
    4,123
    
    
    
    3,099
    
    
    
    7,301
    
    
    
    5,761Total operating expenses
    
    
    8,228
    
    
    
    6,510
    
    
    
    15,468
    
    
    
    12,446Operating income (loss)
    
    
    (1,644
    )
    
    
    215
    
    
    
    (1,729
    )
    
    
    926Interest income (expense), net
    
    
    37
    
    
    
    116
    
    
    
    99
    
    
    
    226Income (loss) before taxes
    
    
    (1,607
    )
    
    
    331
    
    
    
    (1,630
    )
    
    
    1,152Income tax expense (benefit)
    
    
    (526
    )
    
    
    127
    
    
    
    (537
    )
    
    
    458Net income (loss)
    
    
    (1,081
    )
    
    
    204
    
    
    
    (1,093
    )
    
    
    694Basic net income (loss) per share
    
    $
    (0.05
    )
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    0.03Shares used in computing basic
net income (loss) per share
    
    
    20,389,458
    
    
    
    20,334,106
    
    
    
    20,382,501
    
    
    
    20,271,733Diluted net income (loss) per share
    
    $
    (0.05
    )
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    0.03Shares used in computing diluted
net income (loss) per share
    
    
    20,389,458
    
    
    
    20,618,584
    
    
    
    20,382,501
    
    
    
    20,465,688
  3




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##### 



Six MonthsEnded June 30,2008
    
    
    2007Cash Flows from Operating Activities:Net income (loss)
    
    $
    (1,093
    )
    
    $
    694Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities :Depreciation and amortization
    
    
    660
    
    
    
    603Share-based compensation expense
    
    
    400
    
    
    
    218Deferred income tax provision
    
    
    (572
    )
    
    
    398(Increase) decrease in :Receivables
    
    
    158
    
    
    
    (28
    )Inventories
    
    
    240
    
    
    
    (892
    )Other current assets
    
    
    (445
    )
    
    
    (335
    )Other assets
    
    
    3
    
    
    
    (4
    )Increase (decrease) in :Accounts payable
    
    
    (144
    )
    
    
    (98
    )Accrued expenses
    
    
    (45
    )
    
    
    98Deferred revenue
    
    
    5
    
    
    
    27Other non-current liabilities
    
    
    
    
    
    
    89Net cash provided by (used in) operating activities
    
    
    (833
    )
    
    
    770Cash Flows from Investing Activities:Purchase of property and equipment
    
    
    (538
    )
    
    
    (1,360
    )Proceeds from sale of assets
    
    
    2
    
    
    
    Net cash used in investing activities
    
    
    (536
    )
    
    
    (1,360
    )Cash Flows from Financing Activities:Proceeds from exercise of incentive stock options
    
    
    
    
    
    
    447Proceeds from employee stock purchase plan
    
    
    39
    
    
    
    11Repayments on financing obligations
    
    
    (305
    )
    
    
    (105
    )Net cash provided
by (used in)
financing
activities
    
    
    (266
    )
    
    
    353Effect of exchange rate changes on cash
    
    
    3
    
    
    
    (33
    )Net decrease in cash and cash equivalents
    
    
    (1,632
    )
    
    
    (270
    )Cash and Cash Equivalents, Beginning of Period
    
    
    12,988
    
    
    
    10,892Cash and Cash Equivalents, End of Period
    
    $
    11,356
    
    
    $
    10,622Supplemental Cash Flow Disclosure:Cash paid for taxes
    
    
    10
    
    
    
    130Cash paid for interest
    
    
    63
    
    
    
    19
  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 (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (1,081
    )
    
    $
    204
    
    
    $
    (1,093
    )
    
    $
    694Currency translation adjustment
    
    
    2
    
    
    
    18
    
    
    
    3
    
    
    
    (33
    )Total comprehensive income (loss)
    
    $
    (1,079
    )
    
    $
    222
    
    
    $
    (1,090
    )
    
    $
    661
 2. BASIC AND DILUTED INCOME PER SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted avg. common shares
outstanding
    
    
    20,389,458
    
    
    
    20,334,106
    
    
    
    20,382,501
    
    
    
    20,271,733Shares used in computing basic
net income per share
    
    
    20,389,458
    
    
    
    20,334,106
    
    
    
    20,382,501
    
    
    
    20,271,733Stock options
    
    
    
    
    
    
    284,478
    
    
    
    
   
    
    
    193,955Shares used in computing diluted
net income per share
    
    
    20,389,458
    
    
    
    20,618,584
    
    
    
    20,382,501
    
    
    
    20,465,688
 7




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##### 



3. SHARE-BASED COMPENSATION
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Stock options
    
    $
    88
    
    
    $
    94
    
    
    $
    225
    
    
    $
    130Employee stock
purchase plan
    
    
    2
    
    
    
    1
    
    
    
    4
    
    
    
    4Restricted stock units
    
    
    58
    
    
    
    41
    
    
    
    171
    
    
    
    84Total share-based compensation expense
    
    $
    148
    
    
    $
    136
    
    
    $
    400
    
    
    $
    218
   8




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##### 



Weighted
    
    AggregateNumber
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average Remaining
    
    Instrinsicof Shares
    
    Price Range
    
    Contractual term
    
    ValueBalance, December 31, 2007
    
    
    1,251,620
    
    
    $
    2.50
    
    
    
    
    
    
    $
    6.94Granted
    
    
    271,720
    
    
    $
    3.69
    
    
    
    
    
    
    $
    4.60Cancelled / Forfeited
    
    
    (67,263
    )
    
    $
    4.00
    
    
    
    
    
    
    $
    5.50Balance, June 30, 2008
    
    
    1,456,077
    
    
    $
    2.50
    
    
    
    
    
    
    $
    6.94
    
    
    5.9 years
    
    $
    (260
    )Vested and excercisable at
June 30, 2008
    
    
    1,188,896
    
    
    $
    2.50
    
    
    
    
    
    
    $
    6.94
    
    
    5.1 years
    
    $
    (137
    )Expected to vest as of
June 30, 2008
    
    
    1,436,533
    
    
    $
    2.50
    
    
    
    
    
    
    $
    6.94
    
    
    5.9 years
    
    $
    (250
    )
   Options OutstandingWeighted Average
    
    
    Options ExercisableRemaining
    
    
    
    
    
    
    
    
    
    
    Wtd. AverageRange of
    
    
    Number of
    
    
    Contractual
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseExercise Prices
    
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$2.50
    
    
    
    
    
    $
    2.88
    
    
    
    155,700
    
    
    2.8         Years
    
    $
    2.74
    
    
    
    155,700
    
    
    $
    2.74$3.05
    
    
    
    
    
    $
    3.57
    
    
    
    300,200
    
    
    6.0         Years
    
    $
    3.33
    
    
    
    260,200
    
    
    $
    3.31$3.69
    
    
    
    
    
    $
    6.94
    
    
    
    1,000,177
    
    
    6.4         Years
    
    $
    4.14
    
    
    
    772,996
    
    
    $
    4.11$2.50
    
    
    
    
    
    $
    6.94
    
    
    
    1,456,077
    
    
    5.9         Years
    
    $
    3.82
    
    
    
    1,188,896
    
    
    $
    3.75
 9




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Weighted AverageGrant Date
    
    AggregateShares
    
    Fair Value
    
    Intrinsic ValueNon-vested RSUs at December 31,
2007
    
    
    96,116
    
    
    $
    4.39Granted
    
    
    78,590
    
    
    $
    4.51Vested
    
    
    (23,194
    )
    
    $
    4.13Cancelled / forfeited
    
    
    (11,212
    )
    
    $
    4.55Non-vested RSUs at June 30, 2008
    
    
    140,300
    
    
    $
    4.49
    
    
    $
    630Expected to vest at June 30, 2008
    
    
    130,182
    
    
    $
    4.50
    
    
    $
    585
  4. INVENTORIES
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    1,323
    
    
    $
    1,354Work in progress
    
    
    1,115
    
    
    
    903Finished goods
    
    
    1,526
    
    
    
    1,947Net inventories
    
    $
    3,964
    
    
    $
    4,204
 10




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5. INTANGIBLE ASSETS
  June 30,
    
    
    December 31,2008
    
    
    2007
    
    
    LivesGoodwill
    
    $
    4,746
    
    
    $
    4,774
    
    
    
    N/ALess  accumulated amortization
    
    
    (573
    )
    
    
    (573
    )Net goodwill
    
    $
    4,173
    
    
    $
    4,201
 June 30,
    
    
    December 31,2008
    
    
    2007
    
    
    LivesIntangible assets
    
    
    3,134
    
    
    
    3,134
    
    
    
    2-20Less  accumulated amortization
    
    
    (1,407
    )
    
    
    (1,287
    )Net intangible assets
    
    $
    1,727
    
    
    $
    1,847
 6. DEBT
       11




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7. INCOME TAXES
    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, 2008 versus Three Months Ended June 30, 2007
      13




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Product Groups
 Antibody Products
  Food Safety Products
    Water and Environmental Products
  Six Months Ended June 30, 2008 versus Six Months Ended June 30, 2007
  14




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Product Groups
 Antibody Products
  Food Safety Products
  15




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TM
 Water and Environmental Products
  Liquidity and Capital Resources
        16




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Non-GAAP Financial Measures
   Six Months EndedJune 30,2008
    
    2007(in thousands)Net cash
provided by (used in) operating activities
    
    $
    (833
    )
    
    $
    770Changes in assets and liabilities:Receivables
    
    
    (158
    )
    
    
    28Inventories
    
    
    (240
    )
    
    
    892Other current assets
    
    
    445
    
    
    
    335Other assets
    
    
    (3
    )
    
    
    4Accounts payable
    
    
    144
    
    
    
    98Accrued expenses
    
    
    45
    
    
    
    (98
    )Deferred revenue
    
    
    (5
    )
    
    
    (27
    )Other non-current liabilities
    
    
    
    
    
    
    (89
    )Net change in deferred income tax
    
    
    572
    
    
    
    (398
    )Income tax
provision (benefit)
    
    
    (537
    )
    
    
    458Share-based compensation expense
    
    
    (400
    )
    
    
    (218
    )Interest income, net
    
    
    (99
    )
    
    
    (226
    )EBITDA
    
    $
    (1,069
    )
    
    $
    1,529
 17




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Item 4. Controls and Procedures
     18




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PART II  OTHER INFORMATION
 Item 4. Submission of matters to a vote of Security Holders
  Name
    
    For
    
    WithheldC. Geoffrey Davis
    
    
    17,836,326
    
    
    
    131,732Herbert Lotman
    
    
    17,828,458
    
    
    
    139,600Clifford Spiro
    
    
    17,852,987
    
    
    
    115,071Richard van den Broek
    
    
    17,859,919
    
    
    
    108,139Stephen L. Waechter
    
    
    17,686,477
    
    
    
    281,581
 Item 6. Exhibits
 10.1
    
    
    Separation Agreement, dated as of June 6, 2008, between the Company
and Matthew H. Knight (Filed as Exhibit 99.1 to the Companys Current
Report on Form 8-K filed with the Securities and Exchange Commission
on June 9, 2008, and incorporated by reference herein).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 14, 2008
    /s/ Francis M. DiNuzzoFrancis M. DiNuzzoInterim President and Chief Executive Officer
(Principal Executive Officer)Date: August 14, 2008
    /s/ Stanley A. FronczkowskiStanley A. FronczkowskiVice President  Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) 19