##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
   þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended
    September 30, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    Commission File Number
    001-33027
  HOME DIAGNOSTICS,
    INC.
 (Exact name of registrant as
    specified in its charter)
   Delaware(State or other jurisdiction
    of
    incorporation or organization)

22-2594392(I.R.S. Employer
    Identification No.)2400 Northwest
    55th
    Court
    Fort Lauderdale, Florida 33309(Address of principal
    executive offices)

(954) 677-9201(Zip Code)     þ o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




---



##### 



HOME
    DIAGNOSTICS, INC
 .
  INDEX
  PagePART I FINANCIAL SUMMARYItem 1.


Financial StatementsCondensed Consolidated Balance Sheets as of
    December 31, 2006 and September 30, 2007 (Unaudited)


3Condensed Consolidated Statements of Operations
    for the Three and Nine Months Ended September 30, 2006 and 2007
    (Unaudited)


4Condensed Consolidated Statement of Changes in
    Stockholders Equity for the Nine Months Ended September
    30, 2007 (Unaudited)


5Condensed Consolidated Statements of Cash Flows
    for the Nine Months Ended September 30, 2006  and 2007
    (Unaudited)


6Notes to Condensed Consolidated Financial
    Statements (Unaudited)


7Item 2.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


16Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


23Item 4T.


Controls and Procedures


23PART II OTHER INFORMATIONItem 1.


Legal Proceedings


23Item 1A.


Risk Factors


24Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


24Item 6.


Exhibits


25SIGNATURES


26EXHIBIT INDEX


27EX-10.1 Separation AgreementEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO   2




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Balance Sheets
  December 31,


September 30,2006


2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
26,487,163


$
33,227,602Accounts receivable, net


17,010,471



21,163,503Inventories, net


12,389,654



14,349,748Prepaid expenses and other current assets


912,117



1,268,253Income taxes receivable


1,455,689



Deferred tax asset


4,709,201



4,168,548Total current assets


62,964,295



74,177,654Property and equipment, net


17,932,833



21,848,331Goodwill


35,573,462



35,573,462Other intangible assets, net


1,048,781



750,816Deferred tax asset


15,140



1,480,684Other assets, net


141,504



138,855Total assets

$
117,676,015


$
133,969,802LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
6,655,728


$
10,481,656Accrued liabilities


13,907,664



16,394,884Accrued income taxes






400,118Total current liabilities


20,563,392



27,276,658Contingencies (Note 11)






Stockholders equity:Common stock, $.01 par value; 60,000,000 shares
    authorized, 17,697,691 and 17,949,618 shares issued and
    outstanding at December 31, 2006 and September 30,
    2007, respectively


176,977



179,496Additional paid-in capital


93,967,063



95,370,954Retained earnings


2,940,376



11,107,649Accumulated other comprehensive income


28,207



35,045Total stockholders equity


97,112,623



106,693,144Total liabilities and stockholders equity

$
117,676,015


$
133,969,802    3




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Operations
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2007


2006


2007(Unaudited)Net sales

$
30,059,915


$
31,684,101


$
85,761,369


$
87,834,473Cost of sales


11,052,625



11,025,302



33,517,762



34,180,896Gross profit


19,007,290



20,658,799



52,243,607



53,653,577Operating expensesSelling, general and administrative (including stock-based
    compensation expense of $145,251 and $149,525 and $1,335,125 and
    $889,490 for the three and nine months ended September 30,
    2006 and 2007, respectively)


10,647,742



12,028,896



32,726,928



35,136,687Research and development


2,086,096



2,231,292



5,832,944



6,500,479Insurance settlement






(450,000
)






(450,000
)Total operating expenses


12,733,838



13,810,188



38,559,872



41,187,166Income from operations


6,273,452



6,848,611



13,683,735



12,466,411Other income (expense)Change in fair value of warrant put option


1,334,151







58,700



Interest (expense) income, net


(33,128
)


447,763



(194,063
)


1,218,044Other, net


129,917



12,579



28,936



64,186Total other income (expense)


1,430,940



460,342



(106,427
)


1,282,230Income before provision for income taxes


7,704,392



7,308,953



13,577,308



13,748,641Provision for income taxes


1,336,366



2,104,805



4,020,876



4,229,903Net income

$
6,368,026


$
5,204,148


$
9,556,432


$
9,518,738Earnings per common share:Basic

$
0.45


$
0.29


$
0.69


$
0.53Diluted

$
0.30


$
0.27


$
0.57


$
0.48Weighted average shares used in computing earnings per common
    share:Basic


14,150,876



18,115,897



13,857,902



17,953,529Diluted


16,899,801



19,559,220



16,585,288



19,706,031    4




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statement of Changes in Stockholders
    Equity
  AccumulatedCommon Stock


Additional





Other


TotalNumber of





Paid-in


Retained


Comprehensive


StockholdersShares


Amount


Capital


Earnings


Income (Loss)


Equity(Unaudited)Balance at December 31, 2006


17,697,691


$
176,977


$
93,967,063


$
2,940,376


$
28,207


$
97,112,623Cumulative effect of change in accounting for uncertainties in
    income taxes (Note 8)














89,279







89,279Deemed capital distribution to stockholders










(300,000
)










(300,000
)Stock-based compensation expense










889,490











889,490Stock options and warrants exercised, including tax benefit of
    $820,719


615,495



6,154



2,760,633











2,766,787Repurchases of common stock


(363,568
)


(3,635
)


(1,946,232
)


(1,440,744
)






(3,390,611
)Comprehensive income:Foreign currency translation adjustment


















6,838



6,838Net income














9,518,738







9,518,738Total comprehensive income














9,518,738



6,838



9,525,576Balance at September 30, 2007


17,949,618


$
179,496


$
95,370,954


$
11,107,649


$
35,045


$
106,693,144    5




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Cash Flows
  Nine Months EndedSeptember 30,2006


2007(Unaudited)Cash flows from operating activitiesNet income

$
9,556,432


$
9,518,738Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


3,163,010



2,900,746Amortization of deferred financing and debt issuance costs


64,634



6,763Loss on asset disposal


53,903



33,098Bad debt expense


45,000



37,489Non-cash impact of insurance settlement






(300,000
)Deferred income taxes


(1,804,453
)


(665,545
)Change in fair value of warrant put option


(58,700
)


Stock-based compensation expense


1,335,125



889,490Changes in assets and liabilities:Accounts receivable


(3,242,233
)


(4,190,521
)Inventories


1,152,894



(1,971,755
)Prepaid expenses and other current and non-current assets


(95,119
)


(356,135
)Income taxes receivable and payable


(960,387
)


2,629,135Accounts payable


245,284



3,825,929Accrued liabilities


2,649,358



1,543,824Net cash provided by operating activities


12,104,748



13,901,256Cash flows from investing activitiesCapital expenditures


(7,388,714
)


(6,550,868
)Net cash used in investing activities


(7,388,714
)


(6,550,868
)Cash flows from financing activitiesRepayment of term loans and notes payable


(3,749,866
)


Repayment of notes payable to related party


(1,300,000
)


Redemption of mandatorily redeemable preferred stock


(10,371,420
)


Proceeds from issuance of common stock


35,105,684



Payment of debt financing costs






(4,314
)Proceeds from exercise of stock options


13,274



1,946,068Tax benefit from stock options






820,719Repurchases of common stock






(3,390,611
)Net cash provided by (used in) financing activities


19,697,672



(628,138
)Effect of exchange rate changes on cash and cash equivalents


153,293



18,189Net increase in cash and cash equivalents


24,566,999



6,740,439Cash and cash equivalentsBeginning of period


3,483,424



26,487,163End of period

$
28,050,423


$
33,227,602Supplemental cash flows disclosures:Cash paid during the period for:Interest

$
202,721


$
Income taxes

$
6,030,000


$
1,587,778Non-cash supplemental information:Deemed capital distribution to stockholders

$



$
(300,000
)Issuance of common shares in distribution of deferred
    compensation obligation

$
228,340


$
Exchange of warrant option

$
7,371,644


$
    6




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements
    September 30, 2007
    (Unaudited)
  1.
    Basis of
    presentation    Form 10-K.
    Use of
    estimates
    Revenue
    recognition
       7




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
      Recent
    accounting pronouncements
      No. 07-03 No. 07-03 No. 07-03
  Reclassifications
    2.
    Stock
    option plans and warrants   8




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
        WeightedRange of


AverageNumber of


Exercise


ExerciseOptions


Prices


PricesOutstanding at December 31, 2006


3,274,756


$
2.99 - 12.00


$
4.40Granted


37,500


$
10.85


$
10.85Exercised


(409
)

$
3.63


$
3.63Forfeited/Cancelled


(1,760
)

$
3.85-12.00


$
8.48Outstanding at March 31, 2007


3,310,087


$
2.99 - 12.00


$
4.47Granted


334,400


$
11.20-11.58


$
11.20Exercised


(396,692
)

$
2.99-4.27


$
3.20Forfeited/Cancelled


(3,000
)

$
11.58-12.00


$
11.72Outstanding at June 30, 2007


3,244,795


$
2.99 - 12.00


$
5.38Granted


71,500


$
9.26-11.07


$
11.03Exercised


(190,600
)

$
2.99-4.27


$
3.46Forfeited/Cancelled


(49,447
)

$
3.85-12.00


$
10.72Outstanding at September 30, 2007


3,076,248


$
2.99 - 12.00


$
5.48Exercisable at September 30, 2007


2,337,461


$
2.99-12.00


$
3.94     Nine Months EndedSeptember 30,


September 30,2006


2007Weighted average expected term of options (in years)


6.00



4.58Expected volatility factor (based on peer group
    volatility)


30.00
%


30.00
%Expected dividend yield


none



noneWeighted average risk-free interest rate (based on applicable
    U.S. Treasury rates)


5.06
%


4.86
%      9




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
          3.  Inventories,
    net
    December 31,


September 30,2006


2007Raw materials

$
6,873,057


$
7,709,417Work-in-process


3,360,650



4,663,110Finished goods


2,155,947



1,977,221$
12,389,654


$
14,349,748  10




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
  4.  Property
    and equipment, net
    December 31,


September 30,2006


2007Machinery and equipment

$
15,404,014


$
15,612,682Leasehold improvements


3,004,636



3,229,509Furniture, fixtures, and office equipment


2,841,022



2,994,722Computer software


2,069,489



1,891,690Equipment not yet placed in service


11,042,883



15,335,74834,362,044



39,064,351Less: Accumulated depreciation and amortization


(16,429,211
)


(17,216,020
)$
17,932,833


$
21,848,331         5.
    Accrued
    liabilities    December 31,


September 30,2006


2007Accrued salaries and benefits

$
3,977,850


$
3,645,012Sales returns reserve


5,588,068



4,999,068Product warranty and customer liabilities


3,399,119



5,344,037Other accrued liabilities


942,627



2,406,767$
13,907,664


$
16,394,884   6.
    Credit
    facility and long-term debt   11




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
    7.
    Warrant
    put option    8.
    Income
    taxes         12




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
  9.
    Earnings
    per common share        Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2006Basic:Net income applicable to common stock

$
6,368,026


$
9,556,432Weighted average number of common shares outstanding


14,150,876



13,857,902Basic net income per share

$
0.45


$
0.69Diluted:Net income applicable to common stock

$
6,368,026


$
9,556,432Change in fair value of the warrant put option


(1,334,151
)


(58,700
)Adjusted net income applicable to common stock

$
5,033,875


$
9,497,732Weighted average number of common shares outstanding


14,150,876



13,857,902Effect of dilutive securities: stock options and warrants


2,748,925



2,727,386Weighted average number of common and common equivalent shares
    outstanding


16,899,801



16,585,288Diluted net income per share

$
0.30


$
0.57    13




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2007Weighted average number of common shares outstanding for basic
    earnings per share


18,115,897



17,953,529Effect of dilutive securities: stock options and warrants


1,443,323



1,752,502Weighted average number of common and common equivalent shares
    outstanding


19,559,220



19,706,031     10.
    Common
    stock repurchase program    11.
    Contingencies  Litigation
    Roche
    Litigation
    Brandt
    Litigation
   14




---



##### Table of Contents



HOME
    DIAGNOSTICS, INC. AND SUBSIDIARIES
    Notes to Condensed Consolidated Financial Statements 
    (Continued)
   15




---



##### Table of Contents



ITEM 2.
    Managements
    discussion and analysis of financial condition and results of
    operations  Form 10-K. Form 10-K,
  Company
    overview
          
    Retail the retail channel generates the
    majority of sales of blood glucose monitoring products in the
    United States and includes chain drug stores, food stores and
    mass merchandisers. We sell our products into the retail channel
    on a direct basis or through domestic distributors. Our retail
    net sales include products we sell directly into the retail
    channel for the larger food and drug retailers.
    Domestic distribution the domestic
    distribution channel includes sales to domestic wholesalers,
    including AmerisourceBergen, Cardinal Health, McKesson, and
    Invacare, who sell products to independent and chain food and
    drug retailers, primary and long-term care providers, durable
    medical equipment suppliers and mail service providers.
    Mail service the mail service channel
    includes sales to leading mail service providers, who market
    their products primarily to the Medicare population.
    International the international channel
    consists primarily of sales to distributors in Latin America,
    the United Kingdom, Germany, Australia, Canada and China. In May
    2005, we acquired our United Kingdom distributor, and we
    continually evaluate opportunities to partner with or acquire
    distributors in other international markets. 16




---



##### Table of Contents



Three Months Ended September 30,


Nine Months Ended September 30,2006


2007


2006


2007Net sales by channel:Retail

$
5,476,177



18.2
%

$
5,761,852



18.2
%

$
17,508,584



20.4
%

$
18,512,802



21.1
%Domestic distribution


19,013,959



63.2
%


19,336,111



61.0
%


50,300,184



58.6
%


48,402,884



55.1
%Mail service


2,968,047



9.9
%


3,118,992



9.9
%


9,417,049



11.0
%


10,471,405



11.9
%International


2,601,732



8.7
%


3,467,146



10.9
%


8,535,552



10.0
%


10,447,382



11.9
%Net sales

$
30,059,915



100.0
%

$
31,684,101



100.0
%

$
85,761,369



100.0
%

$
87,834,473



100.0
%         Results
    of operations
    Three Months Ended September 30,


Nine Months Ended September 30,2006


2007


2006


2007Net sales

$
30,059,915



100.0
%

$
31,684,101



100.0
%

$
85,761,369



100.0
%

$
87,834,473



100.0
%Cost of sales


11,052,625



36.8
%


11,025,302



34.8
%


33,517,762



39.1
%


34,180,896



38.9
%Gross profit


19,007,290



63.2
%


20,658,799



65.2
%


52,243,607



60.9
%


53,653,577



61.1
%Operating Expenses:Selling, general and administrative


10,647,742



35.4
%


12,028,896



38.0
%


32,726,928



38.2
%


35,136,687



40.0
%Research and development


2,086,096



6.9
%


2,231,292



7.0
%


5,832,944



6.8
%


6,500,479



7.4
%Litigation settlement/(insurance proceeds)






0
%


(450,000
)


(1.4
)%






0
%


(450,000
)


(0.5
)%Total operating expenses


12,733,838



42.4
%


13,810,188



43.6
%


38,559,872



45.0
%


41,187,166



46.9
%Income from operations


6,273,452



20.9
%


6,848,611



21.6
%


13,683,735



16.0
%


12,466,411



14.2
%Increase in fair value of warrant put option


1,334,151



4.4
%






0.0
%


58,700



0.1
%






0.0
%Interest (expense) income, net


(33,128
)


(0.1
)%


447,763



1.5
%


(194,063
)


(0.2
)%


1,218,044



1.4
%Other, net


129,917



0.4
%


12,579



(0.0
)%


28,936



(0.0
)%


64,186



0.1
%Income before income taxes


7,704,392



25.6
%


7,308,953



23.1
%


13,577,308



15.8
%


13,748,641



15.7
%Provision for income taxes


(1,336,366
)


(4.4
)%


(2,104,805
)


(6.7
)%


(4,020,876
)


(4.7
)%


(4,229,903
)


(4.9
)%Net income

$
6,368,026



21.2
%

$
5,204,148



16.4
%

$
9,556,432



11.1
%

$
9,518,738



10.8
%  17




---



##### Table of Contents



Three
    months ended September 30, 2007 as compared to three months
    ended September 30, 2006
             18




---



##### Table of Contents



Nine
    months ended September 30, 2007 as compared to nine months
    ended September 30, 2006
     19




---



##### Table of Contents



20




---



##### Table of Contents



Liquidity
    and capital resources
             21




---



##### Table of Contents



Recent
    accounting pronouncements
      No. 07-03 No. 07-03 No. 07-03
  Caution
    concerning forward-looking statements
  Form 10-K,
 22




---



##### Table of Contents



Item 3.
    Quantitative
    and qualitative disclosures about market risk    Item 4T.
    Controls
    and procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e))
  Changes
    in Internal Control
    Part II 
    OTHER INFORMATION
  Item 1.
    Legal
    Proceedings    Roche
    Litigation
    Brandt
    Litigation
   23




---



##### Table of Contents



Item 1A.
    Risk
    Factors  Form 10-K Form 10-Q
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds  Use of
    Proceeds from Sales of Registered Securities
  Form S-1 No. 333-133713), No. 333-133713).
      Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
   24




---



##### Table of Contents



ISSUER
    PURCHASES OF EQUITY SECURITIES
  Total Number


Approximateof Shares


Dollar Value ofPurchased as


Shares that MayTotal Number





Part of the


yet be Purchasedof Shares


Average Price


Repurchase


Under thePeriod

Purchased


Paid per Share


Program


Repurchase ProgramJuly 1, 2007 to July 31, 2007













$
August 1, 2007 to August 31, 2007


265,268


$
9.20



265,268


$
2,558,255September 1, 2007 to September 30, 2007


98,300


$
9.65



98,300


$
1,609,389Total at September 30, 2007


363,568


$
9.33



363,568   Item 6.
    Exhibits   25




---



##### Table of Contents



SIGNATURES
     HOME DIAGNOSTICS, INC.Date: November 12, 2007

By: /s/  J.
    RICHARD DAMRON, JR.J.
    Richard Damron, Jr.
    President and Chief Executive Officer
    (principal executive officer) and DirectorDate: November 12, 2007

By: /s/  RONALD
    L. RUBINRonald
    L. Rubin
    Vice President and Chief Financial Officer
    (principal financial and accounting officer)  26




---



##### Table of Contents



Exhibit Index
  ExhibitNumber



Description10
.1*



Separation Agreement dated September 13, 2007 between the
    Registrant and a former employee.31
.1*



Certification of Chief Executive Officer pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934.31
.2*



Certification of Chief Financial Officer pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934.32
.1*



Certification of Chief Executive Officer, Pursuant to
    18 U.S.C. Section 1350.32
.2*



Certification of Chief Financial Officer, Pursuant to
    18 U.S.C. Section 1350.     *
    
    Filed herewith 27