<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             -----------------------

                                    FORM 10-K
(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended December 31, 2002

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                 For Transition Period From _______ to _________

                          Commission File No. 000-22400


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


              Delaware                                   56-1581761
    -------------------------------                  -------------------
    (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                   Identification No.)


         111 Pencader Drive
          Newark, Delaware                                  19702
----------------------------------------                -------------
(Address of principal executive offices)                  (Zip Code)


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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 Par Value
                                (Title of class)

                      -------------------------------------

         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    X          No  ___
                            -----

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2of the Act).
                       Yes               No   X
                            ----            -----

         The aggregate market value of the voting common stock held by
non-affiliates of the Registrant was $52,830,813 as of June 28, 2002, the last
business day of the most recently completed second quarter.

         As of March 25, 2003 there were 18,938,832 shares outstanding of the
Registrant's common stock, par value $.01 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the definitive proxy statement (the "Definitive Proxy
Statement") to be filed with the Securities and Exchange Commission relative to
the Company's 2003 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Report.

<PAGE>


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<S>                                                                                                                        <C>
PART I......................................................................................................................1

ITEM 1.        BUSINESS.....................................................................................................1
Overview....................................................................................................................1
Immunoassay Technology......................................................................................................2
Bioluminescence Technology..................................................................................................3
Markets and Products........................................................................................................4
Sales and Marketing Strategy...............................................................................................11
Regulatory Approvals.......................................................................................................11
Manufacturing..............................................................................................................12
Research and Development...................................................................................................13
Proprietary Technology and Patents.........................................................................................14
Competition................................................................................................................15
Employees..................................................................................................................16
ITEM 2.        PROPERTIES..................................................................................................16
ITEM 3.        LEGAL PROCEEDINGS...........................................................................................17
ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................................17

PART II....................................................................................................................17

ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................17
ITEM 6.        SELECTED CONSOLIDATED FINANCIAL DATA........................................................................18
ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.......................19
   Forward-Looking Statements..............................................................................................19
   Overview................................................................................................................19
   Results of Operations...................................................................................................21
   Year ended December 31, 2002 versus year ended December 31, 2001........................................................21
   Year ended December 31, 2001 versus year ended December 31, 2000........................................................24
   Liquidity and Capital Resources.........................................................................................25
   Contractual Obligations.................................................................................................26
ITEM 7a.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................................29
ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................30
ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................30

PART III...................................................................................................................30

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT..............................................................30
ITEM 11.       EXECUTIVE COMPENSATION......................................................................................32
ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............................................32
ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................................32
ITEM 14.       CONTROLS AND PROCEDURES.....................................................................................32
ITEM 15.       PRINCIPAL ACCOUNTANT FEES AND SERVICES......................................................................33

PART IV....................................................................................................................33

ITEM 16.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................................33


</TABLE>




<PAGE>



                                     PART I

ITEM 1. BUSINESS

Overview

Strategic Diagnostics Inc. ("the Company") is a Delaware corporation formed in
1987 under the name EnSys Corporation. In 1996, Strategic Diagnostics, Inc., a
Delaware Corporation formed in 1990, which prior to that time conducted the
operations of the Company, merged with and into EnSys Corporation, which changed
its name to Strategic Diagnostics Inc. The Company develops, manufactures and
markets immunoassay and bioluminescence-based test kits for rapid and
cost-effective detection of a wide variety of substances in the food safety and
water quality markets through its Test Kit segment. Through its former Antibody
segment, the Company also provides antibody and immunoreagent research,
development and production services.

Since its inception, the Company and its predecessors have, in addition to
conducting internal research and development of new products, entered into
research and development agreements with multiple corporate partners that have
led to the introduction of various products to the food safety, water quality
and other markets. The Company expects that internal research and development
projects, primarily in the food safety area, will continue to represent a larger
percentage of its research and development expenditures, as compared to the two
year period ended December 31, 2002. The Company believes that its competitive
position has been enhanced through the combination of talent, technology and
resources resulting from the relationships it developed and the acquisitions it
concluded during the past five years. These relationships and acquisitions have
enabled the Company to achieve meaningful economies of scale for the unique
products it offers through the utilization of its consolidated facilities in
Newark, Delaware, for the manufacture of test kits and antibodies, its facility
located in Oceanside, California, for the manufacture of instruments, and its
facility located in Windham, Maine for the manufacture of antibodies.

On July 8, 2002, the Company purchased certain assets of Molecular Circuitry,
Inc. (MCI). The purchased assets consist primarily of various proprietary growth
media technology that will be used in combination with the Company's diagnostic
tests for food-borne pathogens, including Salmonella and E. coli. The assets
purchased also include the sales and marketing rights to the ruminant feed test
product line that the Company and MCI had been jointly developing in
collaboration with McDonald's Corporation. In consideration for these and other
related assets, the Company issued to MCI 600,000 unregistered shares of the
Company's common stock with a value of $4.17 per share, or $2.5 million in the
aggregate. The per share price was computed by averaging the closing price of
the Company's common stock on the Nasdaq National Market for the period
beginning two business days before the acquisition and ending two business days
after the acquisition, plus an additional $40,000 in transaction- related costs.
In addition, the Company will pay MCI a continuing royalty for 10 years on sales
of specified products and/or components of products, which royalty will be
charged to operations if and when incurred.

On September 28, 2001, the Company acquired AZUR Environmental (AZUR), a
privately-held manufacturer of proprietary rapid test systems, including the
Microtox(R) toxicity test system, which measures toxicity in drinking and
process water. Mentioned in more than 500 peer-reviewed scientific articles and
with more than 1,700 instruments sold worldwide, the Microtox(R) toxicity test
system has been approved in regulations or standards in Canada, eight European
countries, and has been submitted to the U.S. Environmental Protection Agency
for approval. Under the terms of the merger agreement with AZUR, the Company
issued 700,000 shares of Series C preferred stock, with a fair market value of
approximately $3.0 million in the aggregate, as determined by an independent
valuation firm. On November 2, 2001 the 700,000 Series C preferred shares were
automatically converted into 700,000 shares of the Company's common stock in
accordance with their original terms.

                                       1
<PAGE>

With the 1999 acquisitions of HTI BioProducts, Inc. and certain assets of
Atlantic Antibodies, the Company formed a new operating segment, Strategic
BioSolutions (SBS), which has since become one of the largest producers of
antibodies in the United States. The mission of Strategic BioSolutions is to
supply monoclonal and polyclonal antibodies, immunochemical reagents and related
services to medical diagnostic and pharmaceutical companies, as well as research
institutions.

Immunoassay Technology

An immunoassay is an analytical test that uses antibodies to detect the presence
of a target compound in a complex sample matrix with high degrees of precision
and accuracy.

The technology was first developed more than 25 years ago and has replaced many
laboratory diagnostic tests in the medical industry. The Company has applied
immunoassay technology to a variety of industrial and agricultural applications.
As with medical applications, immunoassay technology has demonstrated its value
in these markets by virtue of its ability to yield specific, accurate,
cost-effective and timely data in a manner previously unavailable.

         The major attributes of immunoassay technology can be summarized as
follows:

         Sensitivity:      Immunoassays can measure extremely low concentrations
                           of compounds (routinely as low as parts per billion;
                           i.e., one millionth of one gram in a liter of
                           liquid).
         Specificity:      Immunoassays can measure one specific compound out of
                           a chemical "soup," reducing the need for sample
                           preparation.
         Speed:            Total time to obtain a test result ranges from one
                           minute to several hours as compared to several days
                           to several weeks with many competing laboratory
                           testing methods.
         Cost:             The price-per-test for immunoassays ranges from $1 to
                           $50, industry wide; the price-per-test for similar
                           laboratory testing can range from $5 to $1,000.
         Accuracy:         Immunoassays are typically as or more accurate than
                           their laboratory counterparts.
         Flexibility:      Immunoassays can be developed in a wide variety of
                           test formats, including multiple sample
                           laboratory-based tests, disposable, single-use units,
                           and large automated instruments. They can be designed
                           for use by non-technical persons on-site under a
                           variety of field conditions for testing of diverse
                           sample types.

Immunoassay technology relies on the specific binding characteristics of
antibodies. Antibodies are proteins made by cells within the bodies of animals
as part of the immune system response to invasion by foreign substances such as
bacteria and viruses. An antibody physically binds only to the substance that
elicited its production. This characteristic of specific binding makes
antibodies useful tools for detecting substances in complex sample matrices
(e.g., blood, plant tissue, soil and water). Methods exist for isolating and
purifying antibodies from animals, and labeling them in such a way that they can
be used as components, or reagents, within a test to detect the presence of the
substance of interest. Immunoassay technology has advanced to the point that
antibodies can be made to a wide variety of substances including microorganisms,
drugs, hormones, proteins, polymers, environmental pollutants and other
chemicals.

Once an antibody reagent that has the desired performance characteristics
(sensitivity and specificity) has been identified, it can be incorporated into a
test format that is appropriate for the customer's application. In the human
clinical chemistry market, antibodies are employed as reagents on large,
automated instruments that can analyze hundreds of samples per hour. In
contrast, antibodies also can be packaged into single use, disposable formats
such as home pregnancy tests. Immunoassays can be designed to be highly
quantitative or yield a simple yes/no result. The type of test format chosen for
any given application depends on the needs of the customer and may include
factors such as ease-of-use, cost-per-test, number of samples to be tested,
location where the test will be performed and experience of the user.

                                       2
<PAGE>

The Company has expertise and proprietary technology relating to the development
and manufacture of five primary immunoassay formats: latex particle filtration,
magnetic particle, lateral flow tests, coated-tube and microtiter plate.

Latex particle filtration assays offer ease-of-use, field portability and
semi-quantitative results and are ideally suited for on-site, field screening
applications where limited numbers of samples are to be analyzed.

Magnetic particle assays have a greater number of steps and require more
technical expertise to execute than latex particle filtration assays, but are
more suited to the processing of larger numbers of samples at a single time, can
be highly quantitative, and are relatively inexpensive on a cost-per-test basis.
These characteristics make magnetic particle immunoassays an effective
measurement tool in both laboratory and certain field applications, especially
where highly precise results are required.

Lateral flow immunoassay tests, often referred to as 'one-step' membrane tests,
require only that the user apply a prepared sample to the membrane strip to
obtain the test result - much like pH or Litmus paper tests. The low cost and
simplicity of these tests make them ideally suited for a wide range of
applications in many different markets. The current state-of-the-art of lateral
flow immunoassays is such that the results obtained using these tests are
qualitative, not quantitative, which imposes some limits on the applicability of
the format.

Coated-tube immunoassays are well suited for analyzing relatively large numbers
of samples in the field, yield a semi-quantitative result and are intermediate
in their ease-of-use and cost-per-test.

Microtiter plate assays are well established in the medical diagnostic industry
and offer many of the advantages of magnetic particle assays, including
quantitative results and the capacity to analyze large numbers of samples at a
relatively low cost-per-test. Special laboratory equipment, relatively high
levels of technical training, and a time-to-result measured in hours limits this
test format to laboratory applications.

All measurement technologies, including immunoassays, have strengths and
limitations. The Company's expertise with multiple immunoassay formats, coupled
with a thorough understanding of the needs of a market and specific customer
applications, has allowed the Company to develop a diverse array of immunoassay
products designed to meet the analytical needs of multiple, sizable markets.

The products that the Company manufactures and markets using this technology
include TraitChekTM, MycoChekTM, RapidChek(R), SeedChekTM, FeedCheckTM, RaPID
Assay(R), EnviroGard(R), D TECH(R).

Bioluminescence Technology

Bioluminescence technology uses certain strains of luminescent bacteria, which
possess attributes that support their use as biosensors for toxicity testing.
These strains divert up to 10% of their respiratory energy into a specific
metabolic pathway, which converts chemical energy into visible light.

Bioluminescence technology is based upon exposing a living organism to a test
sample for the purpose of determining whether or not a sample is toxic and if
so, how toxic. This technology provides a quick and inexpensive way to assess
the bioreactivity of various substances.

                                       3
<PAGE>

By using a naturally occurring microorganism that gives off light as a
by-product of its respiration, a temperature controlled precision photometer can
then measure the change in light output with (sample) and without (control)
toxin. The reduction in light output is proportional to the toxicity
(bioreactivity) of the substance tested. A data collection and reduction system
can then analyze the results of a dose-response test procedure and print out a
report quantifying sample toxicity.

         The major attributes of bioluminescence technology can be summarized as
follows:

         Sensitivity:      Response of the system compares favorably with
                           traditional bioassay procedures, tissue culture tests
                           and other chemical/life interactions.
         Standardized:     Standardized reagents and test procedures make
                           test/test and lab/lab comparisons possible.
         Speed:            Samples can be tested in 30 minutes.
         Cost:             Cost per test is significantly lower than lab testing
                           methods.
         Accuracy:         Provides a reproducible, quantitative measure of
                           toxicity or bioreactivity.
         Flexibility:      Bioassay organisms are handled as a chemical reagent.
                           Response is monitored instrumentally and presented as
                           digital output or graphical data. No special operator
                           skills are required.

The Company manufactures and markets its Microtox(R) and Deltatox(R) toxicity
test systems using this technology.

Markets and Products

The Company sells products in the food safety, water quality and antibody market
categories through its direct sales force, a network of over 50 distributors in
Canada, Mexico, Latin America, Europe and Asia and its corporate partners. This
section describes the Company's current markets and products, as well as those
in development.

         Food Safety

The food safety marketing unit includes tests to detect targeted traits in
genetically engineered plants, tests to detect Genetically Modified Organisms
(GMOs) in food ingredients and food fractions, tests to detect naturally
occurring fungi in grains (mycotoxins), tests for food pathogen testing and
products to detect remnants of ruminants in animal feed (ruminant feed testing).

         Crop Testing

Genetically Engineered Crops. Agricultural biotechnology companies are
developing varieties of commercially important crops like corn, cotton and
soybeans that have altered or additional genes which are designed to confer a
commercial advantage to the plant, such as insect or pesticide resistance or
enhanced growth or nutritional characteristics. Each year this technology
expands throughout world agricultural systems because of the meaningful
beneficial economic impact of these products. As the use of these products
proliferates, so does need for analysis to identify the genetic characteristics
of a particular food product.

A large agricultural biotechnology company that has used genetic engineering
technology in developing proprietary varieties of herbicide resistant soybeans
and insect-resistant corn and cotton, among other products, commissioned the
Company's first test in this market. Not all the seed produced by a genetically
engineered plant contains the gene for the desired trait and, therefore, not all
the plants arising from a batch of seed will express the desired characteristic.
The Company has developed a simple 'one-step' lateral flow test that is used at
the point of testing to determine if an individual plant contains the new
genetic trait. The Company also has developed similar one-step products for
other crops. Commercial seed producers use these products to ensure the quality
of their products. This type of test also can be used for enforcement purposes
in crops to expose unlicensed application of the genetic technology.

                                       4
<PAGE>

Sales of this lateral flow test and similar products to detect the presence of
genetically engineered traits in plants have been increasing rapidly since their
commercial introduction in 1995. The number of acres of crops with genetically
enhanced traits under cultivation has grown rapidly since 1998 and published
reports indicate that the farmers' experience with these products has been
positive. The agricultural biotechnology companies are currently developing
additional genetically engineered traits in plants. Based on these results and
with the increased volume of such traits, the Company expects sales of these
products to grow. The Company continues to work to develop additional tests to
detect traits in genetically modified plants.

During 2000, a genetic trait used in corn, known as Cry9C, or StarLink(R), which
had been approved by the U.S. Environmental Protection Agency only for non-food
uses, was discovered in food products. The impact of this discovery resulted in
the need for growers, handlers, processors, shippers and exporters to test corn
for the presence of StarLink(R). SDI's Bt9 TraitChek(TM) test was the first GMO
test validated by the U.S. Department of Agriculture. The Company worked closely
with key grain processors worldwide to provide significant volumes of tests to
meet the high market and regulatory demand and hence more than 2 million Bt9
lateral flow tests were sold in 2001. The StarLink(R) issue brought to light the
need for definitive genetic analysis and demonstrated that paper certifications
as to genetic origin and concentration alone are inadequate. The U.S. Department
of Agriculture's Grain Inspection, Packers and Stockyards Administration (GIPSA)
recommended that all corn seed sold for the 2001 planting season and parent
lines to be used in 2001 seed production be tested for the presence of the
StarLink(R) protein. This recommendation expanded the market opportunities for
the Company's Bt9 testing products. Additionally, the FDA issued a directive
recommending dry millers to test all yellow corn passing through their complexes
for the presence of StarLink(R). With the removal of StarLink(R) corn from the
U.S. grain supply during 2000 and 2001, the Company's sales of tests to detect
StarLink(R) corn diminished significantly in 2002, while Company sales of test
kits to test other traits have grown.

Another noteworthy regulatory action was the creation of a new U.S. national
standard for organic fruits, vegetables and meats to help guide consumers
seeking alternatives to commercially produced food. Under this standard, foods
labeled "organic" cannot include genetically modified ingredients. The Company
believes that it is well positioned to work closely with the organic food
industry to offer testing mechanisms to screen, confirm and quantify various GMO
traits for labeling and identity preservation programs.

Trends in world food production include the use of second generation genetic
technologies to give plants specific nutritional or other high-value consumer
characteristics, collectively referred to as output traits. Food companies will
be able to provide consumers with value-added products they will demand and food
manufacturers will source these specialty products on world markets. The Company
believes that it is uniquely positioned to provide the analytical tools to allow
food companies to purchase such premium products with confidence.


         Food Testing

In 1998, a significant market opportunity for immunodiagnostic analysis was
created in manufactured food products. This opportunity arose from regulatory
response to public demands to address a consumer's right-to-know whether a food
product contains concentrations of genetically modified organisms (GMOs). In May
1998, the European Commission enacted food regulations governing the labeling of
foodstuffs that are derived from genetically modified crops. The legislation
affects food processors in all fifteen member states within the European Union.
Under the European Commission's EC 258/97 and EC 1139/98, beginning March 1,
1999, food processors were required to label food ingredients for the presence
of GMOs. Similar regulations have been adopted in many parts of the world
including Japan. The European Union and Japan are the largest customers for U.S.
soybean and corn exports.

                                       5
<PAGE>

During the second half of 1998, the Company began entering into licensing
agreements to use proprietary genetic traits with major developers of
genetically engineered plants, and began developing an immunodiagnostic test to
detect the presence of GMOs at specified concentrations. This research and
development was completed and the Company participated in a Joint Research
Centre - Institute for Health and Consumer Protection Food Products Unit
sponsored validation study of its first test kit. Validation studies are common
in the food testing industry and are generally referred to as "Ring Studies."
This Ring Study involved 38 qualified laboratories throughout Europe and was
completed in December 1998. The JRC has informed the Company that its products
have been validated to detect the presence of the tested traits at the
thresholds established in the Ring Study protocol.

Also during the second half of 1998, the Company began to introduce its
technology and product plans to food processors. The reaction from the
marketplace was and continues to be positive. Prospective customers have shown
interest in the ability of the Company's technology and products to detect the
presence of GMOs above a specified threshold level, its fast time-to-result and
cost advantages.

Recent world events also have helped to change the food safety marketplace. In
Europe, concerns over bovine spongiform encephalopathy (BSE, or mad cow disease)
have prompted broader uses for GMO testing in feed supplies. BSE is a
transmittable fatal brain disease in cattle. The disease has been attributed to
the use of animal bone meal and other animal scrap in feed supplies. The
elimination of bone meal used in feed has increased the need for other sources
of protein, such as soybean toasted meal. The Company's GMO Roundup Ready(TM)
meal test kit can detect GMO in toasted meal. In addition, this same test is
also validated for use with other primary food ingredients, including protein
isolates, concentrates, soy milk, tofu and dietary fiber. European feed
companies and their suppliers now have the ability to verify their feeds for the
absence or presence of GMOs.

The Company continues to partner with the major agricultural biotechnology firms
to develop new products and promote rapid GMO testing methods throughout the
food distribution channel. With our new products and market opportunities the
Company believes it is well positioned as the leader in the rapidly growing
market for food ingredients testing for today and the future.


Food Pathogen Testing. Pathogen specific testing is an increasingly important
part of the microbiology tests performed in the global food industry. In 2000,
the pathogen testing market was estimated to be $180 million worldwide according
to independent studies.

In 2002, the Company invested in the development and market introduction of
products for the detection of pathogenic microorganisms in food. In June 2002,
the Company received official AOAC Research Institute approval and commercially
launched our RapidChek(R) test for E. coli O157. The test detects the presence
of the bacteria in 8 hours. The Company believes that RapidChek(R) is also
significantly easier to use and interpret than other products in the market.

Before E. coli O157 can be detected, it is first necessary to incubate a sample
of food in the presence of growth media designed to resuscitate and enhance the
growth of the target pathogen while at the same time inhibiting the growth of
competing microorganisms. The Company's proprietary RapidChek(R) E. coli O157
media has been evaluated by a U.S. government agency and has demonstrated
superiority in effectively culturing this important pathogen.

                                       6
<PAGE>

Also during 2002, the Company invested in and completed the development of our
second test product for the food pathogen market, RapidChek(R) Salmonella. Tests
for Salmonella represent approximately 50% of all food pathogen testing. The
official detection method currently used by the Food Safety and Inspection
Service (FSIS) of the U.S. Department of Agriculture requires 48 hours to obtain
a test result. The Company's test is designed for ease of use and to provide
results in 24 hours, as fast as any other marketed Salmonella test of which the
Company is aware.

Other rapid Salmonella tests have significant problems with incorrectly
detecting non-Salmonella bacteria. The Company has taken advantage of its
antibody technology to develop a test with significantly improved specificity
over competitors' tests. The Company believes that the combination of speed,
ease-of-use and superior performance present significant competitive advantages
in the marketplace and the addition of the Salmonella test and media to the
Company's E. coli products is another step toward providing complete testing
solutions to the Company's customers.

Ruminant Testing. Due to the association of animal proteins in feed with
outbreaks of BSE, or mad cow disease, regulations are now in place in the U.S.
and throughout the world to prohibit the use of ruminants as components of
animal feed. In the U.S., a final rule 21CFR 589.2000 prohibits the feeding of
certain mammalian protein to cattle and other ruminants. In Europe, a complete
ban on all meat and bone meal (MBM) is in place. Testing feed for ruminants are
designed to provide assurances that feed is safe for cattle and other animals.

In 2002, the Company acquired from MCI the sales and marketing rights for a test
commissioned by the McDonald's Corporation to detect the proteins of ruminant
animals in feed. Working closely with livestock and food industry leaders, trade
groups and government agencies, the Company's scientists developed a rapid test
that can be used by animal feed users to demonstrate compliance with laws
described above. The Company has filed for a patent covering this technology and
is currently working with government agencies in Europe to validate the test.
The Company commercially launched the ruminant feed test in the first quarter of
2003.

Mycotoxins. Mycotoxins are toxins formed in grains such as corn, barley, and
wheat by naturally occurring fungi. Many mycotoxins have been proven or
associated with health effects in both animals and humans. The FDA, in concert
with the USDA, has developed maximum acceptable levels for the mycotoxins,
aflatoxin and vomitoxin. Testing is mandatory on all U.S. exported grains. Some
mycotoxins do not break down upon processing, and therefore testing continues at
the food processing level as well. The existing market for mycotoxin testing is
greater than $25 million annually. Though it is a developed market in which the
Company competes with other established test providers, the Company believes it
has an excellent customer network developed with our other products in the food
safety market, including GMOs, and an enhanced product with significant
competitive advantages, including enhanced ease-of-use and rapid screening
applications.


         Water Quality

The water quality marketing unit provides analytical tests for drinking water,
industrial process water and waste water. The unit also provides analytical
tests for soil and other waste matrices for use at environmental remediation
projects and other applications.

The Company is working with customers as they assess their vulnerability to
threats of intentional contamination as currently required under U.S. law.
Several of the Company's customers have adopted the Microtox(R) toxicity testing
technology for drinking water as an early warning or emergency response system
to detect intentional contamination of drinking water supplies. This technology
has become part of many customers' drinking water security monitoring programs
as a means of counter-terrorism.

                                       7
<PAGE>

Water quality testing is driven by regulatory initiatives such as the Safe
Drinking Water Act and the Clean Water Act in the United States of America, and
by economic factors including the cost of clean water and productivity losses
attributable to inadequate industrial water treatment. Because of the increasing
scarcity of potable water and the critical role treated water plays in the
manufacturing process, the market for analytical testing continues to grow. The
Company offers a wide range of on-site analytical testing products for the water
quality market. These include kits to measure concentrations of more than 40
different pesticides in water, tests for the presence of pathogenic protozoa
Cryptosporidium and Giardia, testing systems for toxicity in drinking and
wastewater and test kits that measure concentrations of water treatment
polymers.

Environmental analytical testing is similarly driven by regulations such as the
Resource Conservation and Recovery Act, Superfund (CERCLA) and other federal and
state regulations in the United States, and similar regulations internationally.
Economic factors, such as cleanup and re-development of urban real estate
("Brownfields") also drive the demand for testing. The Company's key user
segments in these applications have been environmental engineering firms, the
Department of Defense, other major federal agencies, federal and state
regulatory agencies and industrial processing facilities. The Company is seeing
many new opportunities as more and more environmental sampling projects are
designed to use field analytical tools.

Pesticides. The entrance of pesticides into the water supply as a result of
agricultural and residential runoff continues to be a problem requiring
analytical testing. In areas of substantial agricultural activity, drinking
water is tested for several pesticides in order to ensure compliance with
federal regulations. Imported grains, fruits and vegetables are tested for the
presence of pesticide residues prior to use in the U.S. In addition, pesticide
residues in crops call for extensive testing at the time of pesticide
registration or re-registration under the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA). In spite of their banned status, pesticides such as DDT
and chlordane still persist in soil at sites where they were stored or
distributed. Clean-up of these sites requires the use of specific analytical
methods of pesticide detection.

RaPID Assay(R) and EnviroGard(R) pesticide test kits are being used extensively
by water quality researchers, resource managers, drinking water system
operators, federal agencies such as the U.S. Geological Survey and Department of
Agriculture, state environmental and health departments, drinking water
utilities and environmental engineering companies for surface and groundwater
monitoring, drinking water source and supply management, soil analysis and
chemical fate and transport studies.

Microtox(R). The Microtox(R) test system is a general toxicity test that detects
a broad range of toxins and chemical agents in water. The Microtox(R) acute
toxicity test is being used to monitor drinking water supplies in a number of
major U.S. cities where the risk of deliberate contamination of water supplies
has become a concern. Microtox(R) toxicity test systems, which are
cost-effective and easy to perform, are uniquely suited for drinking water
surveillance because they provide rapid screening and confirmation results. The
test can be completed in as little as 15 minutes, allowing for a quick response
to changes in water quality. Microtox(R) testing is also widely applicable for
monitoring toxicity in wastewater and soil samples and is used throughout the
world in these applications. With nearly 600 peer-reviewed scientific articles
and more than 2,000 instruments sold worldwide, the Company believes that the
Microtox(R) toxicity test system is among the standards for rapid toxicity
screening and analysis.

Pollutants. Analysis of soil, water and waste samples to determine the presence
of hazardous chemicals and environmental contaminants has become increasingly
important in connection with environmental remediation and monitoring
activities. These activities are largely the result of environmental legislation
such as RCRA, CERCLA, TSCA, the Safe Drinking Water Act (SDWA) and Federal Water
Pollution Control Act (the "Clean Water Act"). The Company believes that
approximately 1,000 commercial environmental testing laboratories, as well as
"in-house" laboratories at industrial and disposal facilities provide
environmental testing.


                                       8
<PAGE>

Environmental remediation activities require a substantial amount of testing in
connection with the clean-up of contaminated sites. Typical contaminants of
concern at contaminated sites include petroleum and fuel-derived products,
polycyclic aromatic hydrocarbons (PAHs), polychlorinated biphenyls (PCBs),
dioxins, explosives, pesticides, benzene, and chlorinated solvents. After
initial discovery of a contaminated site, a substantial amount of analytical
testing is typically required to complete an evaluation of the site and to
determine the extent and location of the contamination. Upon the commencement of
a remediation project, additional testing is necessary to determine the
effectiveness of the remediation measures. In addition, ongoing testing to
monitor soil and groundwater is often required after completion of the
remediation activities.

The Company is seeing greater efforts by the EPA and major users of
environmental analytical products and services, including the US Army Corps of
Engineers, to require that more environmental analytical work be completed using
field analytical test kits similar to those of the Company. The EPA and US Army
Corps of Engineers are jointly promoting what they call the "Triad Approach"
which uses immunoassay and other field analytical systems to increase the
accuracy and reduce costs on environmental projects. In one frequently used
example, EPA cites the use of the Company's RaPID Assay(R) and EnviroGard(R)
products at a project in the State of Washington where the use of the Triad
Approach reduced the project cost to $589,000, from an estimated $1,200,000 that
would have been required using a traditional site characterization approach and
laboratory-based analytical methods. Continued promotion of this program is
expected and may stimulate demand for the Company's products.

Environmental Contaminant Test Products. The Company sells four different format
immunoassays into the environmental market: (i) D TECH(R) latex particle-based
tests, (ii) EnSys(TM) and EnviroGard(R) coated-tube tests, (iii) RaPID Assay(R)
magnetic particle tests and (iv) EnviroGard(R) microtiter plate tests. Each of
the four different test formats has performance characteristics that make them
more or less suited for a particular customer application. The Company positions
the sale of all of its products so as to provide the customer with the best
product for its specific application.

All of the environmental test kits include components for the extraction of
target analytes from the sample matrix (typically soil or water) and subsequent
analysis. Sample preparation time is typically less than five minutes per
sample. All of the Company's environmental test kits are capable of analyzing
multiple samples and some allow analysis of as many as forty samples per hour.

Within the full line of immunoassay formats are test kits that provide for
analysis of soil, water, food and other matrices (sludge, sediment, oil, waste
products, etc) for many contaminants including PCBs, dioxins, PAHs, explosives,
BTEX, (benzene, toluene, ethylbenzene and xylene), crude oil, petroleum and
fuel-based compounds, pesticides, herbicides, insecticides, wood treating
compounds and others.

Water Treatment Polymers. The water treatment market encompasses both industrial
and municipal water treatment systems. Water treatment chemicals, typically
polymers, are critical to preparing finished drinking water in municipal
settings and to controlling water quality in industrial settings. Competition
between water treatment chemical manufacturers is intense and new chemicals have
evolved to the point that some of the more effective chemicals are quite
expensive. Cost-effective use of these chemicals requires careful control of
polymer concentrations throughout the system in which they are being employed.

The Company, working in collaboration with its corporate partners, has
successfully developed highly sensitive and accurate immunoassays for the
detection of a number of water treatment polymers. These immunoassays have been
demonstrated to be a reliable and cost-effective way to measure water treatment
polymers in samples from municipal water supplies, boilers, cooling towers, and
other processed and raw water sources. Some specific applications are: (i)
measuring concentrations of chemicals to allow more efficacious use of costly
compounds, (ii) detecting the presence of particular compounds in effluent
discharge in order to gauge regulatory compliance, and (iii) monitoring
processes to prevent fouling of highly expensive systems (such as reverse
osmosis) by excess polymer.

                                       9
<PAGE>

Cryptosporidium and Giardia. The Company, under a license agreement,
manufactures and sells Hydrofluor(TM), an immunoassay-based method for detecting
the pathogenic protozoa Cryptosporidium and Giardia in water. According to the
EPA, Cryptosporidium and Giardia cause more outbreaks of disease than any other
water-borne pathogens. The Company's Hydrofluor-Combo(TM) test kit has been
designated as the American Society for Testing and Materials (ASTM) standard
method for detection of these pathogenic protozoa and also was designated as the
method for use in complying with the EPA's Information Collection Rule to
establish the extent of contamination in the nation's drinking water.

         Antibody Business

The Company develops, manufactures and markets a comprehensive set of monoclonal
and polyclonal antibody products and services through its Strategic BioSolutions
division. Specific expertise includes hybridoma development and cell culture
expertise, large-scale ascites and antibody production, large-scale
purification, characterization and a complete array of related services.

This division serves a wide range of customers including pharmaceutical,
biotechnology and diagnostic companies and major research centers in the United
States, the European Union and the Pacific Rim. The Company believes this
division is one of the largest independent custom antibody operations in the
United States. Throughout the Company's history, many significant product
development and commercial supply agreements have followed from initial projects
to develop and supply antibodies. The comprehensive customer base of this
division has the potential to provide an even greater number of these meaningful
opportunities.

Continuing work on the human genome project by our biotechnology customers has
provided an opportunity for increased sales to these customers. The study of
gene functionality is often examined at the protein level, and antibodies, which
naturally bind to proteins, are critical tools in building on this new
knowledge. Going forward, the Company believes that, as work continues on this
project, it will provide a unique opportunity for the Company to build on our
existing market share within this segment.

The Company received AAALAC (Association for the Assessment and Accreditation of
Laboratory Animal Care) accreditation at its Maine polyclonal antibody facility
in October 2000. The Maine site now joins the Delaware facility, which has
maintained AAALAC accreditation since 1993, in offering products and services
which meet the highest quality standards in the industry.

         Other Products

RapidChek(R) SRB. Sulfate Reducing Bacteria ("SRBs") are environmentally
significant because they generate hydrogen sulfide gas and cause corrosion of
stainless steel pumps, pipelines, and drilling rigs and result in the souring of
oil reserves. SRBs can be controlled by the addition of treatment chemicals.
Historically, the majority of testing in this market was performed using a
culture method called the American Petroleum Institute Recommended Procedure No.
38. This method requires that samples be incubated from 14-28 days before a
result is obtained. RapidChek(R) SRB test is a simple-to-use, field portable
test that provides the user with accurate results in 20 minutes and allows for a
rapid, more cost-effective application of treatment chemicals.

Proprietary Chemicals. The proprietary chemical market category includes tests,
commissioned by chemical manufacturers, that specifically measure the particular
compound of interest. In the chemical market category the benefits of
immunoassay testing have led to three key applications: (i) regulatory
registration, in which immunoassay data is generated to support the registration
of a product with the EPA; (ii) detection, to determine whether a target
compound is present in a complex matrix; and (iii) monitoring, in which tests
are performed to determine chemical concentrations for control purposes.

                                       10
<PAGE>

Sales and Marketing Strategy

The Company sells products in the food safety, water quality and antibody market
categories through its direct sales force, a network of over 50 distributors in
Canada, Mexico, Latin America, Europe and Asia and its corporate partners. The
Company has an experienced sales and marketing organization of 35 individuals.
The Company also has a European headquarters and sales operation near London,
England.

In the U.S., the major route of sale is through a national field sales force in
defined sales territories. The field sales force is augmented by an in-house
sales force, which in addition to selling product directly to customers,
provides marketing and logistics support to the field sales personnel and
interfaces between customers and technical support. In early 2003 the Company
streamlined its operation by creating a single sales and marketing organization,
which had previously been organized in three distinct teams in the water
quality, food safety and antibody product categories. The Company believes that
its new sales organization structure is more efficient and will be more
effective in addressing all of the Company's market opportunities.

Regulatory Approvals

The environmental legislation and regulations that the Company believes are most
applicable to its current business are RCRA, CERCLA, TOSCA, FIFRA and the Pure
Food and Drug Act. For analysis of water and wastewater, the Safe Drinking Water
Act, the Clean Water Act and the NPDES permitting program under the Clean Water
Act also will be significant to the Company's business. As the utility of the
Company's Microtox(R) products continues to be widely recognized in drinking
water security applications, regulations and mandates associated with Homeland
Security programs may also have an impact on the Company's business.
Collectively, these programs regulate the management, disposal and clean-up of
hazardous substances and protect the nation's ground and surface water and
drinking water supplies. In addition, regulatory responsibilities in a number of
areas have been delegated to state agencies and state and local laws and
regulations impose additional restrictions and requirements. While environmental
regulations overseas vary, many countries, particularly those in Europe, have
counterparts to the U.S. legislation.

The Company believes that the validation and acceptance of its products by
regulatory agencies, though not required for the use of its products in most
cases, is a significant factor in gaining market acceptance. There are two main
areas in which the Company is seeking regulatory acceptance for its products:
environmental contaminant testing methods by the federal and state environmental
protection agencies and water testing methods by the federal and state agencies.
The EPA and some state agencies have evaluated certain of the Company's
analytical methods and accepted their use for certain remediation and monitoring
activities. Further validation by these agencies would stimulate demand for the
Company's products. The Company expects that as its products are subjected to
wider use under various conditions and subjected to traditional validation
techniques, such acceptance will generally be granted. Such acceptance would
serve to strengthen already compelling customer motivations such as the
ease-of-use and specificity characteristics of the Company's products, but is
not a prerequisite to selling the products in the markets the Company serves.

Environmental Contaminant Testing Methods. EPA SW-846 is the compendium of
analytical and test methods published by the EPA's Office of Solid Waste (OSW).
SW-846 is a guidance document listing those analytical methods that have been
validated by the EPA for a stated purpose. Some states also recognize the use of
SW-846 methods under their hazardous waste programs. SW-846 methods are
technically only applicable to regulatory programs under RCRA, however, other
federal, state and local environmental programs, including CERCLA and TOSCA,
often refer to and rely on SW-846 methods for purposes of remediation and
monitoring.

                                       11
<PAGE>

The Company currently has more than 30 SW-846 validated methods and has
submitted applications to achieve validation on others, including tests for
dioxins.

Other Testing Methods. Tests for water treatment polymers, genetically
engineered traits in plants, and fungal plant pathogens are currently
unregulated. However, agencies such as the EPA, the FDA and the Food Safety and
Inspection Service of the U.S. Department of Agriculture are engaged in testing
environmental samples and, together with the AOAC Research Institute, maintain
compilations of official methods for use in testing for environmental
contaminants in certain market segments. Some of these organizations also issue
procedures and guidelines for validating new methods.

Manufacturing

The Company currently manufactures over 180 different test kits for the
detection of a wide array of analytes in five immunoassay formats: one-step
lateral flow tests, coated-tubes, latex particle filtration, magnetic particles
and microtiter plates, and in one bioluminescence format: Microtox(R) toxicity
test system. In addition to test kits, the Company supplies its customers with
ancillary equipment and supplies including test evaluation instruments,
reagents, sample media, spectrophotometers, pipettes, balances and timers among
others. The Company also supplies a wide array of antibody products and services
to the in-vitro diagnostic, academic and medical research industries.

The manufacturing process consists mainly of instrument production, critical
reagent production and in-process testing, filling and dispensing, labeling, kit
assembly, quality control, packaging and shipping. The Company's instrument
manufacturing group produces the Microtox(R) test systems from its manufacturing
facility in Oceanside, California. The technical reagents manufacturing group
produces critical reagents from its laboratories in Newark, Delaware.
Sub-assemblies and finished kits are manufactured and shipped worldwide out of
the Company's headquarters facility in Newark, Delaware. Antibody production
includes in-vivo and in-vitro production of proprietary and nonproprietary cells
to in house and/or customer supplied specifications.

Biological materials are primarily developed and produced in-house, however,
some reagents are licensed from third parties or purchased from commercial
sources. A crucial step in the Company's manufacturing process is the
stabilization of the immunoreagents utilizing proprietary lyophilization
techniques. In general, raw materials used by the Company in its products are
obtainable from multiple sources. The Company purchases instruments and
ancillary equipment from outside vendors. A number of the instruments sold by
the Company were developed to be used exclusively with the Company's products
and are subject to specific supply agreements. The Company believes that the raw
materials, instruments and equipment used in the manufacture of its products are
adequately available for the Company's current and foreseeable manufacturing
needs.

The Company manufactures its products in accordance with the FDA's Good
Manufacturing Practices guidelines and has put in place systems designed to
control all elements of the manufacturing process including raw materials,
inventory, production processes, documents, work-in-process, lot records,
equipment and training. Integrated inventory control, purchasing, manufacturing
scheduling, order processing, shipping and customer invoicing are elements of
the Company's computerized Manufacturing Resource Planning (MRP) systems.

During 2002, the Company maintained separate manufacturing organizations for the
test kit and antibody operations. In early 2003, the Company combined these
groups to more efficiently deploy its scientific, technical and labor resources.
By combining work centers and groups, the Company is able to manage its
operations with a flatter, more streamlined structure than before this
combination. Accordingly, the Company's manufacturing organization, including
the former kit and antibody manufacturing personnel and the technical reagents
manufacturing group, consists of 85 individuals. The Company believes the
existing facilities and equipment are sufficient to support a significantly
larger manufacturing base. Manufacturing operations are currently running one
shift.

                                       12
<PAGE>

Research and Development

The Company engages in substantial research and development activities involving
antibody and immunoassay development. In the three years ended December 31,
2002, 2001 and 2000, the Company incurred approximately $3.3 million, $3.0
million and $2.9 million, respectively, in research and development
expenditures, principally in the test kit business segment. In 2002
approximately 32% of those expenditures were incurred pursuant to customer
research agreements or corporate partnerships and the other 68% related to
development of products directly by the Company. The Company expects that
internal research and development projects, primarily in the food safety market,
will continue to represent an increasing percentage of its total research and
development expenditures. The Company's laboratory facilities located in Newark,
Delaware were designed and built specifically for conducting research and
development relating to antibody and immunoassay technology. These facilities
include the state-of-the art, GMP, Association for the Assessment and
Accreditation of Laboratory Animal Care ("AAALAC") approved, Strategic
BioSolutions antibody development and large-scale production facilities. The
Company has assembled a scientific staff with extensive experience in the
development of monoclonal and polyclonal antibodies, immunogens and assay
reagents.

The Company's assay development scientists are experienced in developing tests
in a variety of different immunoassay formats, including rapid, on-site tests.
Research and development personnel have complementary skills in several advanced
research disciplines, including synthetic organic chemistry, protein chemistry,
biochemistry, immunology, immunochemistry, and microbiology. In addition to the
technical expertise resident within the research and development staff,
Strategic Biosolutions provides the Company, as well as its outside clients,
with large-scale GMP production, bioprocessing, purification and quality control
of antibodies and reagents.

The Company's research and development activities are focused on developing
products to expand its manufacturing base and leverage its sales and marketing
organization. The Company is a recognized leader in the field of contract
antibody and immunoassay research and development in the food, water quality and
agricultural sectors, and markets its contract development services primarily to
large chemical and pharmaceutical companies. Customer-sponsored product
development is performed either in collaboration with a corporate partner that
has identified a specific market need and provides funds to the Company to
develop an assay, or by the Company to fulfill an identified market need.
Research and development contracts are typically structured so that technology
developed within the program is co-owned by the Company and its partner and the
Company maintains manufacturing rights.

To the extent the Company believes that improvements to existing products
significantly enhance competitiveness, expand a market or improve market
penetration, the Company funds such efforts. In the markets where the Company
has chosen to compete, rapid field screening tests are highly valued and the
Company is actively engaged in developing proprietary technology to better meet
those needs and enhance the Company's overall performance. The Company has
extensive expertise, facilities and equipment relating to the development and
manufacture of one-step lateral flow tests, and is working aggressively to
further develop this technology.

The Company's research and development organization consists of approximately 25
individuals, of which 9 hold advanced academic degrees.


                                       13
<PAGE>


Proprietary Technology and Patents

The Company's products are based on the use of proprietary reagents, technology
and test systems developed by Company scientists or acquired externally.
Accordingly, the Company has implemented a number of procedures to safeguard the
proprietary nature of its technology. The Company requires its employees and
consultants to execute confidentiality agreements upon the commencement of an
employment or consulting relationship with the Company and all employees are
required to agree to assign to the Company all rights to any inventions made
during their employment or relating to the Company's activities.

Additionally, the Company seeks to protect its technology and processes through
the patent process for its test kit business. The Company currently holds 30
issued U.S. patents, including three U.S. patents licensed for exclusive use by
the Company, and seven U.S. patent applications are pending.

--------------- ----------------------------------------------------------------
U.S. Patent     Title
--------------- ----------------------------------------------------------------

4,999,286       Sulfate reducing bacteria determination and control
5,200,346       Aldicarb immunoassay by sulfone equivalents
5,411,869       Immunological analogs for captan
5,426,035       Method for compensating toxicity test data
5,427,955       Photochemical determination of organic compounds (license)
5,429,952       Marking of products to establish identity and source (license)
5,449,611       Polyaromatic hydrocarbon (PAH) immunoassay method, its
                components and a kit for use in performing the same
5,484,709       Immunoassay method for detecting an immunologically
                non-remarkable compound
5,541,079       Monoclonal and polyclonal antibodies and test method for
                determination of organophosphates (license)
5,547,877       Methods for the rapid detection of toxic halogenated
                hydrocarbons and kits useful in performing the same
5,558,996       Fungus extraction method and kit
5,573,954       Method of obtaining a small representative solid-phase sample
5,576,187       Standards for phosphorothioate insecticide immunoassays
5,593,850       Monitoring of industrial water quality using monoclonal
                antibodies to polymers
5,618,681       Polyaromatic hydrocarbon (PAH) immunoassay method, its
                components and a kit for use in performing the same
5,658,463       Kits and processes for extraction of analytes from solid
                materials
5,679,574       Quantitative test for oils, crude oil, hydrocarbon, or other
                contaminants in soil and a kit for performing the same
5,691,148       A petroleum immunoassay method, its components and a kit for
                performing the same
5,780,250       Immunoassay standards for polyaromatic hydrocarbon detection
5,834,222       Polychlorinated Biphenyls (PCB) immunoassay method
5,858,692       PCB immunoassay
5,874,216       Indirect label assay device for detecting small molecules and
                method of use thereof
5,891,657       Immunoassay standards for volatile analytes with benzene rings
5,919,645       Method for the direct determination of the toxicity of
                particulate solids
5,994,145       Reagents, methods and kits for detecting TCE and PCE
6,096,563       Dual particle immunoassay method & kit
6,146,903       Determination method
6,190,922       Substrate supported liquid extraction
6,376,195       Indirect label assay device for detecting small molecules and
                method of use thereof
6,420,530       Determination method

                                       14
<PAGE>

The Company believes that low-cost, easy-to-use, rapid field screening tests
have the potential to be significant products in their applicable markets.
Therefore, the Company continues to develop technology relating to immunoassay
formats with those features and has one pending patent application related to
novel point-of-care diagnostic devices. The Company believes that there is
significant market opportunity for tests that can detect genetically modified
crops and three of its pending patent applications are in this field. Two of its
pending patent applications deal with tests for the detection of animal proteins
in animal feed and one pending patent application deals with isolation of
pathogenic microorganisms from food.

There can be no assurance that the Company's patent applications will result in
the issuance of any patent or that any patents issued to the Company would
provide protection that is sufficiently broad to protect the Company's
technology and products. In addition, the Company cannot be certain that it was
the first creator of inventions covered by pending patent applications or that
it was the first to file patent applications for such inventions.

In addition to seeking patent protection for the Company's proprietary
information in its test kit business, the Company also relies upon trade
secrets, know-how and continuing technical innovation to maintain
competitiveness for both the test kit and antibody businesses. The Company has
developed a number of proprietary technologies which it has chosen not to
patent, including stabilization systems for reagents, chemical syntheses for
conjugates, immunogens and analyte analogs, and strategies relating to antibody
development. Regarding the latter, the Company's extensive expertise has enabled
it to develop antibodies and products that are unique to the industry including
antibodies to pathogenic food microorganisms, transgenic plant proteins,
mycotoxins, water treatment polymers, the explosive RDX, and the pollutants BTEX
and TCE.

Under two license agreements, the Company has been granted the right and license
throughout the world to use magnetocluster technology in connection with the
Company's RaPID Assay(R) products for the detection of environmental analytes.
This license carries royalties starting at 4% of net sales of such products each
year and declining to 2% based upon the volume of sales in such year.

Competition

Many of the Company's potential competitors are large companies with
substantially greater financial and other resources than the Company. To the
extent that any such companies enter into one or more of the Company's markets,
the Company's operations could be materially adversely affected. The Company
anticipates increased competition as potential competitors perceive that the
Company's markets have become commercially proven. During 2000, competitors
emerged with products that compete with certain of the Company's TraitChek(TM)
and GMOChek(TM) products to detect Cry9C (StarLink(R)) in corn for the food
safety market and in 2001 competing products emerged for the detection of
certain other traits in soybeans and corn. EnviroLogix, Inc. and Agdia, Inc.,
both privately held companies, and Neogen Corp. began offering Cry9C and Roundup
Ready(R) test kits with characteristics similar to the Company's. Other
companies may be developing additional products for one or more of the Company's
markets that could be competitive with the Company's products. The Company
believes none of these competitors have products that compete with all of the
Company's products in the food safety market. Additionally, the Company has
exclusive rights to products developed by Syngenta Crop Protection and is the
sole provider of other GMO tests. The Company believes that the breadth of its
product offerings in the food safety market, the expertise it has accumulated in
developing tests for GMOs in the food safety market, the relationships it
maintains with the developers of new genetically modified plant varieties and
the extensive customer relationships it has assembled throughout the
agricultural seed, grain and food processing industries are all significant
competitive advantages.

                                       15
<PAGE>

In food pathogen testing, the Company faces a wider base of competition. The
food pathogen testing market is valued at over $180 million and as such has
drawn competitive products. The Company's RapidChek(R) E. coli O157 and
Salmonella tests will compete globally with numerous competitive rapid testing
systems. Instrument-based tests are offered by bioMerieux SA and Dupont Qualicon
among others. Competitive lateral flow tests are offered from Neogen Corp.,
BioControl Systems, Inc., Tecra Holdings Pty Limited and others. In addition,
traditional lab culture methods offer in direct competition. The Company hopes
to gain market share from competitive methods and with new users due to key
product advantages such as speed of result, ease-of-use and accuracy.

Currently, the Company believes that there are no similar competing immunoassay
products for the Company's SRB, proprietary chemical, industrial marker or water
treatment polymer tests. The Company holds U.S. patents relating to the SRB
tests and believes they will help to provide a competitive advantage in the
event that competing products enter the market. The Company's water treatment
polymer tests are unique to the industry and the Company has secured U.S.
patents and an exclusive technology license and believes that such property will
help to provide a competitive advantage in the event that competing products
enter the market.

There is no direct competition for the Company's Microtox(R) product line in the
United States. In Europe and other parts of the world, the Company competes
against one other instrument based test method produced by Dr. Bruno Lange GmbH
& CO, an affiliate of The Donaher Corporation, which has greater technical and
marketing resources than the Company. The Company believes its products have a
number of competitive advantages including the comprehensive screening for
general toxicity and competes effectively on superior features and functions.

In the former antibody segment, competitors include large pharmaceutical,
research and diagnostics organizations, some of which have significantly greater
revenues than the Company. These companies produce these products internally and
purchase similar products from SBS. Additionally, there are a number of smaller
companies that offer competing products. The Company believes that the scale of
its operations and the breadth of its product lines, among other things, are
significant competitive advantages.

Employees

As of December 31, 2002, the Company employed 172 full time and one part time
individuals including 160 regular and 13 contract employees. All of the
Company's employees have executed agreements with the Company agreeing not to
disclose the Company's proprietary information, assigning to the Company all
rights to inventions made during their employment, and prohibiting them from
competing with the Company. None of the Company's employees are covered by
collective bargaining agreements. The Company believes that its relations with
its employees are good.

ITEM 2. PROPERTIES

The Company is headquartered in Newark, Delaware, and occupies approximately
28,000 square feet of space under an operating lease expiring in December 2007.
The Company also leases approximately 34,000 square feet of manufacturing and
research space, also in Newark, Delaware, under three operating leases. Two of
these leases expire in October 2003 and the Company plans to extend them on
similar terms. The third lease expires in November 2003. The Company leases
approximately 1,700 square feet of instrument manufacturing space in Oceanside,
California, under an operating lease expiring in June of 2003. The Company owns
and occupies approximately 75,000 square feet of manufacturing, research and
animal facility space and approximately 17 acres of farmland in Windham, Maine

                                       16
<PAGE>

The Company leases regional sales offices near London, England. The Company also
leases warehouse space of 1,600 square feet or less with leases that run one
year or less. The Company believes that its equipment and facilities are
adequate for its present purposes.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year ended December 31, 2002.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on The Nasdaq National Market under the
symbol "SDIX." Set forth below are the quarterly high and low bid prices for the
shares of Common Stock of the Company as reported by Nasdaq without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions:


                                         Common Stock Price Range
                                           High            Low
                                           ----            ---
Fiscal Year Ended
-----------------

December 31, 2002:
First Quarter                             $8.35             $4.55
Second Quarter                             5.50              3.88
Third Quarter                              4.60              2.45
Fourth Quarter                             4.47              2.85

December 31, 2001:
First Quarter                              3.88              2.00
Second Quarter                             4.20              2.50
Third Quarter                              4.67              3.28
Fourth Quarter                             9.99              4.55

On February 28, 2003 there were approximately 7,199 holders (314 holders of
record) of the Common Stock of the Company. The Company has never paid any cash
dividends on its Common Stock and pursuant to the Company's financing agreement
with PNC Bank, Delaware, the Company's commercial bank, no dividends or
distributions may be paid on account of its Common Stock.



                                       17
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>


                                                                                Year Ended December 31,
                                                           2002          2001              2000          1999           1998
                                                          ------        ------            ------        ------         ------
STATEMENT OF OPERATIONS DATA:                                          (in thousands, except share and per share data)
Revenues:
<S>                                                      <C>             <C>             <C>           <C>            <C>
       Product related                                   $ 23,264        $ 28,497        $ 24,773      $ 21,225       $ 14,172
       Contract and other                                     517             874           1,101         1,309          1,553
                                                       ----------      ----------      ----------    ----------     ----------
       Total revenues                                      23,781          29,371          25,874        22,534         15,725

Operating expenses:
       Manufacturing                                       12,340          14,512          11,287         9,078          6,222
       Research and development                             3,298           2,954           2,932         2,450          1,922
       Selling, general and administrative                 10,277          10,290           9,333         8,668          7,156
       Acquired research and development                        -               -               -         3,500              -
                                                       ----------      ----------      ----------    ----------     ----------
       Total operating expenses                            25,915          27,756          23,552        23,696         15,300

Operating income (loss)                                    (2,134)          1,615           2,322        (1,162)           425

Interest income (expense), net                                (50)            (33)           (415)         (372)           356

Other income                                                  374              76             283             -              -
                                                       ----------      ----------      ----------    ----------     ----------
Income (loss) before taxes                               $ (1,810)        $ 1,658         $ 2,190      $ (1,534)        $ 781
                                                       ----------      ----------      ----------    ----------     ----------
       Income tax expense (benefit)                          (898)            512             642        (5,317)            -
                                                       ----------      ----------      ----------    ----------     ----------
Net income (loss)                                          $ (912)        $ 1,146         $ 1,548       $ 3,783          $ 781
                                                       ----------      ----------      ----------    ----------     ----------
Preferred stock dividends                                       -              20               -            32              -
                                                       ----------      ----------      ----------    ----------     ----------
Net income (loss) applicable to common
       stockholders                                        $ (912)        $ 1,126         $ 1,548       $ 3,751          $ 781
                                                       ==========      ==========      ==========    ==========     ==========
Basic net income (loss) per share
applicable to common stockholders                         $ (0.05)         $ 0.07          $ 0.09        $ 0.26         $ 0.06
                                                       ==========      ==========      ==========    ==========     ==========
Shares used in computing basic net income (loss)
per share applicable to common stockholders            18,419,000      17,008,000      16,585,000    14,374,000     13,174,000
                                                       ==========      ==========      ==========    ==========     ==========

Diluted net income (loss) per share
applicable to common stockholders                         $ (0.05)         $ 0.06          $ 0.09        $ 0.22         $ 0.05
                                                       ==========      ==========      ==========    ==========     ==========
Shares used in computing diluted net income (loss)
per share applicable to common stockholders            18,419,000      17,642,000      17,466,000    17,088,000     16,103,000
                                                       ==========      ==========      ==========    ==========     ==========

                                                                                     December 31,
                                                          2002            2001            2000           1999         1998
                                                         ------          ------          ------         ------       ------
BALANCE SHEET DATA:

Cash and cash equivalents                                 $ 2,098         $ 2,379         $ 1,288       $ 2,491        $ 1,864
Short-term investments                                          -               -               -             -          3,990
                                                       ----------      ----------      ----------    ----------     ----------
       Sub total                                            2,098           2,379           1,288         2,491          5,854

Working capital                                            12,483          11,931          10,384        10,130         10,158

Total assets                                               33,166          32,134          26,555        29,672         15,093

Long-term debt                                              1,212           1,174           1,889         6,275            265

Stockholders' equity                                       30,054          26,771          21,334        19,210         13,155

</TABLE>


                                       18
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

Forward Looking Statements

This annual report contains certain forward-looking statements reflecting the
current expectations of Strategic Diagnostics Inc. and its subsidiaries (the
"Company"). 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; anticipated increases in sales of
the Company's Microtox(R) toxicity screening systems; the ability to reduce
seasonal and other fluctuations in its sales; the implementation by a globally
recognized food service laboratory and by the meat suppliers to a leading global
foodservice provider of the Company's RapidChek(R) E. coli O157 test method;
approval and validation by third parties of the Company's food pathogen tests;
the performance of the Company's testing products, the Company's ability to
complete a licensing agreement relating to a lateral flow reading instrument;
the amount of the Company's contract revenue, sales of the Company's antibodies;
the Company's development of a point-of-treatment diagnostic test for
Repinotan(TM); anticipated increases in gross margins, 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 annual report, 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.

Overview

The Company develops, manufactures and markets immunoassay and
bioluminescence-based test kits for rapid and cost-effective detection of a wide
variety of substances in the food safety and water quality markets through its
Test Kit segment. Through its Antibody segment, the Company also provides
antibody and immunoreagent research, development and production services.

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

                                       19
<PAGE>

On July 8, 2002, the Company purchased certain assets of Molecular Circuitry,
Inc. (MCI). The purchased assets consist primarily of various proprietary growth
media technology that will be used in combination with the Company's diagnostic
tests for food-borne pathogens, including Salmonella and E. coli. The assets
purchased also include the sales and marketing rights to the ruminant feed test
product line that the Company and MCI had been jointly developing in
collaboration with McDonald's Corporation. In consideration for these and other
related assets, the Company issued to MCI 600,000 unregistered shares of the
Company's common stock with a value of $4.17 per share or $2.5 million in the
aggregate, computed by averaging the closing price of the Company's common stock
on the NASDAQ National Market for the period beginning two business days before
the acquisition and ending two business days after the acquisition, plus an
additional $40,000 in transaction related costs. In addition, the Company will
pay MCI a continuing royalty for 10 years on sales of specified products and/or
components of products, which royalty will be charged to operations if and when
incurred.

On September 28, 2001, the Company acquired AZUR Environmental (AZUR), a
privately held manufacturer of proprietary rapid test systems, including the
Microtox(R) toxicity test system, which measures toxicity in drinking and
process water. Mentioned in more than 500 peer-reviewed scientific articles and
with more than 1,700 instruments sold worldwide, the Microtox(R) toxicity test
system has been approved in regulations or standards in Canada, eight European
countries, and has been submitted to the U.S. Environmental Protection Agency
for approval. Under the terms of the merger agreement with AZUR, the Company
issued 700,000 shares of Series C preferred stock, with a fair market value of
approximately $3.0 million in the aggregate, as determined by an independent
valuation firm. On November 2, 2001 the 700,000 Series C preferred shares were
automatically converted into 700,000 shares of the Company's common stock in
accordance with their original terms.

With the 1999 acquisitions of HTI BioProducts, Inc. and certain assets of
Atlantic Antibodies, the Company formed a new operating segment, Strategic
BioSolutions, which has now become one of the largest producers of antibodies in
the United States. The mission of Strategic BioSolutions is to supply monoclonal
and polyclonal antibodies, immunochemical reagents and related services to
medical diagnostic and pharmaceutical companies, as well as research
institutions.

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

Revenues in any particular quarter may not be indicative of revenues for any
subsequent quarter during the year, or for the entire year. With the anticipated
increase in sales of the Company's Microtox(R) test systems (these tests are
generally not affected by seasonal patterns) and as sales of food safety
products in the U.S. and to other parts of the world develop over the next few
years, the Company expects its seasonal and other fluctuations in revenues and
other operating results to become gradually less pronounced.



                                       20
<PAGE>


Results of Operations

Year ended December 31, 2002 versus year ended December 31, 2001

Revenues: Net revenues decreased $5.6 million or 19% in 2002 over 2001. The
following table sets out revenues by business segment and market category.

                                       (in thousands)
                                  Year Ended
                            ------------------------  Increase      Percent
                               2002        2001      (Decrease)     Change
------------------------------------------------------------------------------
Kit segment
    Water quality               $ 7,036     $ 6,534         $ 502        7.7%
    Food safety                   6,028      11,380        (5,352)     -47.0%
    Contract and other              517         874          (357)     -40.8%
                            --------------------------------------------------
      Total kit revenues         13,581      18,788        (5,207)     -27.7%
Antibody segment                 10,200      10,583          (383)      -3.6%
                            --------------------------------------------------
Total net revenues             $ 23,781    $ 29,371      $ (5,590)     -19.0%
                            ==================================================

Revenues for the water quality category increased slightly in 2002, primarily
due to increasing sales of the Microtox(R) toxicity screening systems, with more
than 50 North American water systems, most of which serve more than 100,000
households, utilizing the system for drinking water. The Company acquired the
Microtox(R) test systems in September 2001, after distributing this product
since early 2001. The Company continues to work with customers as they assess
their vulnerability to threats of intentional contamination as currently
required under U.S. law and is expanding its efforts to market its Microtox(R)
test systems to potential customers in the food and beverage industry. The
increase in Microtox(R) sales has been somewhat offset by a decrease in sales of
tests in the remediation market. Sales in this category have been slower due to
weak general economic conditions. The Company expects water quality revenues to
grow in 2003, particularly due to increased demand for Microtox(R) and its
attendant consumables as water processors and end-users have a heightened
awareness of the potential threat of chemical contamination, intentional or
otherwise.

Food safety revenues decreased primarily due to the significant decline in 2002
of StarLink(R) test kit sales from record sales levels in 2001 as the removal of
StarLink(R) corn from the nation's grain supply commenced late in 2000.
StarLink(R), which was approved only for non-food uses, was discovered in food
products in 2000 and resulted in the need for growers, handlers, processors,
shippers and exporters to test corn for the presence of StarLink(R). The Company
believes that reliance on genetically modified organism (GMO) technology
continues to grow both in the U.S. and abroad, and that as a result demand for
the Company's testing products, other than tests for StarLink(R), will increase
as well. Sales of Company's GMO tests for cottonseed increased during 2002 and
the Company believes it now supplies every major cottonseed company (in terms of
seed sales) in the U.S. Many countries outside the U.S. and Canada have adopted
labeling regulations that could stimulate demand, as well as food manufacturers
developing protocols to comply with these regulations.

Since the July 2002 launch of the RapidChek(R) lateral flow test for E. coli
O157, several field evaluations have been performed by major independent
laboratories. The results from these evaluations have prompted a globally
recognized food safety laboratory corporation to begin a nationwide
implementation of the RapidChek(R) E. coli O157 test method into its testing
protocols. This corporation expects its implementation to be complete by the end
of March 2003. Also, a leading global foodservice provider has completed an in
depth study of the RapidChek(R) E. coli O157 test method. According to
statements made by the foodservice provider, the findings of this study revealed
that laboratories performing the RapidChek(R) test found a 65% reduction in
overall false positives when compared to a well-recognized competitive test, and
that RapidChek(R) showed greater sensitivity and was easier to use than the
competitive brand. This foodservice provider has endorsed the use of
RapidChek(R) tests for E. coli O157 testing by its meat suppliers. Several of
these meat suppliers initiated use of RapidChek(R) in January 2003. Another
significant evaluation performed by a U.S. regulatory agency has shown that the
RapidChek(R) E. coli O157 growing media performs better than other leading
brands in either 8-hour or 24-hour methods. Based on the foregoing, the Company
expects to attract a meaningful share of the growing E. coli testing market.


                                       21
<PAGE>

In January 2003 the Company commercially launched its newest food pathogen test
to detect Salmonella in food. Salmonella testing is the most common test
performed on a wide variety of foods including meats, dairy and processed foods.
The Company's new test has several advantages over competitive methods including
a simplified preparation process that makes the test easier to perform versus
competitive brands. The product's performance standard meets all necessary
regulatory requirements. The Company has submitted the Salmonella test for third
party validation by the American Organization of Analytical Chemists Research
Institute (AOAC) and plans are currently underway for key evaluations with major
food companies and laboratories. The Company expects to complete a licensing
agreement of a lateral flow reading instrument to read and record test results
from all of its lateral flow tests, including the lateral flow test used to
detect Salmonella.

In February 2003 the Company released its screening test for the detection of
meat and bone meal in animal feed, which is linked to the transmission of BSE,
commonly known as mad cow disease. This test, known as FeedCheck(TM), was
designed in a lateral flow format to be more sensitive and easier to use than
other rapid, on-site methods. Compared to certain competitive products, this
test does not require weighing or boiling of samples. By eliminating these
steps, the FeedCheck(TM) test is faster, easier to use and will not require
equipment such as scales and heating devices. The method for animal feed has
been designed with multiple tests per strip to address the various analytical
requirements throughout the world. The FeedCheck(TM) product has been shown to
detect as little as 0.1% bovine meat-and-bone meal in feed. These product
features are important to comply with customer specifications and governmental
regulations throughout the U.S., Europe and Japan. The test was developed in
collaboration with Molecular Circuitry, Inc. and sponsored by McDonald's
Corporation. Additionally, the Company's research and product development
efforts are continuing toward the completion of new products, including tests
for the food pathogen listeria.

Contract and other revenue declined as the Company continued to place greater
emphasis on devoting its research and development resources on internal
projects, particularly in the food safety category.

Antibody segment revenues declined slightly in 2002 as the Company completed the
consolidation of its San Diego, California, operations into a single site at its
Maine location during 2002. Several new or expanded relationships were
established during 2002 as customers and prospects had the opportunity to
validate manufacturing and quality procedures at the expanded manufacturing
facilities in Maine. The Company believes that these relationships will develop
into increasing sales, as the antibody division earns additional projects under
these relationships. The Company's project to develop a point-of-treatment
diagnostic test for Bayer's new product Repinotan(TM) is continuing, with
Bayer's Phase III clinical trials expected to be completed during 2003.

Operating Expenses: Operating expenses decreased $1.8 million or 7% in 2002, due
primarily to lower manufacturing expenses, as a result of lower StarLink(R)
related sales volume in 2002. Gross profits (total revenues less manufacturing
costs) decreased $3.4 million or 23% to $11.4 million and gross margins declined
to 48.1% in 2002 from 50.6% in 2001. The decline in gross margins is primarily
attributable to the fact that the Company's utilization of its manufacturing
capacity was reduced as compared to 2001, a result of lower sales volume during
2002, resulting primarily from reduced StarLink(R) related sales. The Company
instituted several initiatives late in the fourth quarter 2002 and early in the
first quarter 2003 to leverage its manufacturing capacity and improve its
production yields. One such effort is the elimination of separate test kit and
antibody business units, resulting in a single manufacturing organization. With
a single manufacturing organization, the Company believes it will be able to
increase the productivity of its staff and reduce the administrative duties
through a flatter organizational structure. Gross margins are expected to
improve in 2003, when the benefits of the Company's efficiency initiatives are
realized, and several new products in the food safety category are expected to
be introduced to the market. In addition, the Company will have the full year
affect of the expense savings from the consolidation of the antibody operation
in Maine.



                                       22
<PAGE>

Research and development expenses increased $344,000 or 12%, primarily due to
continued investment in the animal feed test and the lateral flow food pathogen
tests. These expenses will remain about the same in 2003 as the Company
continues the development and introduction of new food safety products.

Selling, general and administrative expenses were approximately the same in the
year 2002 as in 2001. These expenses are expected to decline in 2003 as the
Company has stepped-up its efforts to streamline its operations, including
creating a single sales and marketing organization, which had previously been
organized in three distinct teams in the water quality, food safety and antibody
product categories. The Company believes that its new sales organization
structure is more efficient and will be more effective in addressing all of the
Company's market opportunities.

Other income: In 2002, the Company sold most of the remaining assets of its
antibody production facility near San Diego, California. The Company recorded a
gain on sale of $131,000, which represents the amount the Company received above
the carrying value of the assets sold. Also during 2002, the Company reached an
agreement with its insurance carrier in settlement of costs related to a
building fire on its Maine property. The Company recorded a gain on disposal of
$243,000, which represents the amount the Company received above its investment
in the assets destroyed.

Interest expense net: Net interest expense increased $17,000 or 52%, due to the
lower levels of interest income associated with lower levels of invested cash
throughout 2002 versus 2001.

Income taxes: Income tax expense decreased $1.4 million, largely due to the
pre-tax loss recorded in 2002. The Company's annual effective tax rate benefit
of 49.6% for 2002 primarily reflects the federal statutory rate of 34%, state
taxes, net of federal benefit of 6.5% and research and development credits of
6.0%.

Net Income: Net income decreased $2.0 million in 2002 when compared to 2001 for
the reasons described above, in particular the decline in gross profits of $3.4
million which resulted primarily from lower revenues, principally related to the
decrease in StarLink(R) related sales. The decline in gross profits was
partially offset by other income of $374,000 and the income tax benefit of
$898,000.

                                       23
<PAGE>


Year ended December 31, 2001 versus year ended December 31, 2000

Revenues: Net revenues increased $3.5 million or 14% in 2001 over 2000. The
following table sets out revenues by business segment and market category.


                                       (in thousands)
                                  Year Ended
                             -----------------------  Increase      Percent
                               2001        2000      (Decrease)     Change
------------------------------------------------------------------------------
Kit segment
    Water quality               $ 6,534     $ 4,908       $ 1,626       33.1%
    Food safety                  11,380       9,216         2,164       23.5%
    Contract and other              874       1,100          (226)     -20.6%
                             -------------------------------------------------
      Total kit revenues         18,788      15,224         3,564       23.4%
Antibody segment                 10,583      10,650           (67)      -0.6%
                             -------------------------------------------------
Total net revenues             $ 29,371    $ 25,874       $ 3,497       13.5%
                             =================================================

Water quality revenue growth was primarily attributable to strong demand since
the events of September 11, 2001 for the Company's general screening test for
chemical toxicity, Microtox(R), which was acquired during 2001 in connection
with the acquisition of AZUR Environmental. In the period from September 11,
2001 through December 31, 2001, the Company sold approximately 40 Microtox(R)
units primarily to the drinking water industry as a means to detect the presence
of toxic concentrations of chemicals in water supplies. Revenues from the sale
of these units and their attendant consumables were approximately $1.3 million
during the September 11, 2001 through December 31, 2001 period. Food safety
revenue growth is primarily due to increased sales of tests to detect GMOs in
plants, seeds, grain and intermediate food products including tests to detect
StarLink(R) in corn. Antibody revenue declined slightly in 2001 as the Company
began consolidating its operations into a single site at its Maine location
during 2001. Contract and other revenue declined as the Company continued to
place greater emphasis on devoting its research and development resources on
internal projects particularly in the food safety category.

Operating Expenses: Operating expenses increased $4.2 million, or 18%, in 2001.
This increase included additional costs of the consolidation of the California
and Maine facilities of $716,000, test kit inventory adjustments of
approximately $242,000 and $100,000 of costs for a retainer and fees. The
consolidation expenses include relocation, moving, startup and severance
expenses incurred in connection with the winding down of antibody production
facilities in California and the startup of combined operations at its Windham,
Maine facilities. Of these expenses, approximately $316,000 were related to
manufacturing expenses associated with the closing and startup of the antibody
facilities and the balance were selling, general and administrative expenses
primarily associated with the relocation to Windham, Maine. The inventory
adjustments resulted from a computational and procedural error that resulted in
higher inventory values. These items were identified as the Company completed
its accounting for the fiscal year. To correct this error, inventory was reduced
by $242,000 and manufacturing expenses were increased by $242,000. The retainer
and related fees relates to an engagement of an investment bank to explore
strategic alternatives. This engagement commenced in July 2001 for a one-year
term. Operating expenses before the items described above increased $3.1 million
or 13% to $26.7 million as described below.

Manufacturing expenses increased $3.2 million, or 29%, to $14.5 million. After
the effect of the $316,000 adjustment for the Maine consolidation and the
$242,000 inventory adjustment described above, manufacturing expenses increased
$2.7 million, or 24%, from the year earlier period. This increase is primarily
attributable to increased sales in 2001 and the increased costs attendant to the
consolidation of the antibody facilities, which required the Company to run
certain duplicative operations to facilitate the transition. Gross profits
(total revenues less manufacturing costs) increased $272,000, or 2%, to $14.9
million and gross margins declined to 50.6% in 2001 from 56.4% in 2000. After
giving effect to the adjustments in 2001 described above, gross profits
increased $830,000, or 5.7%, and gross margins declined to 52.5% in 2001 from
56.4% in 2000. The decline in gross margins is attributable to the increased
costs of production during the transition of the antibody manufacturing
facilities from California to Maine as described above, and lower selling prices
for certain products in the food safety category at substantially higher volumes
in 2001.

                                       24
<PAGE>

Research and development expenses were approximately the same in the year 2001
as in 2000. Selling, general and administrative expenses increased $957,000, or
10%, to $10.3 million. After adjusting for $400,000 in costs related to the
Maine consolidation and $100,000 in costs for a retainer and fees related to the
engagement of an investment bank as described above, selling, general and
administrative expenses increased $457,000, or 5%. This increase is primarily
attributable to the general increase in business activity.

Interest expense net: Net interest expense decreased $382,000, or 92%, due to
the lower levels of debt carried throughout 2001 versus 2000.

Income taxes: Income tax expense decreased $130,000, largely due to reduced
pre-tax earnings. In 2001, the Company recorded a favorable adjustment to income
tax of $79,000 compared to a $220,000 favorable adjustment recorded in 2000.
These adjustments reflect the increased utilization of the Company's net
operating loss carry-forwards and research and development tax credits. The
Company's annual effective tax rate rose slightly after the effect of these
adjustments to 31% of pre-tax earnings in 2001 from the 29% rate recorded in
2000.

Net Income: Net income decreased $422,000, or 27%, in the year 2001 when
compared to the year 2000 for the reasons described above, in particular the
additional costs of the consolidation of the California and Maine facilities of
$716,000, $242,000 in inventory adjustments and $100,000 in costs for a retainer
and fees related to the engagement of an investment bank. These additional costs
were partially offset by a $79,000 favorable tax adjustment. The net after tax
effect of these items was $651,000. When taking into account these items, net
income rose $229,000, or 15%, in 2001 to $1.8 million from the $1.5 million
recorded in 2000.

Liquidity and Capital Resources

The following is a summary of selected cash flow information:



                                                        Year Ended December 31,
                                                      --------------------------
                                                            2002        2001
                                                      --------------------------

 Net cash provided by (used in) operating activities         (762)      2,762

 Net cash used in investing activities                       (104)     (1,677)

 Net cash provided by financing activities                    585           6
                                                         --------------------
 Net increase (decrease) in cash and cash equivalents        (281)      1,091
                                                         ====================

Net cash used in operating activities of $762,000 for 2002 was primarily the
result of the net loss for the period of $912,000. The cash provided by
operating activities of $2.8 million in 2001 was primarily driven by the net
income for the period of $1.1 million and the net adjustments to reconcile net
income to net cash provided by operating activities, primarily depreciation and
amortization of $927,000 and deferred income taxes of $425,000.

Net cash used in investing activities of $104,000 for 2002 was driven by the
capital expenditures for the period of $1.0 million, which was offset by
proceeds from the sale and disposal of assets of $956,000. This compares to net
cash used in investing activities of $1.7 million in 2001, which was primarily
attributable to capital expenditures of $1.8 million for the 2001 period. The
capital expenditures for both periods were primarily related to building
construction and improvements due to the consolidation of the Company's San
Diego, California, operations into a single site at its Maine location.

                                       25
<PAGE>

Net cash provided by financing activities of $585,000 for 2002 was primarily
driven by proceeds from the sale of $1.5 million of the Company's common stock
to outside directors, which was partially offset by $1.1 million in net
repayments of outstanding debt.

The Company's working capital, current assets less current liabilities,
increased $552,000 to $12.5 million at December 31, 2002 from $11.9 million at
December 31, 2001. This increase was primarily attributable to decreases in the
Company's current portion of long-term debt of $1.1 million, which was partially
offset by decreases in accounts receivable and inventory accounts when compared
to the prior year. Outstanding debt decreased $1.1 million from $2.5 million at
December 31, 2001 to $1.4 million on December 31, 2002.

On May 5, 2000, the Company entered into a financing agreement with a commercial
bank. This agreement provides for a $4 million term loan, all of which had been
paid on or before December 31, 2002, and for up to a $5 million revolving line
of credit, none of which was outstanding and approximately $2.2 million of which
was available at December 31, 2002. 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, of which approximately $1.4 million was outstanding
at December 31, 2002, and is repayable over seven years, with principal payments
beginning on October 1, 2002. Under the terms of the financings, the Company is
required to meet certain quarterly financial covenants. The Company was in
breach of certain of the these financial covenants for all four quarters during
2002, and has received a waiver and suspension of these loan covenants for all
four quarters of 2002. Also, the loan covenants have been modified to a quick
ratio and tangible net worth ratio for the first three quarters of 2003.
Beginning with the fourth quarter of 2003, the original provisions of the loan
agreement regarding financial covenants will be operative, namely a ratio of
EBITDA to current maturities of debt plus interest and cash paid for taxes and a
ratio of funded debt to EBITDA. The Company expects that it will be able to meet
all of its financial covenants with respect to this indebtedness.

For the year ended December 31, 2002, the Company satisfied all of its cash
requirements from cash available and on-hand, the sale of approximately $1.5
million of common stock to the Company's outside directors and from the
financing agreements described above. At December 31, 2002, the Company had $1.2
million in long-term debt and stockholders' equity of $30.1 million. At December
31, 2002, the Company had no material commitments for capital expenditures.

Contractual Obligations

The Company is committed to making cash payments in the future on two types of
contracts: our long-term indebtedness and leases. The Company has no off-balance
sheet debt or other such unrecorded obligations. Below is a schedule of the
future payments that the Company was obligated to make based on agreements in
place as of December 31, 2002.

                                       26
<PAGE>

                                           (in thousands)
                                         Payments Due by Year
                                                                       2007 and
                            Total    2003     2004      2005     2006   Beyond
-------------------------------------------------------------------------------

Long-term debt (1)        $ 1,423     211      211       211      211      579
Operating leases (2)      $ 2,166     554      375       384      358      495

-------------------------------------------------------------------------------
Total contractual
cash obligations          $ 3,589     765      586       595      569    1,074
===============================================================================

(1)  See discussion in Note 7 of the Notes to the Consolidated Financial
     Statements for additional information on long-term debt.

(2)  See discussion of operating leases in Note 10 of the Notes to the
     Consolidated Financial Statements.

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 the foreseeable
future. 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 program, 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's 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.

Accounting Standards

Critical Accounting Policies - The Company's accounting policies are described
in Note 2 of the Notes to the Consolidated Financial Statements. The
Consolidated Financial Statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which require the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the year. On an on-going basis, the Company evaluates its
estimates, including those related to bad debts, inventories, deferred taxes,
long-lived assets and contingencies. The Company bases its estimates on
historical experience and on various other assumptions that the Company believes
are reasonable under the circumstances. The results form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from those
estimates. The Company considers the following policies to be most critical in
understanding the judgments that are involved in preparing the Consolidated
Financial Statements and the uncertainties that could impact the consolidated
results of operations, financial condition and cash flows.

Valuation of Accounts Receivable - Accounts receivable as of December 31, 2002
and December 31, 2001, were net of an allowance for doubtful accounts of
$294,000 and $215,000, respectively. The recorded allowance is continually
evaluated based on current market conditions, an analysis of customer-specific
facts and circumstances, and the size and composition of the overall portfolio.
If receivables become uncollectible, these write-offs are charged against the
allowance.

Valuation of Inventories - Inventories, which consist primarily of test kit
components, bulk antibody serum and antibody products are valued at the lower of
cost or market. Cost is determined using the first in, first out method.
Realization of inventories is dependent upon the successful marketing of our
products. Judgments are made regarding the carrying value of inventory based on
current market conditions. Market conditions may change depending upon
competitive product introductions and customer demand. If market conditions
change or if the introduction of new products by the Company impacts the market
for previously released products, the Company may be required to write-down the
cost of its inventory.

                                       27
<PAGE>

Deferred Taxes - In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the period in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon historical taxable income and projections for future
taxable income over the periods in which the deferred tax items are deductible,
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowances at December 31, 2002. At December 31, 2002, management has concluded
that a full valuation allowance is necessary for deferred tax assets in certain
state jurisdictions and the entire balance of foreign deferred tax assets.

Revenue Recognition - Product related sales are composed of the sale of
immunoassay and bioluminescence-based test kits and the sale of antibodies and
immunochemical reagents. The sale of all immunoassay and bioluminescence-based
test kits, bulk antibodies and immunochemical reagents are recognized upon the
shipment of the product and transfer of title or when related services are
provided. For the twelve months ended December 31, 2002, 2001 and 2000 these
sales represented 78%, 90% and 87% of total Company revenues, respectively.

Sales of monoclonal and polyclonal antibodies under customer contracts and
purchase orders are recognized under the percentage of completion method and are
recorded based on the percentage of costs or time incurred through the reporting
date versus the estimate for the complete contract or project. The Company
recognizes revenues in this manner as production of these types of antibodies
generally takes between two and twelve months to complete and costs are incurred
throughout the production process. For the twelve months ended December 31,
2002, 2001 and 2000 these sales represented 20%, 7% and 9% of total Company
revenues, respectively.

Contract revenues are recognized upon the completion of contractual milestones.
For the twelve months ended December 31, 2002, 2001 and 2000 these sales
represented 2%, 3% and 4% of total Company revenues.

Valuation of Long-Lived Assets - Long-lived assets, such as property, plant, and
equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to its estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Goodwill and intangible
assets not subject to amortization are tested annually for impairment, and are
tested for impairment more frequently if events and circumstances indicate that
the asset might be impaired. An impairment loss is recognized to the extent that
the carrying amount exceeds the asset's fair value.

New Accounting Standards and Disclosures

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires an asset retirement obligation to be
recorded at fair value during the period incurred and an equal amount recorded
as an increase in the value of the related long-lived asset. The capitalized
cost is depreciated over the useful life of the asset and the obligation is
accreted to its present value each period. SFAS No. 143 is effective for the
Company beginning January 1, 2003. The Company does not expect the adoption of
SFAS No. 143 to have an impact on its financial position or results of
operations.

                                       28
<PAGE>

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." SFAS No. 146 addresses significant issues regarding the
recognition, measurement and reporting of costs associated with exit and
disposal activities, including restructuring activities. SFAS No. 146 also
addresses recognition of certain costs related to terminating a contract that is
not a capital lease, costs to consolidate facilities or relocate employees and
termination of benefits provided to employees that are involuntarily terminated
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred compensation contract. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The Company does not expect the adoption of SFAS No. 146 will have a
material impact on its financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others," an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial statements. The
disclosure requirements are effective for financial statements of interim and
annual periods ending after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.

For further information related to new accounting standards and disclosures, see
Note 2 of the Notes to Consolidated Financial Statements.


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has exposure to changing interest rates, and is currently not
engaged in hedging activities. Interest on approximately $1.4 million 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 year. At the
Company's current level of indebtedness, each 1% change in the variable interest
rate will have an effect of $14,000 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.

                                       29
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and supplemental quarterly
financial data of the Company and its subsidiaries are included as part of this
Form 10-K:

<TABLE>
<CAPTION>

                                                                                            Page

<S>                                                                                       <C>
Independent Auditors' Report ................................................................F-1

Consolidated Balance Sheets as of December 31, 2002 and 2001.................................F-2

Consolidated Statements of Operations for each of the years
     in the three-year period ended December 31, 2002........................................F-3

Consolidated Statements of Stockholders' Equity and Comprehensive Income
     for each of the years in the three-year period ended December 31, 2002..................F-4

Consolidated Statements of Cash Flows for each of the years
     in the three-year period ended December 31, 2002........................................F-5

Notes to Consolidated Financial Statements...................................................F-6

Quarterly Financial Data (unaudited).........................................................F-22

</TABLE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

No information to report.

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information contained under the caption "Election of a Class of Directors"
and the information contained under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Definitive Proxy Statement is
incorporated herein by reference.

The executive officers of the Company, their positions with the Company, their
ages and a brief biography for each are as follows:

    Name                       Age    Position
    ----                       ---    --------
    Richard C. Birkmeyer       49     President and Chief Executive Officer
    Arthur A. Koch, Jr.        49     VP - Chief Operating Officer
    Stanley J. Musial          42     VP - Finance and Chief Financial Officer
    Martha C. Reider           48     VP - Quality Assurance/Human Resources
    James W. Stave, Ph.D.      48     VP - Research and Development
    James J. Donovan           42     VP - Sales and Marketing




                                       30
<PAGE>

Richard C. Birkmeyer, age 49, cofounded SDI in 1990 and has served as its
President and Chief Executive Officer and a director since its inception. Prior
to founding SDI, Mr. Birkmeyer was employed by E.I. du Pont de Nemours
("DuPont") from 1983 to 1990, where he most recently served as Product Manager.
Mr. Birkmeyer received a Ph.D. in Biochemistry/Immunology from the State
University of New York at Binghamton and his BS in Biology from the State
University of New York at Plattsburgh. In addition, Mr. Birkmeyer completed
post-doctoral research in immunogenetics at Iowa State University.

Arthur A. Koch, Jr., age 49, joined the Company in April 1997 as Vice President
- Finance and Chief Financial Officer. In October 1998, Mr. Koch was appointed
the Company's Chief Operating Officer. Prior to joining the Company, Mr. Koch
was Vice President and Chief Financial Officer of Paracelsian, Inc., a publicly
held biotechnology company. From 1992 to 1995, Mr. Koch was Vice President and
Chief Financial Officer of IBAH, Inc., a publicly held contract clinical
research corporation. Mr. Koch received a BA in Business Administration from
Temple University and is a Certified Public Accountant.

Stanley J. Musial, age 42, joined the Company in November 2002 as Vice
President-Finance and Chief Financial Officer. Prior to joining SDI, Mr. Musial
was Senior Vice President, Finance and Chief Financial Officer for Continuum
Healthcare, Inc., a venture capital backed specialty healthcare company, and
previously held senior financial management positions with Orthovita, Inc., a
publicly-held orthopedic biotechnology company, Occupational Health Resources,
Inc., a venture capital backed physician practice management company, Surgical
Laser Technologies, Inc., a publicly-held laser surgery company, Environmental
Control Group, Inc., a publicly-held environmental services company, and began
his career as an Audit Manager with KPMG LLP. Mr. Musial holds a MBA in Finance
from Temple University, a B.S. degree in Accounting from The Pennsylvania State
University, and is a Certified Public Accountant.

Martha C. Reider, age 48, co-founded SDI in 1990 and served as Vice President -
Manufacturing and Secretary from its inception through 1998. In 1998 Ms. Reider
was appointed Vice President Quality Assurance/Human Resources. Ms. Reider
continues to serve as the Corporate Secretary. From inception to December 30,
1996, Ms. Reider was a director of SDI. Prior to founding SDI, Ms. Reider worked
for DuPont from 1976 to 1990 where she most recently served as supervisor of
Quality Control and Quality Assurance. Ms. Reider received her BA in Biological
Sciences from Ohio Northern University.

James W. Stave, age 48, joined SDI in March 1991 as a research group leader.
Subsequently, Dr. Stave was promoted to director of Research and Development. In
October 1993, Dr. Stave was promoted to Vice President - Research and
Development. Prior to joining SDI, Dr. Stave worked for DuPont, Molecular
Genetics, Inc. and the U.S. Department of Agriculture. Dr. Stave received his
Ph.D. in Microbiology from the University of Maryland and his B.S. in Biology
from Michigan Technological University.

James J. Donovan, age 42, joined SDI in December 1996 as a regional sales
manager for the water quality business unit. He was appointed Vice President -
Sales and Marketing in October 2001. Prior to joining SDI, Mr. Donovan was
regional sales manager at Ohmicron Environmental Diagnostics Company, which was
acquired by SDI in 1996. From 1980-1992, Mr. Donovan was business development
manager at Quantix Systems Inc., formerly Agri-Diagnostics Associates, a
producer of agricultural diagnostic tests. Mr. Donovan received his BS in
Packaging Management from the Rochester Institute of Technology.



                                       31
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

The information contained under the caption "Executive Compensation" in the
Company's Definitive Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the caption "Stock Ownership of Principal
Stockholders and Management" in the Company's Definitive Proxy Statement is
incorporated herein by reference.

Equity Compensation

The table below presents certain information concerning securities issuable in
connection with equity compensation plans that have been approved by the
Company's shareholders and that have not been approved by the Company's
shareholders.
<TABLE>
<CAPTION>

                                                                                                         Number of securities
                                                                                                        remaining available for
                                                Number of securities to          Weighted-average        issuance under equity
                                                be issued upon exercise         exercise price of         compensation plans
                                                of outstanding options,        outstanding options,      (excluding securities
            Plan Category                         warrants and rights          warrants and rights      reflected in column a)
-------------------------------------------- ------------------------------  ------------------------- --------------------------
<S>                                             <C>                          <C>                          <C>
Equity compensation plans
    approved by security
    holders .............................              1,941,681                      $3.34                     345,198

Equity compensation plans
    not approved by
    security holders.....................                     -                           -                           -
                                                       ---------                      -----                     -------
                                      Total            1,941,681                      $3.34                     345,198

</TABLE>



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained under the caption "Related Transactions" in the
Company's Definitive Proxy Statement is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this report, that the Company's disclosure controls and procedures have
functioned effectively so as to provide those officers the information necessary
to evaluate whether:

         (i) this report contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report, and

         (ii) the financial statements and other financial information included
in this report fairly present, in all material respects, the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report.

There have been no significant changes in the Company's internal controls or
other procedures since the date of the Chief Executive Officer's and the Chief
Financial Officer's evaluation that could significantly affect these internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                       32
<PAGE>

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained under the caption "Other Matters - Independent
Auditors" in the Company's Definitive Proxy Statement is incorporated herein by
reference.


                                     PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.   Financial Statements

    See the Consolidated Financial Statements which begin on page F-1 of this
Report.

     2.  Financial Statement Schedules

Financial statement schedules are omitted because they are either not required
or not applicable or the required information is reflected in the financial
statements or notes thereto.

     3.  Exhibits

<TABLE>
<CAPTION>
                                                                                                   Previous
Exhibit                                                                                            Exhibit
Number                                                                                             Number
------                                                                                             ------
<S>      <C>                                                                                    <C>        <C>

2.1      Agreement and Plan of Merger among the Company, AZUR Acquisition Corp.
         and AZUR Environmental dated May 4, 2001.                                              (1)

3.1      Fourth Amended and Restated Certificate of Incorporation of the Company                (2)        4.1

3.2      Certificate of Powers, Designations, Preferences and Rights of the Series C
         Convertible Preferred Stock of the Company filed with the Secretary of the
         State of Delaware on September 27, 2001.                                               (1)

3.3      Amended and Restated Bylaws of the Company                                             (2)        4.2

4.1      Reference is made to Exhibits 3.1, 3.2 and 3.3

4.2      Forms of Warrants to Purchase Common Stock of the Company                              (2)        4.4

10.1     Stock Purchase Agreement among the Company and its outside directors
         and certain of their affiliates dated August 16, 2002.                                (12)

10.2     Demand Registration Agreement among the Company and its outside
         directors and certain of their affiliates dated August 16, 2002.                      (12)

10.3     EnSys Environmental Products, Inc. 1993 Stock Incentive Plan*                          (3)       10.17

10.4     Amended and Restated EnSys Environmental Products, Inc. 1995
         Stock Incentive Plan*                                                                  (4)
</TABLE>


                                       33
<PAGE>
<TABLE>
<CAPTION>
                                                                                                   Previous
Exhibit                                                                                            Exhibit
Number                                                                                             Number
------                                                                                             ------
<S>      <C>                                                                                    <C>        <C>

10.5     EnSys Environmental Products, Inc. 401(k) Plan Adoption Agreement                      (3)        10.18

10.11    Agreement and Plan of Merger by and between EnSys and Strategic
         Diagnostics Inc. dated as of October 11, 1996                                          (2)        2.1

10.14    Employment Agreement dated December 30, 1996 by and between
         Richard C. Birkmeyer and the Company*                                                  (7)        10.14

10.15    Employment Agreement dated December 30, 1996 by and between
         Grover C.Wrenn and the Company*                                                        (7)        10.15

10.16    Registration Rights Agreement dated December 30, 1996 between
         the Company and the stockholders listed therein                                        (7)        10.16

10.18    Industrial Lease dated October 26, 1993, by and between Tober &
         Agnew Properties, Inc. and Strategic Diagnostics Incorporated                          (6)        10.18

10.21    Lease agreement dated October 29, 1997 by and between Pencader
         Courtyard, L.P. and Strategic Diagnostics Inc.                                         (7)        10.21

10.22    1998 Employee Stock Purchase Plan                                                      (11)

10.23    Asset Purchase Agreeement dated as of May 11, 1999 by and among
         Strategic Diagnostics Inc., DiaSorin Inc., a Delaware corporation and
         Atlantic Antibodies, Inc., a Delaware corporation                                      (8)        2.1

10.25    Stock Purchase Agreement dated as of February 26, 1999 by and among
         Strategic Diagnostics Inc. and Robert J. Harman, Michael M. Dale,
         Eric S. Bean and Sean Boyd                                                             (9)        2.1

10.27    Loan Agreement between the Company and PNC Bank, Delaware,
         dated May 5, 2000                                                                      (10)       10.1

10.28    Line of Credit Note between the Company and PNC Bank, Delaware,
         dated May 5, 2000                                                                      (10)       10.2

10.29    Term Note between the Company and PNC Bank, Delaware,
         dated May 5, 2000                                                                      (10)       10.3

21.1     Subsidiaries of the Company

23.1     Consent of KPMG LLP

99.1     Certification of Richard C. Birkmeyer pursuant to 18 U.S.C. Section
         1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

99.2     Certification of Stanley J. Musial pursuant to 18 U.S.C. Section 1350,
         as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
</TABLE>

(1)  Incorporated by reference to the designated exhibit of the Company's 10-Q
     for the fiscal quarter ended September 30, 2001

(2)  Incorporated by reference to the designated exhibit of the EnSys
     Registration Statement on Form S-4 (No. 333-17505) filed on December 9,
     1996.



                                       34
<PAGE>

(3)  Incorporated by reference to the designated exhibit of the EnSys
     Registration Statement on Form S-1 ( No. 33-68440) filed on September 3,
     1993.

(4)  Incorporated by reference to Appendix F to the Joint Proxy
     Statement/Prospectus contained in the EnSys Registration Statement on Form
     S-4 (No. 333-17505) filed on December 9, 1996.

(5)  Incorporated by reference to the designated exhibit of the EnSys Form 10-K
     for the fiscal year ended December 31, 1994.

(6)  Incorporated by reference to the designated exhibit of the EnSys Form 10-Q
     for the fiscal quarter ended March 31, 1996.

(7)  Incorporated by reference to the designated exhibit of the Company's Form
     10-K for the fiscal year ended December 31, 1996.

(8)  Incorporated by reference to the designated exhibit of the Company's Form
     10-K for the fiscal year ended December 31, 1997.

(9)  Incorporated by reference to the identically numbered exhibit contained in
     the Company's Form 8-K filed on May 26, 1999

(10) Incorporated by reference to the identically numbered exhibit contained in
     the Company's Form 8-K filed on March 15, 1999

(11) Incorporated by reference to the designated exhibit of the Company's
     Registration Statement on Form S-8 (No. 333-68107) filed on
     November 30, 1998

(12) Incorporated by reference to the designated exhibit of the Company's 10-Q
     for the fiscal quarter ended September 30, 2002

*Management contract or compensatory plan.

(b)  Reports on Form 8-K

On November 8, 2002, the Company filed a report on Form 8-K pursuant to Item 7
and Item 9 announcing the Company's third quarter results of operations.




                                       35
<PAGE>




                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
Strategic Diagnostics Inc.:

We have audited the accompanying consolidated balance sheets of Strategic
Diagnostics Inc. and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Strategic
Diagnostics Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets."

KPMG LLP


Philadelphia, Pennsylvania
February 14, 2003

                                      F-1

<PAGE>



                   STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                                         December 31,
------------------------------------------------------------------------------------------
                                                                      2002         2001
------------------------------------------------------------------------------------------
 ASSETS
------------------------------------------------------------------------------------------
<S>                                                                   <C>         <C>
 Current Assets:
      Cash and cash equivalents                                       $  2,098    $  2,379
      Receivables, net                                                   3,956       4,737
      Inventories                                                        6,821       7,639
      Deferred taxes                                                     1,009         861
      Other current assets                                                 499         504
------------------------------------------------------------------------------------------
         Total current assets                                           14,383      16,120
------------------------------------------------------------------------------------------

 Property and equipment, net                                             4,013       4,072
 Other assets                                                               40         351
 Deferred taxes                                                          7,664       6,875
 Intangible assets, net                                                  7,066       4,716
------------------------------------------------------------------------------------------
         Total assets                                                 $ 33,166    $ 32,134
------------------------------------------------------------------------------------------
 LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------
 Current Liabilities:
      Accounts payable                                                $  1,024    $  1,620
      Accrued expenses                                                     665       1,236
      Current portion of long term debt                                    211       1,333
------------------------------------------------------------------------------------------
         Total current liabilities                                       1,900       4,189
------------------------------------------------------------------------------------------
 Long-term debt                                                          1,212       1,174
------------------------------------------------------------------------------------------
 Stockholders' Equity
      Preferred stock, $.01 par value, 20,920,648 shares authorized,
         no shares issued or outstanding                                  --          --
      Common stock, $.01 par value, 35,000,000 shares authorized,
         18,937,330 and 17,858,889 shares issued and outstanding
         at December 31, 2002 and December 31, 2001, respectively          190         178
      Additional paid-in capital                                        35,312      31,114
      Accumulated deficit                                               (5,408)     (4,496)
      Cumulative translation adjustments                                   (40)        (25)
------------------------------------------------------------------------------------------
         Total stockholders' equity                                     30,054      26,771
------------------------------------------------------------------------------------------
         Total liabilities and stockholders' equity                   $ 33,166    $ 32,134
------------------------------------------------------------------------------------------
</TABLE>

          The accompanying notes are integral part of these statements.



                                       F-2


<PAGE>


        STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
-------------------------------------------------------------------------------------------------
                                                        2002             2001            2000
-------------------------------------------------------------------------------------------------
 NET REVENUES:
-------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>             <C>
      Product related                                $     23,264    $     28,497    $     24,773
      Contract and other                                      517             874           1,101
-------------------------------------------------------------------------------------------------
         Total net revenues                                23,781          29,371          25,874
-------------------------------------------------------------------------------------------------
 OPERATING EXPENSES:
      Manufacturing                                        12,340          14,512          11,287
      Research and development                              3,298           2,954           2,932
      Selling, general and administrative                  10,277          10,290           9,333
-------------------------------------------------------------------------------------------------
         Total operating expenses                          25,915          27,756          23,552
-------------------------------------------------------------------------------------------------

         Operating income (loss)                           (2,134)          1,615           2,322

 Interest income (expense), net                               (50)            (33)           (415)

 Other income                                                 374              76             283
-------------------------------------------------------------------------------------------------

 Income (loss) before taxes                                (1,810)          1,658           2,190
-------------------------------------------------------------------------------------------------

         Income tax expense (benefit)                        (898)            512             642
-------------------------------------------------------------------------------------------------

 Net income (loss)                                           (912)          1,146           1,548
-------------------------------------------------------------------------------------------------

 Preferred stock dividends                                   --                20            --
-------------------------------------------------------------------------------------------------
 Net income (loss)
      applicable to common stockholders                      (912)          1,126           1,548
-------------------------------------------------------------------------------------------------

 Basic net income (loss) per share
      applicable to common stockholders              $      (0.05)   $       0.07    $       0.09
-------------------------------------------------------------------------------------------------

 Shares used in computing basic net income (loss)
      per share applicable to common stockholders      18,419,000      17,008,000      16,585,000
-------------------------------------------------------------------------------------------------

 Diluted net income (loss) per share
      applicable to common stockholders              $      (0.05)   $       0.06    $       0.09
-------------------------------------------------------------------------------------------------

 Shares used in computing diluted net income (loss)
      per share applicable to common stockholders      18,419,000      17,642,000      17,466,000
-------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of these statements.



                                       F-3



<PAGE>


        STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
         AND COMPREHENSIVE INCOME
              (in thousands)
<TABLE>
<CAPTION>

                                                                     Additional                 Cumulative
                                         Preferred        Common      Paid-In    Accumulated    Translation
                                           Stock          Stock       Capital      Deficit      Adjustments      Total
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>          <C>          <C>           <C>           <C>
Balance,
December 31, 1999                          $   --        $    164     $ 26,241     $ (7,170)     $    (25)     $ 19,210
-----------------------------------------------------------------------------------------------------------------------
Exercises of stock options, warrants
     and other                                 --               3          390         --            --             393
Employee stock purchase plan                   --            --             58         --            --              58
Acquisition of Envirol Product Line            --            --             43         --            --              43
Shares issued in connection with a
     marketing agreement                       --            --             72         --            --              72
Tax benefit of stock option exercises          --            --             10         --            --              10
Net and comprehensive income                   --            --           --          1,548          --           1,548
-----------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2000                              --             167       26,814       (5,622)          (25)     $ 21,334
-----------------------------------------------------------------------------------------------------------------------
Exercises of stock options, warrants
     and other                                 --               4          681         --            --             685
Employee stock purchase plan                   --            --             62         --            --              62
Shares issued in connection with
     purchase of AZUR Environmental               7          --          2,982         --            --           2,989
Conversion of Series C Preferred
     Stock to Common Stock                       (7)            7         --           --
Tax benefit of stock option exercises          --            --            575         --            --             575
Preferred stock dividend                       --            --           --            (20)         --             (20)
Net and comprehensive income                   --            --           --          1,146          --           1,146
-----------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2001                              --             178       31,114       (4,496)          (25)     $ 26,771
-----------------------------------------------------------------------------------------------------------------------
Exercises of stock options                     --               1          167         --            --             168
Employee stock purchase plan                   --               1           36         --            --              37
Sale of common stock                           --               4        1,460         --            --           1,464
Acquisition of Molecular Circuitry, Inc.       --               6        2,496         --            --           2,502
Tax benefit of stock option exercises          --            --             39         --            --              39
Net and comprehensive income                   --            --           --           (912)          (15)         (927)
-----------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2002                          $   --        $    190     $ 35,312     $ (5,408)     $    (40)     $ 30,054
=======================================================================================================================
</TABLE>

 The accompanying notes are an integral part of these statements.




                                       F-4



<PAGE>


                  STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                             Twelve Months
                                                                          Ended December 31,
--------------------------------------------------------------------------------------------------
                                                                    2002         2001       2000
--------------------------------------------------------------------------------------------------

 Cash Flows from Operating Activities:
<S>                                                               <C>         <C>         <C>
 Net income                                                       $   (912)   $  1,146    $  1,548
      Adjustments to reconcile net income to net
      cash provided by (used in) operating activities:
         Depreciation and amortization                                 891         927         903
         Deferred income taxes (benefit)                              (898)        425         594
         Other income                                                 (374)        (76)       (283)
 (Increase) decrease in:
      Receivables                                                      781         491       1,723
      Inventories                                                      818        (355)     (1,320)
      Other current assets                                               5        (239)         65
      Other assets                                                      94          15          (7)
 Increase (decrease) in:
      Accounts payable                                                (596)        965        (720)
      Accrued expenses                                                (571)       (537)        403
--------------------------------------------------------------------------------------------------
 Net cash provided by (used in) operating activities                  (762)      2,762       2,906
--------------------------------------------------------------------------------------------------

 Cash Flows from Investing Activities:
      Purchase of property and equipment                            (1,021)     (1,773)       (237)
      Proceeds from sale of land                                      --           330        --
      Proceeds from sale of intangible assets                         --          --           663
      Proceeds from sale / disposal of assets                          956        --          --
      Net cash paid in acquisition of Molecular Circuitry, Inc.        (39)       --          --
      Net cash paid in acquisition of AZUR Environmental              --          (234)       --
--------------------------------------------------------------------------------------------------
 Net cash provided by (used in) investing activities                  (104)     (1,677)        426
--------------------------------------------------------------------------------------------------

 Cash Flows from Financing Activities:
      Proceeds from exercise of stock options                          168         685         393
      Proceeds from employee stock purchase plan                        37          62          58
      Proceeds from sale of stock                                    1,464        --          --
      Proceeds from  issuance of long and short term debt            1,947         948       6,356
      Debt issuance costs                                             --          --           (41)
      Preferred dividends                                             --           (20)       --
      Repayments on financing obligations                           (3,031)     (1,669)    (11,301)
--------------------------------------------------------------------------------------------------
 Net cash provided by (used in) financing activities                   585           6      (4,535)
--------------------------------------------------------------------------------------------------

 Net increase (decrease) in Cash and Cash Equivalents                 (281)      1,091      (1,203)

 Cash and Cash Equivalents, Beginning of Year                        2,379       1,288       2,491
--------------------------------------------------------------------------------------------------

 Cash and Cash Equivalents, End of Year                           $  2,098    $  2,379    $  1,288
--------------------------------------------------------------------------------------------------

 Supplemental Cash Flow Disclosure:

      Cash paid for taxes                                                3         230         122

      Cash paid for interest                                            89         165         409
--------------------------------------------------------------------------------------------------

 Non-cash investing and financing activity:

      Common stock issued for the purchase of
      Molecular Circuitry Inc.                                    $  2,502    $   --      $   --

      Series C Preferred Stock issued (subsequently converted
      to common stock) for the acquisition of AZUR Environmental      --         2,989        --

      Common stock issued for the purchase of Envirol products        --          --            43
--------------------------------------------------------------------------------------------------
</TABLE>

        The accompanying notes are an integral part of these statements




                                       F-5



<PAGE>



                   STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2002
                 (in thousands, except share and per share data)

1. BACKGROUND:

Business

Strategic Diagnostics Inc. and its subsidiaries (the "Company") develops,
manufactures and markets immunoassay and bioluminescence-based test kits for
rapid and cost-effective detection of a wide variety of substances in the food
safety and water quality markets through its Test Kit segment. Through its
Antibody segment (Strategic BioSolutions), the Company provides antibody and
immunoreagent research, development and production services.

Basis of Presentation

The historical financial statements presented herein include the consolidated
financial statements of Strategic Diagnostics Inc. and its subsidiaries. As used
herein, unless the context requires otherwise, the Company collectively refers
to the Company and its subsidiaries for the periods indicated. All significant
intercompany balances and transactions have been eliminated in consolidation.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CERTAIN BALANCE SHEET
   INFORMATION:

Accounts Receivable

As of December 31, 2002, 2001 and 2000, the allowance for doubtful accounts was
$294, $215 and $130, respectively. If receivables become uncollectable, the
Company's policy is to charge these write-offs against the allowance. The
Company continually reviews the realizability of its receivables and charges
current period earnings for the amount deemed unrealizable. Unbilled accounts
receivable result from recognizing certain revenues under the percentage of
completion method, whereby the customer is not billed until the product is
shipped. At December 31, net accounts receivable consisted of the following:

                                           2002               2001
------------------------------------- ------------------ --------------

Accounts receivable                   $      3,305       $      4,341
Unbilled accounts receivable                   651                396
------------------------------------- ------------------ --------------
                                      $      3,956       $      4,737
------------------------------------ ------------------ ---------------



                                       F-6



<PAGE>



A summary of the activity in the allowance for doubtful accounts for the years
ended December 31, 2002, 2001 and 2000 is as follows:
<TABLE>
<CAPTION>

                                                                2002          2001             2000
-------------------------------------------------------------------------------------------------------
Balance, January 1                                           $     215      $      130      $      214
-------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>
Additions - charged to costs and expenses                          196              71               -
Additions - reserves acquired in business combinations              40              23               -
Deductions - reductions to reserve and expense                      -                -             (42)
Deductions - written off as uncollectable                         (157)             (9)            (42)
-------------------------------------------------------------------------------------------------------

Balance, December 31                                         $     294      $      215      $      130
-------------------------------------------------------------------------------------------------------
</TABLE>


Inventories

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

                                             2002            2001
-------------------------------------- --------------- -------------
Raw materials                            $    2,969     $    3,030
Work in progress                                911          1,398
Finished goods                                2,941          3,211
-------------------------------------- --------------- -------------
Net inventories                          $    6,821     $    7,639
-------------------------------------- --------------- -------------

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives
(generally three to five years) of the assets. Leasehold improvements are
depreciated over the shorter of the lease term or the estimated useful life.

Impairment of Long-Lived Assets

The Company adopted the provisions of FASB Statement No. 142, "Goodwill and
Other Intangible Assets," on January 1, 2002. Statement 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of Statement 142. Had the amortization provisions of
Statement 142 been in effect for all periods presented, the Company's adjusted
net income for the twelve month periods ended December 31, 2001 and 2000 would
have been $1,266 or $.07 per diluted share and $1,691 or $.10 per diluted share,
compared to the $1,126 or $.06 per diluted share and $1,548 or $.09 per diluted
share as reported, respectively.

Upon adoption, the Company was also required to reassess the useful lives and
residual values of all intangible assets with a definite life acquired in
purchase business combinations prior to June 30, 2001. No adjustments were made
to the useful lives and residual values as a result of this reassessment.

                                       F-7



<PAGE>


In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal Of
Long-Lived Assets," long-lived assets, such as property, plant, and equipment,
and purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized in the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Goodwill and intangible assets
not subject to amortization are tested annually for impairment, and are tested
for impairment more frequently if events and circumstances indicate that the
asset might be impaired. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value.

Revenue Recognition

Product related revenues are composed of the sale of immunoassay-based test kits
and the sale of certain antibodies and immunochemical reagents. For 2002, 2001
and 2000 these sales represented 78%, 90% and 87% of total Company revenues,
respectively. The sale 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.

Sales of certain antibodies and immunochemical reagents are recognized under the
percentage of completion method and are recorded based on the percentage of
costs or time incurred through the reporting date versus the estimate for the
complete contract or project. For 2002, 2001 and 2000 these sales represented
20%, 7% and 9% of total Company revenues, respectively.

Contract revenues are recognized upon the completion of contractual milestones.
For 2002, 2001 and 2000 these sales represented 2%, 3% and 4% of total Company
revenues, respectively.

Stock-Based Compensation

The Company applies the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation," an
interpretation of APB Opinion No. 25, issued in March 2000, to account for its
fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic-value-based method of accounting described above, and has adopted
only the disclosure requirements of SFAS No. 123. Under the Company's employee
share option plans, the Company grants employee and outside directors stock
options at an exercise price equal to the fair market value at the date of
grant. No compensation expense is recorded with respect to such stock option
grants. Compensation expense with respect to stock awards granted to all others
is measured based upon the fair value of such awards and is charged to expense
over the vesting period. The following table illustrates the effect on net
income and earnings per share if the fair value based method had been applied to
all outstanding and unvested awards in each period.





                                       F-8



<PAGE>
<TABLE>
<CAPTION>



                                                                           Twelve Months Ended
                                                                               December 31,
                                                                        2002       2001        2000
                                                                    --------    -------   ---------

<S>                                                                 <C>         <C>       <C>
Net income (loss), as reported                                      $   (912)   $ 1,126   $   1,548

     Add: Stock-based employee compensation expense
     included in reported net income, net of related tax effects           1         10           5

     Deduct:  Total stock-based employee compensation expense
     determined under fair value based method for all awards,
     net of related tax-effects                                         (406)      (426)       (600)
                                                                    --------    -------   ---------

Pro forma net income (loss)                                         $ (1,317)   $   710   $     953
                                                                    ========    =======   =========

Earnings (loss) per share:

Basic--as reported                                                  $  (0.05)   $  0.07   $    0.09
                                                                    ========    =======   =========

Basic--pro forma                                                    $  (0.07)   $  0.04   $    0.06
                                                                    ========    =======   =========

Diluted--as reported                                                $  (0.05)   $  0.06   $    0.09
                                                                    ========    =======   =========

Diluted--pro forma                                                  $  (0.07)   $  0.04   $    0.05
                                                                    ========    =======   =========
</TABLE>


Research and Development

Research and development costs are charged to expense as incurred. From time to
time the Company makes acquisitions, which may include in-process research and
development, which is expensed when acquired.

Accounting for Income Taxes

Deferred income tax assets and liabilities are determined based on differences
between the financial statement reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits which are not expected to be realized. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in the
period that such changes are enacted.

Basic and Diluted Income (Loss) per Share

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


                                       F-9



<PAGE>


Listed below are the basic and diluted share calculations for the years ended
December 31, 2002, 2001 and 2000.


<TABLE>
<CAPTION>
                                                                Twelve Months Ended
                                                                    December 31,
                                                         2002         2001            2000
                                                    -------------  -------------   ------------
<S>                                                    <C>            <C>            <C>
Average common shares outstanding                      18,418,660     17,007,868     16,584,579

Shares used in computing basic net income
(loss) per share                                       18,418,660     17,007,868     16,584,579
                                                    =============  =============   ============

Series C preferred stock                                        -         67,308              -

Stock options                                                   -        565,979        821,544

Warrants                                                        -          1,040         59,577
                                                    -------------  -------------   ------------
Shares used in computing diluted net income
(loss) per share                                       18,418,660     17,642,195     17,465,700
                                                    =============  =============   ============
</TABLE>

During the fourth quarter of 2001, 700,000 shares of the Company's Series C
preferred stock were automatically converted by their terms into 700,000 shares
of the Company's common stock. In 2002, the effect of approximately 547,000
equivalent shares related to stock options and warrants were excluded from the
diluted shares calculation, because they were anti-dilutive.

Foreign Currency Translation

The functional currency for the Company's United Kingdom branch operation is the
British pound. In accordance with SFAS No. 52, "Foreign Currency Translation,"
assets and liabilities related to this foreign operation are translated at the
current exchange rates at the end of each period. The resulting translation
adjustments are accumulated as a separate component of shareholders' equity.
Revenues and expenses are translated at average exchange rates in effect during
the period with foreign currency transaction gains and losses, if any, included
in results of operations.

Comprehensive Income

Comprehensive income (loss) is comprised of net income (loss) and currency
translation adjustments and is presented in the consolidated statements of
changes in stockholders' equity.

Use of Estimates

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

Statements of Cash Flows

The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.



                                      F-10



<PAGE>



New Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS No.
143 on January 1, 2003. The adoption of SFAS No. 143 is not expected to have a
material effect on the Company's financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." SFAS No. 146 addresses significant issues regarding the
recognition, measurement and reporting of costs associated with exit and
disposal activities, including restructuring activities. SFAS No. 146 also
addresses recognition of certain costs related to terminating a contract that is
not a capital lease, costs to consolidate facilities or relocate employees and
termination of benefits provided to employees that are involuntarily terminated
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred compensation contract. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. Adoption of SFAS No. 146 is not expected to have a material impact on the
financial position or results of operations of the Company in the foreseeable
future.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others," an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial statements. The
disclosure requirements are effective for financial statements of interim and
annual periods ending after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.

3. MERGERS AND ACQUISITIONS:

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

In consideration for these and other related assets, the Company issued to MCI
600,000 unregistered shares of the Company's common stock with a value of $4.17
per share or $2,502 in the aggregate, computed by averaging the closing price of
the Company's common stock for the period beginning on the two business days
before the acquisition and ending two business days after the acquisition. In
addition the Company will also pay MCI a continuing royalty for ten years on
sales of specified products and/or components of products, which will be charged
to operations if and when incurred.

                                      F-11



<PAGE>


The assets of MCI were valued by AUS Consultants Valuation Services of New
Jersey (AUS). AUS determined the value of the assets purchased to be $261 in
laboratory equipment (tangible assets) and approximately $2,280 for the
intellectual and property rights to the MCI developed Express Media, Chromagenic
Media and Ruminant Feed Test product lines (intangible assets).

The intangible assets were valued using the income approach. This method
estimates market value as the present value of future economic benefits to be
derived from the exploitation of these assets or product lines. This methodology
requires a forecast of net cash flow from each product line, an estimate of the
relative risk of achieving that income stream, and an estimate as to the
duration of the income. An economic life of twenty years was used in the above
calculations utilizing a discount rate of approximately 25%.

On September 28, 2001 the Company acquired AZUR Environmental (AZUR), a
privately held manufacturer of proprietary rapid test systems, including the
Microtox(R) toxicity test system, which measures toxicity in drinking and
process water, formerly located in Carlsbad, California. Under the terms of the
merger agreement, the Company issued 700,000 shares of Series C preferred stock,
with a fair market value of approximately $3,000 in the aggregate, as determined
by an independent valuation firm, Fleet M&A Advisors. Each preferred share was
convertible into common shares at any time at the option of the holder, and
automatically when the closing price of the Company's common stock was $6.00 or
more for a period of twenty consecutive trading days. The closing price of the
Company's common stock was $6.00 or more for each of the twenty trading days
from October 8, 2001 through and including November 2, 2001. As a result, on
November 2, 2001, the 700,000 Series C preferred shares were automatically
converted to 700,000 shares of the Company's common stock. The Series C
preferred shares also had a liquidation value of $6.00 per share and carried a
cumulative cash dividend of $.30 per share through the date of automatic
conversion.

In valuing the Series C preferred stock, Fleet M&A Advisors assumed that as
convertible securities, they represented both a nonconvertible fixed income
security and a call option on the common stock of the Company. Accordingly, the
Series C preferred stock was valued as straight preferred stock with an embedded
option on the stock of the Company. Fleet M&A Advisors performed an analysis of
comparable publicly traded securities to determine the straight preferred stock
value taking into account the fixed charge and liquidation coverage ratios for
the Company and for companies issuing comparable publicly traded straight
preferred stock. The embedded option was valued using the Black-Scholes options
pricing model. The combined values resulted in a valuation of $4.27 per share,
or approximately $3,000 in the aggregate for the Series C preferred stock.

The Company acquired certain assets of Envirol, Inc., a private company located
in Logan, Utah on May 12, 2000. Pursuant to the terms of the asset purchase
agreement, the Company acquired Envirol's TCE and PCP test kit product lines for
consideration consisting of (i) a cash payment of $35 (ii) the issuance of
10,000 shares of common stock with a fair value of $43 based on the last
reported sales price of the common stock on the closing date of the transaction,
and (iii) the payment of a continuing royalty to Envirol for ten years, at a
rate of 10% of purchased product sales for the first $125, and a rate of 4% of
purchased product sales for the remainder of the royalty term. The continuing
royalty payments are being expensed as incurred.

                                      F-12

<PAGE>


Supplemental Disclosure of Cash Flow Information:

The purchase price of AZUR Environmental and Molecular Circuitry was allocated
as follows (in thousands):

<TABLE>
<CAPTION>


AZUR Environmental                                  Molecular Circuitry, Inc.
----------------------------------------------      ----------------------------------------

<S>                                     <C>         <C>                               <C>
Cash                                  $   212       Fixed Assets                    $   261
Other Assets                            1,378       Intangible Assets                 2,280
Fixed Assets                              300       ----------------------------------------
Deferred Tax Asset                      1,100
                                                    Total fair value                $ 2,541
Goodwill                                  922       ----------------------------------------
Liabilities                              (477)
----------------------------------------------      Cash Paid-Expenses                 $ 39

Total fair value                      $ 3,435
----------------------------------------------      Common Stock Issued             $ 2,502

Cash Paid                               $ 446

Series C Preferred Stock Issued       $ 2,989


</TABLE>







4. PROPERTY AND EQUIPMENT:

As of December 31, property and equipment consisted of the following:
<TABLE>
<CAPTION>

                                                           2002         2001
-------------------------------------------------------------------------------

<S>                                                     <C>          <C>
Equipment                                               $   3,363    $   3,578
Building improvements                                       2,879        1,740
Construction in progress                                       --          544
Furniture and fixtures                                        134          166
Land                                                          360          456
Leasehold improvements                                        794          637
-------------------------------------------------------------------------------
Total property and equipment                            $   7,530        7,121

Less - accumulated depreciation and amortization           (3,517)      (3,049)
-------------------------------------------------------------------------------
Net property and equipment                              $   4,013    $   4,072
-------------------------------------------------------------------------------
</TABLE>


Depreciation expense was $790, $671 and $604 in 2002, 2001 and 2000,
respectively.



                                      F-13



<PAGE>


5. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>

                                                   2002          2001        Lives
------------------------------------------------------------ --------------------------
<S>                                            <C>            <C>
Goodwill                                       $     5,168   $    4,997          N/A
Other                                                2,730          450        5 - 20
Less - accumulated amortization                       (832)        (731)
------------------------------------------------------------ --------------------------
Net intangible assets                          $     7,066   $    4,716
------------------------------------------------------------ --------------------------
</TABLE>

Amortization of these intangible assets was $101, $256 and $299 in 2002, 2001
and 2000, respectively.

6. ACCRUED EXPENSES:

As of December 31, accrued expenses consisted of the following:

                                                       2002      2001
-----------------------------------------------------------------------
Royalties                                            $   113   $   405
Accrued compensation                                      96       452
Accrued other                                            248       269
Accrued purchases                                        208       110
-----------------------------------------------------------------------
                                                     $   665   $ 1,236
-----------------------------------------------------------------------


7. LONG-TERM DEBT:

On May 5, 2000, the Company entered into a financing agreement with a commercial
bank. This agreement provides for a $4,000 term loan, all of which had been paid
on or before December 31, 2002, and for up to a $5,000 revolving line of credit,
none of which was outstanding and approximately $2,200 of which was available at
December 31, 2002, 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 4.13% at December 31, 2002.

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 provides for up to $1,500 in financing, $1,400 of which
was outstanding at December 31, 2002, and is repayable over seven years, with
principal payments beginning on October 1, 2002. The loan bears a variable
interest rate of between 2% and 3% over LIBOR depending upon the ratio of the
Company's funded debt to EBITDA. Payments are due monthly, with equal
amortization of principal payments plus interest. The Company's annual effective
rate of interest on this loan at December 31, 2002, was approximately 4.38%.



                                      F-14
<PAGE>

Under the terms of the above financing, the Company is required to meet certain
quarterly financial covenants. The Company was in breach of certain of the these
financial covenants for all four quarters during 2002, and has received a waiver
and suspension of these loan covenants for all four quarters of 2002. The loan
covenants have been modified to a minimum quick ratio of 2.25 and a minimum
tangible net worth ratio of $22,500 for the first three quarters of 2003.
Beginning with the fourth quarter of 2003, the original provisions of the loan
agreement regarding financial covenants will be operative, namely a ratio of
EBITDA to current maturities of debt plus interest and cash paid for taxes and a
ratio of funded debt to EBITDA. The Company expects that it will be able to meet
all of its financial covenants with respect to this indebtedness.

As of December 31, 2002, the outstanding balance on all of the Company's
commercial bank debt was approximately $1,400. This indebtedness is secured by
substantially all of the Company's assets.

The following table is a schedule of the principal payments required under the
Company's long-term indebtedness:

2003                                                         $       211
2004                                                                 211
2005                                                                 211
2006                                                                 211
2007                                                                 211
2008 and beyond                                                      368
--------------------------------------------------------------------------
                                                                   1,423
Less - current portion of long-term debt obligations                (211)
--------------------------------------------------------------------------

Long-term debt                                               $     1,212
--------------------------------------------------------------------------

Interest expense was $73, $146 and $499 in 2002, 2001 and 2000 respectively.

8. STOCK OPTIONS:

The Company has two stock option plans (the "1993 Plan" and the "2000 Plan")
which authorize the granting of incentive and nonqualified stock options to
officers, key employees, directors and consultants. 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. All previously issued options were converted into the 2000
Plan. A maximum of 3,200,000 shares of common stock are issuable under the 2000
Plan.

Certain additional options have been granted outside the plans. These options
generally follow the provisions of the 2000 Plan. Information with respect to
the stock options granted under the plans and options granted separately from
the plans is summarized as follows:




                                       F-15
<PAGE>
<TABLE>
<CAPTION>


                                                                                      Aggregate
                                                   Number            Price Range       Proceeds
------------------------------------------------------------------------------------------------
Balance, December 31, 1999                        1,712,715        $0.19 -  $4.69        $3,611
------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>      <C>          <C>
Granted                                             278,000        $2.50 -  $7.63        $1,899
Cancelled                                          (115,500)       $2.31 -  $4.69         ($236)
Exercised                                          (176,575)       $0.19 -  $3.25         ($393)
------------------------------------------------------------------------------------------------
Balance, December 31, 2000                        1,698,640        $0.19 -  $7.63        $4,881
------------------------------------------------------------------------------------------------
Granted                                             463,750        $3.46 -  $6.60        $2,116
Conversion of stock options acquired                 51,033       $20.13 - $80.52        $1,107
Cancelled                                          (138,750)       $4.69 -  $6.94         ($956)
Exercised                                          (375,823)       $0.19 -  $3.96         ($685)
------------------------------------------------------------------------------------------------
Balance, December 31, 2001                        1,698,850        $0.19 - $80.52        $6,463
------------------------------------------------------------------------------------------------
Granted                                             401,000        $3.15 -  $4.26        $1,422
Cancelled                                           (81,949)       $3.46 - $80.52       ($1,236)
Exercised                                           (76,220)       $0.64 -  $4.00         ($168)
------------------------------------------------------------------------------------------------
Balance, December 31, 2002                        1,941,681        $0.19 -  $7.63        $6,481
------------------------------------------------------------------------------------------------
</TABLE>




As of December 31, 2002, options covering 1,154,494 shares were exercisable with
an aggregate exercise price of $2.78 and 345,198 shares were available for
future grant under the plans. For options granted at less than fair market
value, the Company recognizes compensation expense, which is amortized over the
vesting period of the options.

<TABLE>
<CAPTION>


                                           Options Outstanding                     Options Exercisable
                             ------------------------------------------------  ---------------------------
                                                   Weighted Average
                               Options       -------------------------------                  Wtd. Average
         Range of            Outstanding        Remaining         Exercise       Options        Exercise
     Exercise Prices          At 12/31/02     Contractual Life      Price      Exercisable       Price
--------------------------  ---------------  -----------------   -----------  ---------------  ----------
<S>                         <C>              <C>                 <C>           <C>              <C>
      $0.19  -      $0.64           58,319      1.4  Years           $ 0.41           58,319      $ 0.41
      $1.88  -      $2.63          732,362      4.0  Years           $ 2.17          724,862      $ 2.16
      $2.88  -      $4.69          899,750      8.3  Years           $ 3.55          264,438      $ 3.33
      $5.17  -      $7.63          251,250      6.8  Years           $ 6.68          106,875      $ 6.88
--------------------------  ---------------                                   ---------------
      $0.19  -      $7.63        1,941,681      6.3  Years           $ 3.34        1,154,494      $ 2.78
==========================  ===============  =================   ===========  ===============  ==========
</TABLE>


The weighted average fair value at the date of grant for options granted during
2002, 2001 and 2000 is estimated at $2.33, $3.47 and $5.65 per share,
respectively, using the Black-Scholes option-pricing model. The assumptions used
in the Black-Scholes model are as follows: dividend yield of 0%, expected
volatility of 95% in 2002, 101% in 2001 and 98% in 2000, risk-free interest rate
of 3.03% in 2002, 4.34% in 2001 and 5.75% in 2000, and an expected option life
of 5 years in 2002, 2001 and in 2000.



                                      F-16
<PAGE>


9.  SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION:

The Company has two reportable segments. The Test Kit segment develops,
manufactures and markets immunoassay-based test kits for rapid, cost-effective
detection of a wide variety of different analytes in two primary market
categories: food safety and water quality.

The Antibody Segment, Strategic BioSolutions (SBS), provides fully integrated
polyclonal and monoclonal antibody development and large scale manufacturing
services to pharmaceutical and medical diagnostic companies.

         Geographic:

                    Net Revenues              2002        2001        2000
                    -------------------- ------------ ----------- ----------
                    United States            $17,217     $22,260     $21,582
                    Rest of the World          6,564       7,111       4,292
                    -------------------- ------------ ----------- ----------
                    Total                    $23,871     $29,371     $25,874
                    -------------------- ------------ ----------- ----------

There were no individual countries outside of the United States that represented
more than 10% of the total revenues of the Company. There are no significant
long-lived assets located outside the United States.

Information about Major Customers:

In 2001, Aventis Cropscience USA L.P. accounted for 15% of the Company's
revenues. In the years 2002 and 2000, no single customer accounted for 10% or
more of the Company's revenues.

Reportable Segments:

For reporting purposes a "pro-rata" share of common costs is allocated to the
antibody segment by the test kit segment. Segment profit is based on income
before income taxes.

Due to organizational changes made in early 2003, including combining
manufacturing, sales and other functions of the two segments into one, the
Company will not be reporting segment information in the future, as the Chief
Operating Decision Maker will not have access to nor request such financial
information.




                                      F-17
<PAGE>


Segment Information:                          Test Kit    Antibody     Total

2002     Revenues                            $ 13,581    $ 10,200    $ 23,781
         Segment profit                        (2,617)        807      (1,810)
         Segment assets                        20,405      12,761      33,166
         Depreciation and amortization            507         384         891
         Capital expenditures                     165         856       1,021

2001     Revenues                            $ 18,788    $ 10,583    $ 29,371
         Segment profit                         1,614          44       1,658
         Segment assets                        19,779      12,355      32,134
         Depreciation and amortization            395         532         927
         Capital expenditures                     385       1,388       1,773

2000     Revenues                            $ 15,224    $ 10,650    $ 25,874
         Segment profit                         1,176       1,014       2,190
         Segment assets                        15,195      11,360      26,555
         Depreciation and amortization            362         541         903
         Capital expenditures                     237           -         237



10. COMMITMENTS AND CONTINGENCIES:

The Company leases its office and manufacturing facilities and other equipment
under operating leases. Rent expense for the years ended December 31, 2002, 2001
and 2000, was $823, $824 and $807, respectively. Future commitments under these
non-cancellable leases at December 31 are as follows:

             2003                                $    554
             2004                                     375
             2005                                     384
             2006                                     358
             2007                                     368
             2008 and beyond                          127
             ------------------------------ -------------
                                                 $  2,166
             ------------------------------ -------------

The Company's subsidiary, AZUR Environmental Limited, is the original lessee for
two real property leases located in the United Kingdom. In 2001, the landlord of
the two properties gave AZUR Environmental Limited its consent to allow AZUR to
assign the lease and its related obligations to a third party. As inducement to
the landlord to grant the assignment, AZUR was required to guarantee performance
under the original lease terms if the third party fails to perform. Both lease
terms expire in November 2016 and provide for annual principal rent payments of
approximately $300 in the aggregate. The Company believes that based on its
assessment of the current financial strength of the third party, no liability is
required to be recorded with regard to the guarantee or lease obligation, and no
amounts have been included in the non-cancellable lease table above.

The Company is subject to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management, after consultation with legal counsel, does not
believe that the outcome of these matters will have a material adverse effect on
the Company's financial position or results of operations.



                                       F-18



<PAGE>


11. RETIREMENT SAVINGS PLAN:

The Company maintains a retirement savings plan qualified under Section 401(k)
of the Internal Revenue Code. The plan allows for eligible employees to
contribute a portion of their gross wages to the plan. The Company matches
employees' contributions on a 50% basis up to 6% of gross wages. In 2002, 2001
and 2000, the Company recognized expense of $168, $155 and $142 respectively,
associated with this plan.

12. INCOME TAXES:

The income tax expense (benefit) consists of the following:

                                          2002        2001        2000
    ----------------------------------------------------------------------
     Federal          current         $        -    $      34   $       12
                      deferred              (720)         452          644
    ----------------------------------------------------------------------
                                                          486          656
    ----------------------------------------------------------------------
     State            current                   -          53           36
                      deferred              (178)         (27)         (50)
    ----------------------------------------------------------------------
                                                           26          (14)
    ----------------------------------------------------------------------
    Total                             $     (898)   $     512   $      642
    ======================================================================



The following table summarizes the significant differences between the U.S.
Federal statutory rate and the Company's effective tax rate for financial
statement purposes:

                                                2002          2001       2000
----------------------------------------------------- ------------------------
Statutory tax rate                           (34.0%)         34.0%      34.0%
State taxes, net of U.S. Federal benefit      (6.5%)          3.5%       5.0%
Utilization of state NOL not
   previously recorded                            -          (2.6%)        -
Utilization of foreign NOL not
   previously recorded                        (3.2%)         (2.6%)        -
Changes in net valuation reserve                  -             -      (11.2%)
Research and development credits              (6.0%)         (3.6%)        -
Other, net                                     0.1%           2.2%       1.5%
----------------------------------------------------- ------------------------
Total                                        (49.6%)         30.9%      29.3%
===================================================== ========================




                                      F-19



<PAGE>





Significant components of the Company's deferred tax assets as of December 31
are as follows:

                                              2002        2001        2000
-----------------------------------------------------------------------------
 Net operating loss carryforwards          $   9,418     $  8,640    $  5,008
 Credit carryforwards                            317          217         129
 Amortization and depreciation                 1,815        1,970       1,938
 Non-deductible reserves                          80         100          176
 Inventory costs not currently deductible        274          148         254
-----------------------------------------------------------------------------
 Total deferred tax assets                    11,904       11,075       7,505
 Valuation allowance                          (3,231)      (3,339)       (972)
-----------------------------------------------------------------------------
 Net deferred tax assets                   $   8,673     $  7,736    $  6,533
=============================================================================

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon historical
taxable income and projections for future taxable income over the periods in
which the deferred tax items are deductible, management believes it is more
likely than not that the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at December 31, 2002. At
December 31, 2002, management has concluded that a full valuation allowance is
necessary for deferred tax assets in certain state jurisdictions and the entire
balance of foreign deferred tax assets.

In the third quarter of 2001, the Company acquired AZUR Environmental and
subsidiary ("AZUR"). At the date of acquisition, the Company recorded a deferred
tax asset for AZUR of approximately $1,100 which is net of federal net operating
loss carry-forwards and credits in excess of the amount limited by federal tax
regulations and net of a valuation allowance against state and foreign deferred
tax assets. (The gross deferred tax asset was approximately $3,800, with a
valuation allowance of approximately $2,700.) At December 31, 2002, a valuation
allowance remains for the remaining state and foreign deferred tax assets.

The net operating loss carryforwards differ from the accumulated deficit,
principally due to differences in the recognition of certain research and
development expenses, depreciation and amortization, other non-deductible
reserves, the accretion of preferred stock for financial and federal income tax
reporting and limitations under federal and state tax regulations for acquired
net operating loss carry-forwards.



                                      F-20



<PAGE>




As of December 31, 2002, the Company had federal net operating loss
carryforwards, including those acquired, of approximately $17,762, which begin
to expire as follows:

                   2007                                 $ 1,242
                   2008                                   2,565
                   2009                                   5,369
                   2010                                   3,037
                   Thereafter                             5,549
                   --------------------------------------------

                   Total                                $17,762
                   --------------------------------------------

Of the total net operating loss carryforward, $15,090 is limited as to
utilization in any one period by federal tax regulations since a cumulative
change in ownership of more than 50% has occurred within a three year period
with respect to those net operating loss carryforwards.

13. SEVERANCE ACCRUAL:

In June 2001, the Company recorded $253 in expense for severance costs in
connection with the announced consolidation and expansion of its Antibody
segment. For the year ended December 31, 2002, the Company recorded an
additional $64 all of which is included in selling, general and administrative
expense in the accompanying statements of operations. The severance costs relate
to 44 employees in the Company's San Diego, California facility, all of whom
left the Company on or before July 31, 2002, as production was transferred to
the Company's Maine facility. As of December 31, 2002, all severance payments
had been made and no amounts remained in the accrual account.

14. OTHER INCOME:

In March 2002, the Company sold most of the remaining assets of its antibody
production facility near San Diego, California. The Company received proceeds of
approximately $600 for the sale of the property, which included a $300 cash
payment and a one-year note from the purchaser for the remaining $300. The note
carried an interest rate of 5% annually, and was payable in three monthly
installments of interest only payments, with the balance being paid over an
additional nine months of principal and interest payments. The note was repaid
in full in August 2002. The Company recorded a gain on sale of $131, which
represents the amount the Company received above the carrying value of the
assets sold.

In March 2002, the Company reached an agreement with its insurance carrier in
settlement of costs related to a building fire on its Maine property. The
Company has received proceeds of $359. The Company recorded a gain on disposal
of $243, which represents the amount the Company received above its investment
in the assets destroyed.



                                      F-21



<PAGE>




15. QUARTERLY FINANCIAL DATA (unaudited):



<TABLE>
<CAPTION>

                                                                Three Months Ended
-----------------------------------------------------------------------------------------------------
                                          March 31         June 30        September 30    December 31
-----------------------------------------------------------------------------------------------------
                                                      (In thousands except per share data)
2002
<S>                                       <C>              <C>              <C>             <C>
Revenues                                  $ 5,744          $ 5,576          $ 6,119         $ 6,342
Gross profit (1)                            2,456            2,553            3,214           2,701
Net income (loss)                            (373)            (547)             121            (113)
Basic earnings (loss) per share             (0.02)           (0.03)            0.01           (0.01)
Diluted earnings (loss) per share           (0.02)           (0.03)            0.01           (0.01)

2001
Revenues                                  $ 7,074          $ 7,201          $ 8,475         $ 6,621
Gross profit (1)                            3,568            3,741            4,599           2,077
Net income (loss)                             478              515              896            (743)
Basic earnings (loss) per share              0.03             0.03             0.05           (0.04)
Diluted earnings (loss) per share            0.03             0.03             0.05           (0.04)
</TABLE>

(1)  Gross profit is product revenues less manufacturing expenses.





                                     F-22



<PAGE>


                                 CERTIFICATION


I, Richard C. Birkmeyer, certify that:

1. I have reviewed this annual report on Form 10-K of Strategic Diagnostics Inc.
(the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
functions):

     (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date:    March 28, 2003             By:  /s/  Richard C. Birkmeyer
                                         --------------------------
                                         Richard C. Birkmeyer
                                         President and Chief Executive Officer


<PAGE>

                                 CERTIFICATION


I, Stanley J. Musial, certify that:

1. I have reviewed this annual report on Form 10-K of Strategic Diagnostics Inc.
(the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
functions):

     (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date:    March 28, 2003            By:   /s/  Stanley J. Musial
                                         -----------------------------------
                                         Stanley J. Musial
                                         Vice President - Finance and
                                         Chief Financial Officer

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>

                                         STRATEGIC DIAGNOSTICS INC.

<S>               <C>                    <C>
Date:             March 28, 2003         /s/  Richard C. Birkmeyer
                                         -----------------------------------
                                         Richard C. Birkmeyer
                                         President, Chief Executive Officer
                                         (Principal Executive Officer) and Director

Date:             March 28, 2003         /s/  Stanley J. Musial
                                         --------------------------------------------
                                         Stanley J. Musial
                                         Vice President - Finance and Chief Financial Officer
                                         (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Date:             March 28, 2003                     /s/  Morton Collins
                                                     ----------------------------------------
                                                     Morton Collins
                                                     Director

Date:             March 28, 2003                     /s/  Richard J. Defieux
                                                     ----------------------------------------
                                                     Richard J. Defieux
                                                     Director

Date:             March 28, 2003                     /s/  Kathleen E. Lamb
                                                     ----------------------------------------
                                                     Kathleen E. Lamb
                                                     Director

Date:             March 28, 2003                     /s/  Herbert Lotman
                                                     ----------------------------------------
                                                     Herbert Lotman
                                                     Director

Date:             March 28, 2003                     /s/  Timothy S. Ramey
                                                     ----------------------------------------
                                                     Timothy S. Ramey
                                                     Director

Date:             March 28, 2003                     /s/  Stephen L. Waechter
                                                     ----------------------------------------
                                                     Stephen L. Waechter
                                                     Director

Date:             March 28, 2003                     /s/  Grover C. Wrenn
                                                     ----------------------------------------
                                                     Grover C. Wrenn
                                                     Director

</TABLE>