<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 [FEE REQUIRED]

                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

/ /  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934 [NO FEE REQUIRED]

               For The Transition Period From _______ to  _________

                            Commission File No. 0-684401

                             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 past 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 of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  / /

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $31,400,000 as of February 23, 1998.

     As of February 23, 1998 there were 13,150,826 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 1998 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Report.



<PAGE>

<TABLE>

<S>                                                                      <C>
PART I         . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
   ITEM 1.   BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . .1
     OVERVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
     IMMUNOASSAY TECHNOLOGY. . . . . . . . . . . . . . . . . . . . . . . .1
     MARKETS AND PRODUCTS. . . . . . . . . . . . . . . . . . . . . . . . .3
     SALES AND MARKETING STRATEGY. . . . . . . . . . . . . . . . . . . . .7
     REGULATORY APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . .7
     MANUFACTURING . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
     RESEARCH AND DEVELOPMENT. . . . . . . . . . . . . . . . . . . . . . .9
     PROPRIETARY TECHNOLOGY AND PATENTS. . . . . . . . . . . . . . . . . 10
     COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
     EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
   ITEM 2.   PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . 12
   ITEM 3.   LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 12
   ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 12
   ITEM 4(a) EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . . . . 13

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

   ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 
   STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 14
   ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA. . . . . . . . . . . . 15
   ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF 
   OPERATIONS AND FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . 16
     FORWARD LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . . . 16
     OVERVIEW  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
     RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 18
     COMPARISON OF ACTUAL 1997 WITH HISTORICAL FINANCIAL INFORMATION . . 21
   ITEM 8.   FINANCIAL STATEMENTS AND SUPLEMENTARY DATA. . . . . . . . . 23
   ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
   AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . 23

PART III. . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. . . . . . . 23
   ITEM 11.  EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . 23
   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
   MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . 23

PART IV . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>


<PAGE>


                                       PART I

ITEM 1.        BUSINESS

OVERVIEW

     Strategic Diagnostics Inc. (the "Company") develops, manufactures, and
markets immunoassay-based test kits for rapid, cost effective detection of a
wide variety of different analytes in three primary market segments: water
quality, industrial testing and agricultural.  The Company is the entity
resulting from the combination of EnSys Environmental Products, Inc. ("EnSys"),
Ohmicron Corporation ("Ohmicron") and Strategic Diagnostics, Inc. ("SDI").  On
August 30, 1996, Ohmicron was merged with and into SDI.  On December 30, 1996,
SDI was merged with and into EnSys.  The surviving entity was then renamed
Strategic Diagnostics Inc.

     The Company is a recognized leader in the field of immunoassay research,
development and manufacturing and develops products in markets where the
attributes of immunoassay technology (i.e. speed, ease-of-use, cost effective,
quantitation, and flexibility), meet specific customer needs. The substances
detected by the Company's test kits and strip tests include chemicals used to
treat drinking water, proprietary chemicals used in industrial processes,
environmental contaminants, pesticides, genetically engineered traits in plants,
and diseases of commercial crops.

     The Company's kits tests for the detection of pesticides and environmental
contaminants (D TECH(-Registered Trademark-), EnviroGard-TM-, EnSys RIS-TM- and
RaPID Assay(-Registered Trademark-) are well recognized in the immunoassay field
testing market. The Company sells its environmental products through its direct
sales force in the U.S. and through distributors in Europe and the rest of the
world. The Company's "one-step" strip tests hold a lead position in the emerging
markets of analytical tests for the detection of water-soluble polymers and
specific traits of genetically engineered plants.  In addition to products
serving the three primary markets, the Company manufactures and sells select
immunoassay test kits for medical research applications including
Macra(-Registered Trademark-) Lp(a), a leading method for measuring 
lipoprotein(a) in human serum.

     In addition to developing and marketing test kits and strip tests, the 
Company provides fully integrated monoclonal antibody development and large 
scale manufacturing services to pharmaceutical and medical diagnostic 
companies through it's wholly-owned subsidiary, TSD BioServices, Inc.

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 
rapidly replaced many laboratory diagnostic tests in the medical industry.  
The speed with which immunoassays have been adopted in the medical arena has 
been driven in large part by three factors: (i) a demand for analyses which 
were otherwise unavailable through conventional methods; (ii) a desire for 
analytical methods which could yield results much more quickly than 
conventional methods; and (iii) a need for more specific and accurate data. 
Currently, immunoassays are used extensively in the medical arena to detect 
drugs of abuse, therapeutic drugs, steroid and thyroid hormones, and 
microorganisms like those causing hepatitis and AIDS.  One well-known 
application of immunoassay technology is the home pregnancy test kit. This 
test illustrates many of the benefits of immunoassay technology, namely, it 
provides an inexpensive, rapid, accurate result in an easy to use format that 
can be used in the privacy of one's own home.

     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


                                          1
<PAGE>


                  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 1 minute to 
                  several hours as compared to several days to several weeks 
                  with many competing laboratory testing methods.
     Cost:        Price per test for immunoassays range from $1 to $50; 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 response to invasion by foreign substances like 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 must 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 can also be packaged into single use, disposable formats
such as the 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, the
location the test will be performed and experience of the user.

     The Company has expertise and proprietary technology relating to the
development and manufacture of primarily five immunoassay formats: latex
filtration, magnetic particle, one-step strip tests, coated-tube and microtiter
plate. Latex 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 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 effective measurement tools
in both laboratory and certain field applications, especially where highly
precise results are required.

     Lateral flow immunoassay strips, often referred to as 'one-step' strip
tests, require only that the user apply a prepared sample to the test 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.


                                          2
<PAGE>


     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.

MARKETS AND PRODUCTS

     The Company sells products in the water quality, industrial testing and
agricultural market categories through its direct sales force, through a network
of over 40 distributors in Canada, Mexico, Latin America, Europe and Asia, and
through its corporate partners. This section describes the Company's current
markets and products as well as those in development.

     WATER QUALITY

     The Company believes that all of its products sold in this market are
unique to the Company and provide high value testing solutions to fill largely
unserviced analytical needs in this critical and highly regulated industry.  In
this arena, the Company markets established products such as those for the
detection of pesticides, as well as emerging products for the detection of
pathogenic microorganisms and toxic chemicals resulting from chlorine
disinfection of drinking water.  Also included in this market category are
products developed and others currently under development for the detection of
water treatment polymers used to clarify water and prevent scale formation.

     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. Many of these polymers are toxic and have been implicated in fish
kills when industrial effluents have been discharged to natural bodies of water.
As a result, there is increased regulatory pressure to measure the amount of
chemical being discharged into surface waters.  Polymer detection is quite
difficult and currently there is no other detection method capable of measuring
these substances at the levels at which they are used or discharged in
effluents.

     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 reliable and cost-effective way to measure water treatment
polymers in samples from municipal water supplies, boilers, cooling towers, and
other process 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 (like reverse osmosis)
by excess polymer. The Company is currently commercializing multiple tests in
this area and began shipping its first product during the third quarter of 1997.

     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.  The clean up of these sites requires the use of specific
analytical methods of pesticide detection.

     CRYPTOSPORIDIUM AND GIARDIA.  During 1994, the Company entered into an
exclusive five-year license agreement, under which it would manufacture and sell
Hydrofluor-TM-, an EPA-accepted 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
born 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 has been designated as the
method for use in complying with the EPA's Information Collection Rule to
establish the


                                          3
<PAGE>

extent of contamination in the nation's drinking water.

     TOTAL TRIHALOMETHANES.  Trihalomethanes are regulated, toxic by-products
that result from chlorine disinfection of drinking water.  The Company's test is
a non-immunoassay-based test for the detection of 'total trihalomethanes'
(TTHMs).  The test is fast, easy and inexpensive, detects TTHMs at levels much
lower than EPA regulated levels and correlates well with standard EPA laboratory
methods.  The EPA is currently reviewing the Company's TTHM method for use in
drinking water compliance testing.

     RaPID ASSAY(-REGISTERED TRADEMARK-) AND ENVIROGARD-TM-.  The RaPID
Assay(-Registered Trademark-) and EnviroGard-TM- pesticide test kits are being
used extensively by water quality researchers, resource managers, regulators and
drinking water system operators for surface and groundwater monitoring, drinking
water source and supply management, and chemical fate and transport studies.
Users of the Company's water quality pesticide products include 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.

     INDUSTRIAL TESTING

     The industrial testing market category is comprised of immunoassays for
pollutants, proprietary chemicals and industrial markers.

     POLLUTANTS.  Analysis of soil, water and waste samples to determine the
presence of hazardous chemicals has become increasingly important in connection
with environmental remediation and environmental 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").  It is estimated that approximately 1,200
commercial environmental testing laboratories, as well as "in-house"
laboratories at industrial and disposal facilities provide environmental
testing.  Market research reports estimate that commercial environmental testing
laboratories accounted for approximately one half of all environmental tests
performed and had revenues exceeding $1 billion in 1996.

     Environmental remediation activities require a substantial amount of
testing in connection with the clean up of contaminated sites.  After initial
characterization of toxic chemicals at a site, substantial testing typically is
required to complete an assessment of the site to determine the extent and
location of contamination and the appropriate remediation plan.  Upon the
commencement of the 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 contaminants of primary concern for remediation
activities include petroleum fuel products, polyaromatic hydrocarbons (PAHs),
polychlorinated biphenyls (PCBs), benzene, certain metals and chlorinated
solvents.

     Environmental monitoring activities under SDWA and National Pollution
Discharge Elimination System (NPDES) legislation require periodic testing for
various hazardous chemicals.  The nation's 58,000 drinking water systems test
for contaminants such as metals, benzene, other volatile organic compounds and
microbiological contamination.  Approximately 6,400 major industrial and
municipal wastewater treatment facilities monitor and test wastewater for
contaminants such as chlorinated solvents, metals and volatile organic
compounds.  Hazardous waste handling and disposal companies carry out large
volumes of analytical work, including pre-acceptance testing to determine the
suitability of waste streams for disposal and routine testing of incoming
shipments.  In addition, the ongoing management of chemicals in the
petrochemical and pesticide industries also results in the need to test samples
at many points in the production, use and disposal cycle.  Electrical utilities
have on-going analytical needs pertaining to disposal of PCB containing
materials.

     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.

     The application of immunoassay technology in conjunction with regulatory
registration is significant because of the requirement that large-scale chemical
manufacturers register their chemicals under FIFRA with the EPA. As part of this
registration process, manufacturers must provide extensive data for both
registration and post-registration analyses regarding


                                          4
<PAGE>

toxicity and environmental impact. For many new compounds, certain aspects of
this analysis require sensitivity which instrument-based testing cannot achieve.
For others, no classical analytical methods are available to measure the
compound. In either case, EPA requires the manufacturer to supply a method to
monitor the compound in the environment. The Company is currently
commercializing four tests in this area for two chemical companies. Agreements
are in place for the development of seven additional tests.

     INDUSTRIAL MARKERS.  The Company is collaborating with a corporate partner
in this market category, which consists of test kits that detect marked
products. The product marking technology is based on the incorporation of trace
levels of inert chemicals or markers into solid or liquid products or on the
surface of the products. The use of these markers, in conjunction with
immunoassay techniques for marker detection, allows for the covert marking and
testing of nearly any product. This technology can be used to prevent revenue
loss due to counterfeiting and product diversion, limit a manufacturer's
exposure to unwarranted product liability, and enhance process efficiency and
product quality assurance.

     POLLUTANT TEST PRODUCTS.  The Company sells four different format
immunoassays into the environmental market: (i) D TECH(-Registered Trademark-)
latex filtration tests, (ii) EnSys RISc-TM- and EnviroGard-TM- coated-tube
tests, (iii) RaPID Assay-TM- magnetic particle tests and (iv) EnviroGard-TM-
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.

     The D TECH(-Registered Trademark-) and EnSys RISc-TM- tests do not 
require refrigeration which make them ideally suited for on-site, field 
applications. All of the environmental test kits include components for the 
extraction of target analytes from the sample 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 at least ten 
samples per hour and some allow analysis of as many as forty samples per hour.

     D TECH(-REGISTERED TRADEMARK-).  The D TECH(-Registered Trademark-) 
tests are a latex filtration immunoassay format and provide for rapid, easy 
to use, on-site, field screening analysis of soil and water samples 
containing EPA Priority Pollutants like PCBs, PAHs (polyaromatic 
hydrocarbons), TNT, BTEX (benzene, toluene, ethylbenzene and xylene) and 
others.  D TECH is very simple to use, requires little or no user training, 
yields a semi-quantitative result and is ideally suited for true field 
applications where limited numbers of samples are to be analyzed at one time.

     RaPID ASSAY(-REGISTERED TRADEMARK-).  The RaPID Assay(-Registered 
Trademark-) magnetic particle immunoassay product line currently contains kits 
and accessories for detection of 21 different pesticides (herbicides, 
insecticides and fungicides), and 6 toxic organic compounds. The magnetic 
particle test format is ideally suited for applications requiring highly 
precise determination of contaminant concentrations.  Like the Company's 
other immunoassay tests, RaPID Assay(-Registered Trademark-) is fast and easy 
to perform, but not as field-portable.  RaPID Assay(-Registered Trademark-) 
pesticide test kits are used for quantitation of pesticides in water, soil 
and food. RaPID Assay(-Registered Trademark-) test kits for toxic organic 
chemicals are used for measuring contaminant concentrations in both water and 
soil.

     ENVIROGARD-TM- AND ENSYS RISc-TM-.  Like D TECH(-Registered Trademark-) 
and RaPID Assay(-Registered Trademark-), these coated-tube and microtiter plate 
format testing products detect some of the most commonly encountered toxic 
chemicals found in soil, water and on surfaces at contaminated sites, 
including PCBs, fuel products, PCP, TNT, benzene, PAHs, crude oil, and 
pesticides.  Additionally, the EnviroGard-TM- products detect pesticides in 
drinking water and foodstuffs.  The coated-tube format tests are used 
extensively to analyze relatively large numbers of samples in the field and 
yield a semi-quantitative result.  The EnviroGard-TM- microtiter plate kits 
are designed for use in the laboratory and are ideally suited for analysis of 
large numbers of samples where determination of exact concentrations of 
contaminants are required.

     AGRICULTURAL

     The agricultural market segment includes tests to detect targeted traits in
genetically engineered plants and two plant fungi, Rice Blast and Botrytis.

     GENETICALLY ENGINEERED CROPS.  Agricultural companies are developing
varieties of commercially important crops like corn, cotton and soybeans that
have new additional genes which confer some commercial advantage to the plant,
such as insect or pesticide resistance or enhanced growth or nutritional
characteristics.  Industry experts predict that roughly one quarter of


                                          5
<PAGE>

the acreage used to grow corn in the U.S. will be planted with genetically
engineered seed by the year 2000, in comparison to only 0.5% in 1996.

     A large agricultural chemical company that has developed proprietary 
varieties of insect-resistant corn and cotton using genetic engineering 
technology 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 strip test that is used at the point of testing to determine if an 
individual plant contains the new genetic trait.  The Company has also 
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 can also be used for enforcement purposes in crops to prevent 
unlicensed application of the genetic technology.

     Sales of this strip test and similar products to detect the presence of
genetically engineered traits in plants have been increasing rapidly since their
introduction in the third quarter of 1995 and the Company believes sales will
continue to grow.  The number of acres of crops with
genetically enhanced traits under cultivation grew rapidly in 1997 and published
reports indicate that the farmers' experience with these products was positive.
Acreage in 1998 is expected to grow further based on these results and with this
increased volume, the Company expects sales of these products to grow.
Additional tests for genetically engineered plants are currently under
development.

     RICE BLAST.  Rice blast is a fungus that can devastate a rice crop.
Worldwide, over 360 million acres of land are planted with rice. Countries such
as Thailand, China, Japan and Indonesia are dependent on rice both as a food
source and for export revenues. The Company's RapidChek(-Registered Trademark-)
Blast Finder is a very simple, field-portable test kit (in the latex filtration
format), which allows early detection of the fungus on growing rice plants.
Early detection allows treatment of the rice with fungicides before the crop is
severely damaged.  The Company and its marketing affiliate have worked with the
International Rice Research Institute to demonstrate the test kit
internationally and the government of Thailand has taken an aggressive role in
evaluating the test kit.  To date the Company has only derived modest revenues
from this product line.

     BOTRYTIS.  Botrytis, or gray mold, effects a wide variety of food crops 
including grapes, strawberries, cucumbers, lettuce, etc.  The Company's 
RapidChek(-Registered Trademark-) Botrytis test was originally developed to 
serve the wine industry and has been field tested in California.  The 
California Department of Food and Agriculture (CDFA) acts as a liaison 
between the grape growers and the wineries and oversees testing of the 
harvested grapes in the field.  Truckloads of harvested grapes are sampled as 
they leave the field and the grapes are visually inspected for botrytis 
infection.  Botrytis levels are used to establish pricing and the growers, 
vintners and the CDFA all have a vested interest in methods for more 
accurately determining levels of infection in harvested grapes.  As a result 
of this and other work, the use of immunoassays for grape inspection has been 
promulgated in the California Code of Regulations.  While the 
RapidChek(-Registered Trademark-) Botrytis test was originally developed for 
grape testing, the Company believes that the larger opportunity for this 
product is the testing of fresh fruits and vegetables during import/export 
and is seeking to expand the application of this product to that market.

     OTHER PRODUCTS

     MACRA(-REGISTERED TRADEMARK-) Lp(a).  Macra(-Registered Trademark-) 
Lp(a) is a microtiter plate assay that measures a lipoprotein found in human 
serum. This lipoprotein has been shown to be an indicator of risk for 
myocardial infarction, heart disease and stroke.  The product is currently 
for research use only, however the Company has submitted a 510(k) application 
to the FDA.  A great deal of clinical data has been generated with the Macra 
Lp(a) kit because of its leading research position, and its use in benchmark 
projects such as the Framingham Study, a multi-generation analysis of 
coronary risk factors.

     RAPIDCHEK(-REGISTERED TRADEMARK-) 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(-Registered Trademark-) SRB test is a simple to use, 
field portable test that provides the user with accurate results in 20 
minutes and allows for an immediate, more cost effective application of 
treatment chemicals.

     MAJOR CUSTOMERS.  During 1997, the Company's sales to two customers, 
Rohm and Haas and Delta and Pine Land Co. each accounted for approximately 
ten percent of consolidated revenues.  During 1996, EM and EnSys accounted 
for 11


                                          6
<PAGE>

percent and 19 percent respectively.

SALES AND MARKETING STRATEGY

     As a result of the consolidation of SDI, EnSys, Ohmicron and 
EnviroGard-TM- businesses, the Company has formed an experienced sales and 
marketing organization of 25 individuals. In addition to its direct sales 
force, the Company sells product through an extensive network of 
distributors, and through its corporate partners.

     The Company uses a number of strategies for the sale of its products
worldwide.  In the U.S., the major route of sale of its industrial testing
products 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, provide marketing and logistic support
to the field sales personnel and interface between customers and technical
support.

     In 1993 the Company opened a European headquarters and sales operation 
near London, England, and the sale of the EnSys RISc-TM-, RaPID 
Assay(-Registered Trademark-) and EnviroGard-TM- products in Europe are 
principally directed through that office.  Sales and distribution of the D 
TECH product line outside of the U.S. are made exclusively by E. Merck KGaA, 
Darmstadt, Germany.

     Sales of the Company's products for detecting water treatment polymers,
proprietary chemicals, industrial markers, genetically engineered crops and Rice
Blast are through the Company's corporate partners in selected markets and
through the Company's direct organization in others.  The RapidChek-Registered
Trademark- SRB test kit is sold directly by the Company and through 5
international distributors.  The Company has arrangements with 3 international
distributors for sale of the Macra test kit.

REGULATORY APPROVALS

     The environmental legislation and regulations that the Company believes are
most applicable to its current business are RCRA, CERCLA, TSCA, FIFRA and the
Pure Food and Drug Act.  As the Company expands its product line to meet the
environmental monitoring needs of municipalities and industrial facilities, the
SDWA, the Clean Water Act and the NPDES permitting program under the Clean Water
Act also will be significant to the Company's business.  These laws 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 in Europe, have counterparts to the U.S. legislation.

     The Company believes that regulatory acceptance, though not required for 
the use of its products in most cases, is a significant factor in gaining 
market acceptance.  There are three main areas in which the Company is 
seeking regulatory acceptance for its products: hazardous waste testing 
methods by the federal and state environmental protection agencies, water 
testing methods by the federal and state environmental protection agencies 
and FDA approval for the Company's 510(k) application for Macra(-Registered 
Trademark-) Lp(a).  The federal Environmental Protection Agency and some 
state agencies have evaluated certain of the Company's analytical methods and 
accepted their use for certain remediation and monitoring activities.  
Further acceptance by these agencies would further stimulate demand for the 
Company's products.  The Company expects that as its products are subjected 
to wider use under a variety of 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 and is not a prerequisite to selling the products in the markets the 
Company serves.

     HAZARDOUS WASTE TESTING METHODS.  EPA SW-846 is the compendium of 
analytical and test methods published by the EPA's Office of Solid Waste 
(OSW). A number of provisions of the EPA's hazardous waste regulations under 
RCRA mandate the use of SW-846 methods.  In other contexts, SW-846 is a 
guidance document setting forth acceptable, although not required methods to 
be implemented by the user in response to sampling and analysis requirements. 
 Some states also require the use of SW-846 methods under their hazardous 
waste programs.  While SW-846 methods are technically only applicable to 
regulatory programs under RCRA, other federal, state and local environmental 
programs, including CERCLA and TSCA, often refer to and rely on SW-846 
methods for purposes of remediation and monitoring.

     The process for a method to be incorporated into EPA SW-846 generally 
takes approximately 24 to 36 months.  The


                                          7
<PAGE>

OSW evaluates the applicant's test results and obtains additional information or
conducts its own tests if necessary.  After a method is deemed acceptable, it is
published by the EPA in draft form ("EPA Draft Method").  Periodically, the EPA
updates SW-846 through a notice in the Federal Register referencing the EPA
Draft Methods published since the last update.  Following a comment period, the
EPA Draft Methods are referenced in the Federal Register as a Final Rule and
incorporated into SW-846.  The following table summarizes the EPA acceptance
status of the Company's products.
<TABLE>
<CAPTION>


     ----------------------------------------------------------------------------------------------------------------------
     EPA SW-846
       Method       D TECH(-Registered Trademark-)    EnSys RISc-TM-    EnviroGard-TM-      RaPID Assay(-Registered Trademark-)
     No.   Analyte
     ----------------------------------------------------------------------------------------------------------------------
     <S>   <C>      <C>                             <C>               <C>                 <C>
     4010    PCP                                     Soil & Water      Soil & Water                      Soil
     ----------------------------------------------------------------------------------------------------------------------
     4015   2,4-D                                    Soil & Water          Soil                          Soil
     ----------------------------------------------------------------------------------------------------------------------
     4020    PCB              Soil                    Soil & Oil           Soil                          Soil
     ----------------------------------------------------------------------------------------------------------------------
     4030    TPH                                         Soil              Soil                       Per CalEPA
     4035    PAH                                      Soil (APAH)       Soil (APAH)                   Soil (APAH)
                                                                                                      Soil (CPAH)
     ----------------------------------------------------------------------------------------------------------------------
     4040  Toxaphene                                                       Soil
     4041  Chlordane                                                       Soil
     4042  DDT                                                             Soil
     ----------------------------------------------------------------------------------------------------------------------
     4050    TNT           Soil & Water                                 Soil & Water                 Soil & Water
     4051    RDX           Soil & Water
     ----------------------------------------------------------------------------------------------------------------------
     4670  Triazines                                                                                     Water
     ----------------------------------------------------------------------------------------------------------------------
     8510    RDX                                         Soil
     8515    TNT                                         Soil
     ----------------------------------------------------------------------------------------------------------------------
</TABLE>



     WATER TESTING METHODS.  Water testing methods approved for use in
compliance with the SDWA are published periodically in the Federal Register.
Newly developed methods are reviewed by the EPA's Environmental Monitoring and
Systems Laboratory in Cincinnati to determine whether they are (i) an acceptable
version of a previously approved method or (ii) a new method in need of a
comparability study and proceed through a comment and approval procedure.  The
EPA has recently begun a program aimed at expediting the approval of new methods
that involves the cooperation of the Solid Waste, Drinking Water, and Waste
Water methods groups.

     The TTHM (total trihalomethanes) water test has been accepted as Draft 
Method 8530 by OSW and will receive further consideration by the Drinking 
Water Methods Group. In addition, the RaPID Assay(-Registered Trademark-) 
Atrazine test was accepted as a quantitative method through the OSW and by 
the Association of Official Analytical Chemists ("AOAC"), and it is 
anticipated that the EPA Office of Drinking Water will adopt this method for 
compliance in the enforcement of the Drinking Water Regulations for Triazines 
under the SDWA.  More recently, the Company's RaPID Assay-Registered 
Trademark- for Spinosad has been adopted by the EPA as the official 
enforcement method for this pesticide. The Hydrofluor-Combo-TM- test kit is 
the ASTM standard method for detection of these pathogenic protozoa and has 
been 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.

     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 AOAC International, 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 150 different test kits for the
detection of a wide array of analytes in five immunoassay formats; one-step
strip tests, coated-tubes, latex particles, magnetic particles and microtiter
plates.  In addition to test kits, the Company supplies its customers with
ancillary equipment and supplies including spectrophotometers, pipettes,
balances,  and timers among others.


                                          8
<PAGE>

     The kit manufacturing process consists mainly of critical reagent
production and in process testing, filling and dispensing, labeling, kit
assembly, quality control, packaging and shipping.  The Company's Technical
Reagents Manufacturing group produces critical reagents from its laboratories in
Newark, DE.  Sub-assemblies and finished kits are manufactured and shipped
worldwide out of the Company's headquarters facility in Newark, DE.

     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 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, 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.

     The Company's manufacturing organization, including the Technical Reagents
Manufacturing group, consists of 30 individuals.  The Company believes the
existing facilities and equipment are sufficient to support a significantly
larger manufacturing base.  Manufacturing operations are currently running a
single shift.

RESEARCH AND DEVELOPMENT

     The Company engages in substantial research and development activities
involving antibody and immunoassay development.  In the three years ended
December 31, 1997, 1996 and 1995, the Company incurred approximately $1,580,000,
$1,569,000 and $2,272,000, respectively in research and development
expenditures, substantially all of which has been customer-sponsored.  The
Company's laboratory facilities located in Newark, DE 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,
American Association for Accreditation of Laboratory Animal Care ("AAALAC")
approved, TSD BioServices monoclonal antibody development and large-scale
production facility.  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 one-step strips, latex filtration, magnetic particles, coated tubes
and microtiter plates.  Research and development personnel have complementary
skills in several advanced research disciplines, including synthetic organic
chemistry, protein chemistry, biochemistry, immunology, immunochemistry,
microbiology and soil science.  In addition to the technical expertise resident
within research and development, TSD BioServices provides the Company
scientists, 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 industrial, water
quality and agricultural sectors, and markets its services primarily to large
chemical and pharmaceutical companies.  Product development is typically
performed in collaboration with a corporate partner that has identified a
specific market need and provides funds to the Company to develop an assay.
Research and development contracts are typically structured such that technology
developed within the program are co-owned by the Company and its partner and the
Company maintains exclusive 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 has periodically funded 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.
Through its continuing development of tests to detect genetically engineered
plants and water treatment polymers, the Company has gained


                                          9
<PAGE>

extensive expertise in development and manufacture of one-step strip tests, and
is working aggressively to further develop this technology.

     The Company's technology organization, including research and development,
TSD, Technical Reagents Manufacturing, and Technical Marketing Support consists
of approximately 45 individuals of which 15 hold advanced academic degrees.

PROPRIETARY TECHNOLOGY AND PATENTS

     The Company products are based on the use of proprietary reagents,
technology and test systems developed by the 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.  The Company currently holds thirteen issued U.S.
patents and the claims for another two are in a state of allowance.  Two
additional U.S. patents have been licensed for exclusive use by the Company and
seven U.S. patent applications are pending.

     During 1997 the Company acquired all right, title and interest to U.S.
Patent 5,593,850 from Nalco Chemical Company (the '850 patent).  The '850 patent
provides broad coverage for the determination of water treatment polymers in
industrial samples using monoclonal antibodies that bind directly to the
polymer.  The '850 patent is presently the subject of an interference
proceeding.

     An alternative method of detecting water treatment polymers is to
chemically couple an unrelated "marker" substance to the polymers and use
antibodies and immunoassays that bind to the marker to detect the polymer. The
technology for using antibodies to detect markers that are chemically coupled to
a substance to be detected is patented by Biocode Incorporated (U.S. Patent
5,429,952).  In 1996 the Company licensed from Biocode Incorporated the
exclusive rights to this technology for the detection of water treatment
polymers.  Together, the '850 patent and the Biocode license provide broad
protection for the use of immunoassay detection of water treatment polymers.

<TABLE>
<CAPTION>
     ---------------------------------------------------------------------------
     U.S. Patent    Title
     ---------------------------------------------------------------------------
     <S>            <C>
     4,999,286      Sulfate reducing bacteria determination and control
     5,200,346      Aldicarb immunoassay by sulfone equivalents
     5,411,869      Immunological analogs for captan
     5,449,611      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
     5,547,877      Methods for the rapid detection of toxic halogenated
                    hydrocarbons and kits useful in performing the same
     5,554,730      Fungus extraction method and kit
     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



                                          10
<PAGE>


     Allowed        Immunoassay standards for volatile analytes with benzene
                    rings
     Allowed        Immunoassay standards for polyaromatic hydrocarbon detection
     5,429,952      Marking of products to establish identity and source
     ---------------------------------------------------------------------------
</TABLE>



     The Company believes that low-cost, easy to use, rapid field screening
tests have the potential to be significant products in its chosen markets.
Therefore, the Company is aggressively developing technology relating to
immunoassay formats with those features. Two of the Company's pending
applications involve one-step strip test formats, and one of the applications
has to do with a novel latex filtration test format.  In addition to the assay
format patent applications, the Company has pending applications relating to
immunoassays for trichloroethylene (TCE) and polychlorinated biphenyls (PCB).

     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, the Company also relies upon trade secrets, know-how and continuing
technical innovation to maintain competitiveness.  The Company has developed a
number of proprietary technologies which the Company 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
monoclonal antibodies to water treatment polymers, the explosive RDX, BTEX and
TCE.

     LIBRARY OF MONOCLONAL ANTIBODIES TO CLINICAL ANALYTES: The Company has a
library of 42 monoclonal antibodies for clinical diagnostic applications. These
antibodies are licensed by diagnostic companies for use in commercial assays.
The Company has several outstanding licenses to a variety of diagnostic
companies.

     MONOCLONAL ANTIBODY TO Lp(a):  The Company has licensed the exclusive use
of the monoclonal antibody which confers the specificity in the Macra Lp(a)
test.

     MAGNETIC PARTICLES.  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(-Registered Trademark-)
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.  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.  Nevertheless, the Company
believes that its competitiveness has been significantly enhanced as a result of
the consolidation of the SDI, EnSys, Ohmicron and EnviroGard-TM- businesses.

     Currently, the Company believes that there are no similar competing
immunoassay products for the Company's RapidChek(-Registered Trademark-) Rice
Blast, Botrytis and SRB, GeneCheck-TM- B.t.k., proprietary chemical, industrial
marker or water treatment polymer tests.  The Company holds U.S. patents
relating to the Rice Blast and 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.

     A number of companies already have pursued, and are actively pursuing,
products for the detection of Cryptosporidium and Giardia in drinking water and
it is likely that the Company's Hydrofluor products will face increasing


                                          11
<PAGE>

competition in the future.  Hydrofluor currently benefits from its 
designation as the ASTM standard method for detection of these protozoa and 
from its selection by the EPA as the method for use in complying to the EPA's 
Information Collection Rule to establish the extent of contamination in the 
nation's drinking water.

     The Company's Macra(-Registered Trademark-) Lp(a) product competes with 
other existing immunoassay tests in the marketplace, but since it was  first 
to the market, Macra(-Registered Trademark-)'s competitive position is 
enhanced by the large quantity of clinical data that has been generated by 
researchers and clinicians that have used the test in large prospective 
studies.  The Company is seeking to use this data to help secure 510(k) 
approval from the FDA.

EMPLOYEES

     As of December 31, 1997, the Company employed 103 full time and 2 part 
time individuals including 77 regular and 28 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 is 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, DE, and occupies approximately 
28,000 square feet of space under an operating lease expiring in December 
2007. The Company also leases approximately 26,000 square feet of 
manufacturing and research space also in Newark, DE under three operating 
leases that expire in October 2000, October 2001 and November 2003, 
respectively.

     Prior to the merger with the Company, EnSys leased approximately 18,000 
square feet of space in one building in the Research Triangle park area in 
North Carolina under a ten-year lease that expires in 1999 with a renewal 
option through 2004. Following the merger, the Company closed the North 
Carolina operation and has sub-let the space to an unrelated third party for 
the remaining term of the lease.  The Company leases regional sales offices 
near London, England, Newport Beach, CA, and Chestnut Hill, MA.  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.  (See Note 15 to Notes to the Financial 
Statements).

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, 1997.


                                          12
<PAGE>



ITEM 4(a) EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers of the Company, their positions with the Company and
ages are as follows:
<TABLE>
<CAPTION>


     NAME                     AGE            POSITION
     ----                     ---            --------
     <S>                      <C>            <C>
     Richard C. Birkmeyer     44             President and Chief Executive Officer
     Anne F. Cavanaugh        38             Vice President - Corporate Development
     Kelly J. Cullum*         37             Vice President - Sales and Marketing
     Arthur A. Koch, Jr.      44             Vice President - Finance and Chief Financial Officer
     Martha C. Reider         43             Vice President - Manufacturing
     James W. Stave, Ph.D.    43             Vice President - Research and Development
     --------------------------------------------------------------------------------------------
     * Effective February 16, 1998
</TABLE>



     RICHARD C. BIRKMEYER, age 44, 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.

     ANNE F. CAVANAUGH, age 38, cofounded SDI in 1990 and has served as a 
Vice President in various capacities since its inception and is presently 
responsible for operations of TSD BioServices, Inc. and Corporate 
Development. From inception to December 30, 1996, Ms. Cavanaugh was a 
director of SDI.  Prior to founding SDI, Ms. Cavanaugh was employed by Terumo 
Medical Corporation and the Rockefeller University.  Ms. Cavanaugh received 
her BS in Biochemistry from East Stroudsburg University and has attended the 
University of Delaware's MBA program.

     KELLY J. CULLUM, age 37, joined the Company in February 1998 as Vice 
President - Sales and Marketing.  Prior to joining the Company, Ms. Cullum 
was employed at Idexx Laboratories in Tokyo, Japan, as Corporate Vice 
President, Pacific Rim Division.  From 1994 to 1995, Ms. Cullum was Global 
Director of Marketing for Veterinary Products Division at Idexx. Prior to 
this position and since 1987, Ms. Cullum held a variety of sales management 
positions at Idexx. Ms. Cullum received her BS in Marketing from the 
University of Massachusetts, Amherst.

     ARTHUR A. KOCH, JR., age 44, joined the Company in April 1997 as Vice 
President - Finance and Chief Financial 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 
BBA in Business Administration from Temple University and is a Certified 
Public Accountant.

     MARTHA C. REIDER, age 43, cofounded SDI in 1990 and has served as Vice 
President  - Manufacturing and Secretary since inception.  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 43, joined SDI in March 1991 as a research group 
leader.  Subsequently, Dr. Stave was promoted to director of Research and 
Development, in October 1993 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.


                                          13
<PAGE>

                                      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:
<TABLE>
<CAPTION>

                                         Common Stock Price Range
                                             High      Low
                                             ----      ---
          Fiscal Year Ended
          -----------------
          <S>                                <C>       <C>
          December 31, 1997:
          First Quarter                      2  3/4    1  3/8
          Second Quarter                     2         1  1/4
          Third Quarter                      1 13/16   1
          Fourth Quarter                     2  5/16   1  1/16

          December 31, 1996:
          First Quarter                      2  1/2    1
          Second Quarter                     2  1/4    1  3/8
          Third Quarter                      2  1/4    1  3/8
          Fourth Quarter                     2  3/8    1  3/8
</TABLE>


     On February 23, 1998, there were approximately 590 holders (99 holders of
record) of the Common Stock of the Company.  The Company has never paid any cash
dividends on its Common Stock and has no plans to pay cash dividends in the
foreseeable future.


                                          14
<PAGE>


ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA


<TABLE>
<CAPTION>


                                                                                Year Ended December 31,
                                                                                -----------------------
                                                                  (in thousands, except share and per share data)
                                                          1997           1996           1995           1994           1993
                                                          ----           ----           ----           ----           ----
<S>                                                   <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
   Product related                                    $    12,703    $     3,402    $     1,605    $     1,192    $       551
   Contract and other                                       1,717          2,435          2,084          2,580          2,064
                                                      -----------    -----------    -----------    -----------    -----------
   Total revenues                                          14,420          5,837          3,689          3,772          2,615

OPERATING EXPENSES:
   Manufacturing                                            5,305          2,839          1,288            910            791
   Acquired research and development                          -            8,266            -              -              -
   Research and development                                 1,580          1,569          2,272          2,832          1,735
   Selling, general and administrative                      6,132          1,737          1,190          1,385          1,013
                                                      -----------    -----------    -----------    -----------    -----------
   Total operating expenses                                13,017         14,411          4,750          5,127          3,539

Operating Income (Loss)                                     1,403         (8,574)        (1,061)        (1,355)          (924)

Interest and other income (expense), net                      274            186           (165)            30            (64)
                                                      -----------    -----------    -----------    -----------    -----------

NET INCOME (LOSS)                                           1,677         (8,388)        (1,226)        (1,325)          (988)

Accretion of redeemable preferred
stock liquidation value(1)                                    -             (635)          (367)          (367)          (192)
                                                      -----------    -----------    -----------    -----------    -----------

Net Income (Loss) applicable to common
   stockholders                                       $     1,677    $    (9,023)   $    (1,593)   $    (1,692)   $    (1,180)
                                                      -----------    -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------    -----------

BASIC NET INCOME (LOSS) PER SHARE
APPLICABLE TO COMMON STOCKHOLDERS:                    $      0.13    $     (2.12)   $     (0.46)   $     (0.56)   $     (0.40)
                                                      -----------    -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------    -----------

SHARES USED IN COMPUTING
BASIC PER SHARE AMOUNTS:                               13,084,000      4,248,000      3,464,000      3,041,000      2,957,000
                                                      -----------    -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------    -----------

DILUTED NET INCOME (LOSS) PER SHARE
APPLICABLE TO COMMON STOCKHOLDERS:                    $      0.11    $     (2.12)   $     (0.46)   $     (0.56)   $     (0.40)
                                                      -----------    -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------    -----------

SHARES USED IN COMPUTING
DILUTED PER SHARE AMOUNTS:                             15,712,000      4,248,000      3,464,000      3,041,000      2,957,000
                                                      -----------    -----------    -----------    -----------    -----------
                                                      -----------    -----------    -----------    -----------    -----------
</TABLE>



                                          15
<PAGE>


<TABLE>
<CAPTION>


                                                                                      December 31,
                                                     -----------------------------------------------------------------------
                                                          1997           1996(1)        1995           1994           1993
BALANCE SHEET DATA:                                       ----           ----           ----           ----           ----
<S>                                                   <C>            <C>            <C>            <C>            <C>
Cash and cash equivalents                                   2,580            917             35             67          1,259
Short-term investments                                      3,638          5,710            -              -              -
                                                      -----------    -----------    -----------    -----------    -----------
   Sub total                                                6,218          6,627             35             67          1,259

Working capital (deficit)                                   9,403          7,170           (891)           126          1,288

Total Assets                                               14,060         14,581          2,076          2,106          3,044

Redeemable convertible preferred stock(1)                     -              -            3,879          3,512          3,145
Accumulated deficit(2)                                    (11,702)       (13,379)        (4,356)        (2,763)        (1,094)

Stockholders' equity (deficit)                             12,340         10,673         (4,064)        (2,580)        (1,050)
</TABLE>



(1)  The redeemable convertible preferred stock was reclassified into
     stockholders' equity in connection with the EnSys merger.

(2)  There have been no common stock dividends declared or paid since the
     inception of the Company.


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

FORWARD LOOKING STATEMENTS

     This Form 10-K contains several forward-looking statements reflecting the
Company's current expectations.  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, inability to obtain required government
approvals, modifications to development and sales relationships, the ability to
achieve anticipated growth, seasonality and competition.

OVERVIEW

     The Company is the entity resulting from the combination of EnSys, Ohmicron
and SDI.  On August 30, 1996, Ohmicron was merged with and into SDI, with
certain Ohmicron stockholders and note holders receiving shares of SDI common
stock.  On December 30, 1996, SDI was merged with and into EnSys.  The surviving
entity was then renamed Strategic Diagnostics Inc.  Each of these transactions
was accounted for as a purchase with SDI as the acquiring company and,
therefore, the surviving company for financial reporting purposes.  As a result,
the historical financial information discussed includes the results of SDI for
all periods presented and the actual results of Ohmicron from August 30, 1996
and EnSys from December 30, 1996.

     EnSys was formed in 1987 to develop proprietary biotechnology based test
systems designed for fast and inexpensive detection of various chemicals in soil
and water samples.  EnSys raised approximately $30 million in equity financing,
including approximately $16 million from the sale of 1,800,000 shares of EnSys
common stock in its initial public offering in October 1993.  Since 1991, EnSys
commercialized eleven immunoassay test kits and four other test kits for the
detection of various environmental contaminants.  EnSys marketed and sold these
test kits and other associated products and services to environmental consulting
and engineering firms, hazardous waste processing firms, environmental testing
laboratories, and


                                          16
<PAGE>

various state and federal agencies through distributors and a regionally based
direct sales force in the U.S.  EnSys also marketed and sold its products in
Europe through EnSys (Europe) Limited, a wholly owned subsidiary of EnSys.  In
March 1996, EnSys acquired from Millipore, Inc. certain assets, which consisted
primarily of inventory, work-in-process, equipment, intellectual property
rights, contract rights and customer lists related to Millipore's EnviroGard-TM-
product line for $1 million and 1,100,000 shares of EnSys common stock.

     Ohmicron was founded in 1984 and began marketing its RaPID Assay-Registered
Trademark- products in 1991 to the same general market and in the same fashion
as previously described for EnSys.

     Since its inception, SDI has focused on using proprietary technology and
know-how to develop, manufacture and market immunoassay test kits for
applications primarily in the water quality, industrial testing and agricultural
markets.  One of the strategies SDI used to develop its business was to
establish relationships with other companies who had significantly greater
resources and capabilities to evaluate market opportunities and potential for
new products.  The Company refers to these relationships as "Corporate
Partnerships".  Corporate Partners, who had identified and researched a market
opportunity, funded SDI to develop and manufacture immunoassay products to meet
the market need.  Most of the Corporate Partner agreements were written so that
SDI retained a right to manufacture the finished product, and the technology
developed during the course of the project was co-owned by SDI and its partner.
In this way, SDI developed proprietary technology and built a base of
manufactured commercial products.  Commercial operations were initiated with a
contact with a Corporate Partner (a large integrated chemical company) to
develop an immunoassay test to detect certain corrosion causing bacteria.  This
product was introduced in late 1991 and SDI purchased all rights and technology
related to this product in 1994.

     In February 1992, SDI entered into a $3.9 million Corporate Partnership
with EM Industries, Inc. (an affiliate of Merck KGaA, Darmstadt, Germany) for
the development and manufacture of a line of immunoassay test kits capable of
identifying and quantifying targeted priority pollutants.  The first products
under this agreement were introduced in 1993.  Through August 1996, these
products were manufactured by SDI and marketed by EM Industries, Inc.  In
September 1996, EM Industries, Inc. and SDI reached an agreement whereby the
February 1992 agreement was terminated, together with EM Industries, Inc.'s
marketing rights thereunder, in exchange for certain specified royalty payments
to EM Industries, Inc. and shares of SDI common stock.  The marketing activities
with respect to such products in the U.S. are now the responsibility of the
Company.

     Since 1992, the Company has entered into research and development
agreements with multiple Corporate Partners that have led to the introduction of
various products to the water quality, industrial testing, agricultural and
other markets.  These agreements generally provide that sales and marketing
costs associated with a new product are borne by the corporate partner.  In
addition, the Company currently sells directly other products that it has
developed or acquired.

     The Company believes that its competitiveness has been enhanced through the
combinations of talents, technology and resources resulting from the mergers and
acquisitions described above.  The Company has also achieved meaningful
economies of scale, operates from consolidated facilities in Newark, DE and is
now offering its customers the most appropriate test for each specific customer
application.

     Another key strategy that SDI used to develop its business was the
formation in 1991 of TSD BioServices, a joint venture between SDI and a
subsidiary of Taconic Farms of Germantown, NY. Taconic Farms is a privately held
company whose business is the production and sale of mice and rats, primarily to
the research community.  In 1996, the joint venture was dissolved and SDI's
interests were distributed into a wholly owned subsidiary, TSD BioServices, Inc.
("TSD").  The mission of TSD is to supply antibodies, especially monoclonal
antibodies, immunochemical reagents and related services to medical diagnostic
and pharmaceutical companies, as well as the research community. TSD's primary
facility occupies approximately 8,000 square feet of space in Newark, DE.

     The Company believes that its products in the water quality, industrial
testing and agricultural markets are unique and fill potentially large, unmet
needs.  The Company also believes that its products and technology currently
being developed have broad application in diverse markets.

     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


                                          17
<PAGE>


development expertise will be critical elements of its potential future success.

     The Company experiences a seasonal pattern to its business.  Sales of
industrial and agricultural products are highest during the summer months with
the lower levels of activity occurring during the winter months.  Accordingly,
revenues in a particular quarter in 1998 may not be indicative of revenues for
any subsequent quarter during the year, or for the year.  As sales of the
Company's analytical tests for water-soluble polymers (which are generally not
affected by seasonal patterns) and agricultural products to other parts of the
world develop over the next few years, the Company expects its seasonal
fluctuations to become gradually less pronounced.

RESULTS OF OPERATIONS

     As described above, the Historical Financial Statements presented herein
include the results of SDI for all periods and the results of Ohmicron from
August 30, 1996, TSD from October 1, 1996 and EnSys from December 30, 1996.

     For comparative purposes, the following table sets forth the 1997 audited
results of operations and the 1996 unaudited pro forma results of operations.
The 1996 unaudited pro forma information presents the combined results as if the
acquisition of Ohmicron, dissolution of TSD and the EnSys merger had been
completed at January 1, 1996 (the "Pro Forma Financial Information").


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

<TABLE>
<CAPTION>


                                                             Year Ended December 31,
 .......................................................................................
                                                          1997              1996 (1)(2)
                                                        (ACTUAL)           (Pro Forma)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
                                                                           (unaudited)
<S>                                                   <C>                 <C>
NET REVENUES:
---------------------------------------------------------------------------------------
  Product related                                    $    12,703          $    10,934
  Contract and other                                       1,717                1,766
    -----------------------------------------------------------------------------------
    Total net revenues                                    14,420               12,700
    -----------------------------------------------------------------------------------
OPERATING EXPENSES:
  Manufacturing                                            5,305                5,947
  Research and development                                 1,580                3,332
  Selling, general and administrative                      6,132                8,282
    -----------------------------------------------------------------------------------
    Total operating expenses                              13,017               17,561
    -----------------------------------------------------------------------------------
    Operating income (loss)                                1,403               (4,861)
INTEREST INCOME (EXPENSE), NET                               274                  589
---------------------------------------------------------------------------------------

NET INCOME                                           $     1,677          $    (4,272)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
DILUTED NET INCOME PER SHARE
  APPLICABLE TO COMMON STOCKHOLDERS                        $0.11               ($0.33)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------

SHARES USED IN COMPUTING NET INCOME PER SHARE
  APPLICABLE TO COMMON STOCKHOLDERS                   15,712,000           12,800,000
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------

</TABLE>


(1)  Reflects the operations of the Company as if the EnSys, Ohmicron and TSD
     transactions had occurred on January 1, 1996

(2)  1996 expenses exclude costs of acquired research and development of $10.0
     million incurred in connection with the acquisitions of Millipore's
     EnviroGard(TM), Ohmicron and EnSys.


                                          18
<PAGE>


COMPARISON OF ACTUAL WITH PRO FORMA FINANCIAL INFORMATION

     YEAR ENDED DECEMBER 31, 1997 VERSUS PRO FORMA YEAR ENDED DECEMBER 31, 1996

     REVENUES.      Revenues increased 13.5% to $14.4 million in 1997 from $12.7
million in pro forma 1996.  This increase is the result of a $1.8 million
(16.2%) increase in product related revenues reduced by a $49 thousand (2.8%)
decrease in contract and other revenues.  Product related revenues increased to
$12.7 million in 1997 from pro forma $10.9 million in 1996.  This growth in
product revenues is primarily attributable to increases in total product sales
in emerging markets (tests to detect (i) proprietary polymers and (ii) traits in
genetically engineered plants in agriculture) to $3.1 million from $845 thousand
in pro forma 1996, an increase of over 260%, partially offset by a decrease in
all other product revenue.  The increase in total product revenues in emerging
markets was comprised of the first sales of a new product designed to detect the
proprietary polymers of a Corporate Partner.  Polymer detection is quite
difficult and currently there is no other detection method capable of measuring
these substances at the levels at which they are used or discharged in
effluents.  The Company is currently commercializing multiple tests in this area
and began shipping its first product to a Corporate Partner during the third
quarter of 1997.  Shipments of these pre-commercial test kits continued during
the fourth quarter and the Company earned revenues of $1.0 million during the
second half of 1997.  The Company expects to ship additional tests in 1998 under
this long-term supply agreement, which provides among other things, for the
Company to exclusively manufacture these kits.  Also contributing to the
increase in 1997 product revenues were sales of tests to detect the presence of
specified traits in genetically engineered plants.  The Company shipped product
under a supply agreement initiated during the second quarter of 1997 with a
major seed company.  Revenues under this agreement totaled approximately $1.1
million during 1997.  Sales of similar tests to other customers in the
agricultural market totaled $1.0 million.  The Company expects product sales in
these emerging markets to grow significantly in 1998 and thereafter as these
markets develop.


     All other product revenues totaled $9.6 million in 1997 compared to $10.1
million in 1996.  While sales of certain products in this category increased in
1997 over 1996, overall, this 5% decrease was primarily attributable to lower
sales in the Company's industrial testing category early in 1997 as duplicate
customer relationships and early customer confusion over the integrated product
lines resulting from the mergers.  These matters were addressed during 1997
through the Company's sales and marketing channels.  The Company expects product
sales in this category to grow from the 1997 level but at a modest rate for the
foreseeable future.

     Contract and other revenues decreased by less than 3% to $1.717 million in
1997 from $1.766 million in 1996.  This decrease is attributable to a slightly
lower volume of research contracts in 1997 than in 1996.  The Company expects
contract and other revenues to increase in 1998 as additional projects,
particularly to develop additional products in the emerging markets in
collaboration with its corporate partners, are anticipated.

     While the experience of the Company has been favorable, there can be no
assurance that the anticipated projects and the growth rates described above
will be realized.

     OPERATING EXPENSES.      Total operating expenses decreased by $4.5 million
or 25.9% in 1997 from $17.6 million in pro forma 1996 to $13.0 million.  This
decrease is primarily the result of lower costs associated with more efficient
operations after the integration of the separate companies.  The combined
Company has a lower level of personnel costs compared with each of the separate
companies.  Efficiencies were also achieved as duplicate facilities were closed.
The operations in North Carolina and Pennsylvania have now been consolidated
into the Company's Delaware facilities.

     Manufacturing expenses, which include the costs of products sold, decreased
$642 thousand or 10.8% in 1997 to $5.3 million.  Gross margins for product sales
increased to 58.2% in 1997 from 45.6% in 1996, due to increased sales volume and
efficiencies gained through consolidation.

     Research and Development expenses decreased $1.8 million or 52.6% to $1.6
million in 1997 from $3.3 million in 1996.  This decrease is attributable to the
consolidation of the Research and Development departments of SDI, Ohmicron and
EnSys into one integrated operation focusing on a single set of corporate
objectives.


                                          19
<PAGE>

     Selling, general and administrative expenses decreased $2.2 million or 26%
to $6.1 million in 1997.  This decrease is attributable to the efficiencies
afforded through the merger.  The Company now maintains a single administrative
function to support the operations of the Company.

     NET INTEREST AND OTHER INCOME.     Net interest income decreased $315
thousand or 53% to $274 thousand in 1997.  This decrease is primarily
attributable to a lower average balance of investments during 1997 than in 1996.

     PROVISION FOR INCOME TAXES.   Due to net operating loss carry forwards, 
the Company has made no provision for income taxes for 1997.  Although net 
operating loss carry forwards were obtained in connection with the mergers 
discussed above, the use of these carry forwards, if any, in any particular 
year will be limited in future years pursuant to the "change in ownership" 
rules under Section 382 of the Internal Revenue Code.  The Company estimates 
that it has approximately $16 million of such carryforwards as of December 
31, 1997 after the foregoing limitations (see Note 2 to notes of consolidated 
financial statements).

     NET INCOME.    Net income increased $5.9 million to $1.677 million in 1997.
This increase was primarily the result of increased sales activity as well as
lower operating costs, all as described above.


COMPARISON OF ACTUAL 1997 WITH HISTORICAL FINANCIAL INFORMATION

     YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996

     REVENUES.      Revenues increased $8.6 million in 1997 or 147% over 1996.
This increase is attributable to the increase in business activity after the
mergers and the increased sales of products in the Company's emerging markets
all as described above.  Product revenues increased $9.3 million or 273% for the
reasons described above.  Contract and other revenues decreased $718 thousand or
29% to $1.7 million in 1997.  The 1996 volume includes approximately $667
thousand in revenues from transactions between EnSys and SDI prior to the
merger.  These businesses were integrated during 1997.

     OPERATING EXPENSES.      Operating expenses decreased $1.4 million or 9.7%
in 1997 to $13.0 million.  This decrease is attributable to the inclusion in
1996 of a one-time charge of $8.3 million to write-off research and development
costs acquired in connection with the mergers.  Excluding this charge, operating
expenses increased $6.9 million or 113% as a result of increases in
manufacturing costs of $2.5 million or 87%, research and development expenses of
$11 thousand or 0.7% and selling, general and administrative expenses of $4.4
million or 253%.  These increases are all attributable to the higher costs of
operation (principally additional personnel and related costs) of the combined
companies.

     NET INTEREST INCOME.     Net interest income increased $266 thousand in
1997 from $8 thousand in 1996.  This increase is attributable to the increase in
invested funds acquired through the mergers.

     NET INCOME.    Net income increased $10.1 million in 1997 to $1.677 million
from a loss of $8.4 million.  This increase in net income is attributable to the
higher volume of revenues reduced in part by the increased costs and the
elimination of the one-time write-offs all associated with the mergers and all
as described above.

     YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995

     REVENUES.      Revenues increased 58% to $5.8 million in 1996 from $3.7
million in 1995.  This $2.1 million increase is the result of a $1.8 million
(112%) increase in product-related revenues and a $351 thousand (17%) increase
in contract and other revenues.  Product related revenues increased to $3.4
million in 1996 from $1.6 million in 1995.  This was due to overall increased
sales for certain of the Company's new products, especially the first of the
Company's strip assays which was introduced in mid-1995, improved priority
pollutant sales over the prior year, and product related revenues generated by
TSD BioServices in the fourth quarter of 1996 as a wholly-owned subsidiary of
the Company.  The product revenues do not include any revenues from any of the
Company's industrial testing kits in the fourth quarter of 1996, since the
Company licensed these products to EnSys in October 1996.  However, revenues do
include approximately $537 thousand in product revenues from the sale of the
Company inventory, at cost, to EnSys in connection with the license agreement.


                                          20
<PAGE>


Contract and other revenues increased to $2.4 million in 1996 from $2.1 million
in 1995.  This increase is primarily due to a $300 thousand license fee from
EnSys and Ohmicron prior to the mergers, which was offset by a $200 thousand
decrease in contract revenue received from EM Industries in 1996 due to the
completion of the EM Industries contract.

     MANUFACTURING EXPENSES.       Manufacturing expenses increased 120% to $2.8
million in 1996 from $1.3 million in 1995.  This $1.5 million increase was
primarily a result of the overall increase in product related sales during the
year versus the prior year, and, to a lesser extent, the assumption of the
expenses associated with the former Ohmicron manufacturing facility in September
1996.

     RESEARCH AND DEVELOPMENT EXPENSES.      Research and development expenses
decreased 31% to $1.6 million in 1996 from $2.3 million in 1995.  This decrease
was primarily the result of a reduction of research and development personnel
and certain salaries and related expenses, during the third quarter of 1995.

     ACQUIRED RESEARCH AND DEVELOPMENT EXPENSES.       Acquired research and
development expenses were $8.3 million in 1996.  These expenses were incurred in
connection with the merger transactions with Ohmicron and EnSys, and resulted in
acquired research and development expenses of $3.9 million and $4.4 million,
respectively.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased 46% to $1.7 million in 1996 from $1.2 million
in 1995.  This increase was primarily due to the salaries and related expenses
associated with the additional hiring of sales and marketing personnel required
in connection with the Company's acquisition of Ohmicron and the Company's
direct selling of its products, as well as additional accounting and
administrative support personnel necessitated by the mergers and the overall
growth of the Company.

     INTEREST INCOME AND INTEREST EXPENSE.   Interest income increased $3
thousand to $11 thousand in 1996 from $8 thousand in 1995 due to increased cash
balances from a January 2, 1996 preferred stock financing.

     EQUITY IN INCOME OF TSD BIOSERVICES.    Equity in income of the TSD
BioServices partnership increased $137 thousand to $178 thousand in 1996 from
$41 thousand in 1995.  This increase was primarily due to a significant increase
in revenues for the partnership during 1996 versus the prior year.  In October
1996, the TSD BioServices partnership was dissolved and its assets were
liquidated, in connection with which certain of the rights and assets of the TSD
BioServices partnership were distributed to TSD BioServices, Inc., a wholly
owned subsidiary of the Company.

     LIQUIDITY AND CAPITAL RESOURCES.   The Company utilizes computer software
provided by third parties under a commercial license to support operations,
including materials resource planning and general accounting.  The suppliers of
such software have indicated their intentions to deliver updates to the
application during 1998 so that it will continue to process information during
and after the year 2000.  The Company expects that the costs of the changes
necessary to process its information after the year 2000 will not have any
material effect on its working capital or results of operations.

      The Company's working capital, which consists principally of cash, cash 
equivalents and short-term investments increased by $2.2 million in 1997 to 
$9.4 million at December 31, 1997 from $7.2 million at December 31, 1996.  
This increase is attributable to the increases in cash and cash equivalents 
of $1.7 million (181%), accounts receivable $825 thousand (35.3%) and 
decreases in accounts payable of $946 thousand (60.5%), accrued expenses of 
$1.1 million (53.8%), other current liabilities of $103 thousand (45.6%) and 
reduced by decreases in short-term investments of $1.7 million (32.0%), 
inventories of $10 thousand (0.6%) and other current assets of $336 thousand 
(65.9%).

     The Company believes it has, or has access to sufficient assets to meet its
operating requirements for the foreseeable future.  The Company's ability to
meet its long-term capital requirements will depend on a number of factors
including 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 and the success of the
Company's plans 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 (See Note 15 to the
Consolidated Financial Statements).

     For the year ended December 31, 1997, the Company satisfied all of its cash
requirements from cash available and


                                          21
<PAGE>

on-hand.  At December 31, 1997, the Company has virtually no long-term debt and
stockholders' equity of over $12.3 million.


                                          22
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPLEMENTARY DATA

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

<TABLE>
<CAPTION>
                                                                       PAGE
<S>                                                                    <C>
Report of Independent Public Accountants................................F-1

Consolidated Balance Sheet as of December 31, 1997 and 1996.............F-2

Consolidated Statements of Operations for each of the years
     in the three year period ended December 31, 1997...................F-3

Consolidated Statements of Stockholder's Equity (Deficit) for each
     of the years in the three year period ended December 31, 1997......F-4

Consolidated Statements of Cash Flows for each of the years
     in the three year period ended December 31, 1997...................F-5

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


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE
</TABLE>

Not Applicable

                                       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.

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.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                          23
<PAGE>



                                     PART IV

ITEM 14.  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>
3.1    Fourth Amended and Restated Certificate of Incorporation of the Company      (1)   4.1

3.2    Amended and Restated Bylaws of the Company                                   (1)   4.2

4.1    Reference is made to Exhibits 3.1 and 3.2

4.2    Forms of Warrants to Purchase Common Stock of the Company                    (1)   4.4

10.1   Warrant Agreement dated June 1, 1991 between John Hancock                    (2)  10.5
       Leasing Corporation and the Company, as amended December 19, 1991


10.3   EnSys Environmental Products, Inc. 1993 Stock Incentive Plan*                (2) 10.17

10.4   Amended and Restated EnSys Environmental Products, Inc. 1995*
       Stock Incentive Plan                                                         (3)

10.5   EnSys Environmental Products, Inc. 401(k) Plan Adoption
       Agreement                                                                    (2) 10.18

10.6   Lease Agreement dated June 1, 1989, between the Company and                  (2) 10.20
       Imperial Center Partnership and Petula Associates, Ltd. for premises
       at 4222 Emperor Boulevard, Morrisville, North Carolina, as
       amended December 22, 1991 and April 7, 1993

10.9   License Agreement by and between the Company and Meridian                    (4) 10.22
       Diagnostics, Inc. dated July 24, 1994

10.10  Asset Purchase Agreement among EnSys, Millipore Corporation,                 (5)   2.1
       and ImmunoSystems, Inc.



                                          24
<PAGE>


10.11  Agreement and Plan of Merger by and between EnSys and Strategic              (1)   2.1
       Diagnostics Inc. dated as of October 11, 1996



10.14  Employment Agreement dated December 30, 1996 by and between                  (6)  10.14
       Richard C. Birkmeyer and the Company*

10.15   Employment Agreement dated December 30, 1996 by and between                 (6)  10.15
        Grover C. Wrenn and the Company*

10.16  Registration Rights Agreement dated December 30, 1996 between                (6)  10.16
       the Company and the stockholders listed therein


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

10.19  Industrial Lease dated August 9, 1990, by and between Tober &                (6)  10.19
       Agnew Properties, Inc. and Strategic Diagnostics Incorporated

10.20  Industrial Lease dated June 7, 1991 by and between Tober &                   (6)  10.2
       Agnew Properties, Inc. and TSD BioServices

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

21.1   Subsidiaries of the Company                                                  (6)  21.1

24     Consent of Arthur Andersen LLP

27     Financial Data Schedule
</TABLE>


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

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

(3) 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.

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

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

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

*Management contract or compensatory plan.


                                          25
<PAGE>


(b)    Reports on Form 8-K

       None.


                                          26

<PAGE>

                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Strategic Diagnostics Inc.:

We have audited the accompanying consolidated balance sheets of Strategic
Diagnostics Inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1997.  These 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 generally accepted auditing
standards.  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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Strategic
Diagnostics Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.


                                                       ARTHUR ANDERSEN LLP




Philadelphia, Pennsylvania
January 30, 1998


                                         F-1
<PAGE>

                    STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

                            CONSOLIDATED BALANCE SHEETS
                          (in thousands, except share data)
<TABLE>
<CAPTION>


                                                                                  December 31,
                                                                            ----------------------
                            ASSETS                                             1997         1996
                            ------                                             ----         ----
<S>                                                                         <C>          <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                 $   2,580    $     917
  Short-term investments                                                        3,638        5,710
  Receivables, net                                                              3,159        2,334
  Inventories                                                                   1,547        1,557
  Other current assets                                                            174          510
                                                                            ---------    ---------
       Total current assets                                                    11,098       11,028
PROPERTY AND EQUIPMENT, net                                                       496          728
OTHER ASSETS                                                                      634          715
INTANGIBLE ASSETS, net                                                          1,832        2,110
                                                                            ---------    ---------
       Total assets                                                         $  14,060    $  14,581
                                                                            ---------    ---------
                                                                            ---------    ---------
             LIABILITIES AND STOCKHOLDERS' EQUITY
             ------------------------------------

CURRENT LIABILITIES:
  Accounts payable                                                             $  619     $  1,566
  Accrued expenses                                                                953        2,066
  Deferred revenue                                                                100          141
  Current portion of capital lease obligations                                     23           85
                                                                            ---------    ---------
       Total current liabilities                                                1,695        3,858
                                                                            ---------    ---------
CAPITAL LEASE OBLIGATIONS                                                          25           50
                                                                            ---------    ---------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY
  Preferred stock, $.01 par value, 17,500,000 shares
    authorized, no shares issued                                                  --           --
  Series A preferred stock, $.01 par value, 2,164,362 shares authorized,
    issued and outstanding (liquidation value of $6,378 at December 31,
    1997)                                                                          22           22
  Common stock, $.01 par value, 35,000,000 shares authorized, 13,112,949
    and 13,055,170 issued and outstanding in 1997 and 1996, respectively          132          131

Additional paid-in capital                                                     23,913       23,905
Accumulated deficit                                                           (11,702)     (13,379)
Cumulative translation adjustments                                                (25)         --
Deferred compensation                                                             --            (6)
                                                                            ---------    ---------
       Total stockholders' equity                                              12,340       10,673
                                                                            ---------    ---------
       Total liabilities and stockholders' equity                           $  14,060    $  14,581
                                                                            ---------    ---------
                                                                            ---------    ---------
</TABLE>



           The accompanying notes are an integral part of these statements.


                                         F-2

<PAGE>

                     STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
--------------------------------------------------------------------------------
                                                 1997       1996        1995
--------------------------------------------------------------------------------
<S>                                         <C>         <C>        <C>
  NET REVENUES:
       ------------------------------------------------------------------------
     Product related                        $    12,703 $    3,402 $     1,605
     Contract and other                           1,717      2,435       2,084
--------------------------------------------------------------------------------
       Total net revenues                        14,420      5,837       3,689
       ------------------------------------------------------------------------
  OPERATING EXPENSES:
     Manufacturing                                5,305      2,839       1,288
     Research and development                     1,580      1,569       2,272
     Selling, general and administrative          6,132      1,737       1,190
     Acquired research and development                -      8,266           -
       ------------------------------------------------------------------------
       Total operating expenses                  13,017     14,411       4,750
       ------------------------------------------------------------------------
       Operating income (loss)                    1,403     (8,574)     (1,061)

  Interest and other income (expense), net          274        186        (165)
--------------------------------------------------------------------------------

  NET INCOME (LOSS)                               1,677     (8,388)     (1,226)

  Accretion of redeemable preferred stock
   liquidation value                                  -       (635)       (367)
--------------------------------------------------------------------------------

  NET INCOME (LOSS) APPLICABLE TO
     COMMON STOCKHOLDERS                          1,677     (9,023)     (1,593)
     ---------------------------------------------------------------------------

  BASIC NET INCOME (LOSS) PER SHARE
  APPLICABLE TO COMMON STOCKHOLDERS:        $      0.13 $    (2.12) $    (0.46)
--------------------------------------------------------------------------------
  SHARES USED IN COMPUTING
  BASIC PER SHARE AMOUNTS:                   13,084,000  4,248,000   3,464,000
--------------------------------------------------------------------------------

  DILUTED NET INCOME (LOSS) PER SHARE
  APPLICABLE TO COMMON STOCKHOLDERS:        $      0.11 $    (2.12) $    (0.46)
--------------------------------------------------------------------------------
  SHARES USED IN COMPUTING
  DILUTED PER SHARE AMOUNTS:                 15,712,000  4,248,000   3,464,000
--------------------------------------------------------------------------------
</TABLE>

           The accompanying notes are an integral part of these statements.


                                         F-3
<PAGE>

                     STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                    (in thousands)

<TABLE>
<CAPTION>
                                                        Series A                         Additional
                                                       Preferred          Common           Paid-In       Accumulated
                                                         Stock             Stock           Capital         Deficit
--------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                <C>            <C>             <C>
Balance,
January 1, 1995                                               $ -             $ 47          $   164        $ (2,763)
Amortization of deferred compensation
Accretion of liquidation value                                                                                 (367)
Issuance of warrants in connection with debt                                                     75
Issuance of common stock options                                                                 55
Net loss                                                                                                     (1,226)
--------------------------------------------------------------------------------------------------------------------

Balance,
December 31, 1995                                               -               47              294          (4,356)
--------------------------------------------------------------------------------------------------------------------

Amortization of deferred compensation
Accretion of liquidation value                                                                                 (635)
Acquisition of Ohmicron Corporation                                             31            4,017
Acquisition of EnSys Environmental Products, Inc.                               53           13,006
Conversion of redeemable convertible preferred to
Series A preferred                                             22                             6,588
Net loss                                                                                                     (8,388)
--------------------------------------------------------------------------------------------------------------------

Balance,
December 31, 1996                                              22              131           23,905         (13,379)
--------------------------------------------------------------------------------------------------------------------

Exercises of stock options, warrants and other                                   1                8
Foreign currency translation adjustment, net
Net Income                                                                                                    1,677
--------------------------------------------------------------------------------------------------------------------

Balance,
December 31, 1997                                             $22             $132          $23,913        $(11,702)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                      Cumulative          Deferred
                                                      Translation          Compen-
                                                      Adjustments          sation            Total
----------------------------------------------------------------------------------------------------
<S>                                                   <C>                 <C>              <C>
Balance,
January 1, 1995                                              $  -            $(28)         $(2,580)
Amortization of deferred compensation                                          34               34
Accretion of liquidation value                                                                (367)
Issuance of warrants in connection with debt                                                    75
Issuance of common stock options                                              (55)               -
Net loss                                                                                    (1,226)
----------------------------------------------------------------------------------------------------

Balance,
December 31, 1995                                               -             (49)          (4,064)
----------------------------------------------------------------------------------------------------

Amortization of deferred compensation                                          43               43
Accretion of liquidation value                                                                (635)
Acquisition of Ohmicron Corporation                                                          4,048
----------------------------------------------------------------------------------------------------
Acquisition of EnSys Environmental Products, Inc.                                           13,059
Conversion of redeemable convertible preferred to
Series A preferred                                                                           6,610
Net loss                                                                                    (8,388)
----------------------------------------------------------------------------------------------------

Balance,
December 31, 1996                                               -              (6)          10,673
----------------------------------------------------------------------------------------------------

Exercises of stock options, warrants and other                                  6               15
Foreign currency translation adjustment, net                 (25)                              (25)
Net Income                                                                                   1,677
----------------------------------------------------------------------------------------------------

Balance,
December 31, 1997                                            (25)            $  -          $12,340
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>


           The accompanying notes are an integral part of these statements.


                                         F-4
<PAGE>

                     STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

                         CONSOLIDATED STATEMENT OF CASH FLOWS
                                    (in thousands)

<TABLE>
<CAPTION>


                                                                     Year Ended December 31,
-------------------------------------------------------------------------------------------------
                                                             1997           1996           1995
-------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>
Cash Flows from Operating Activities
Net income (loss)                                          $  1,677        ($8,388)      ($1,226)
  Adjustments to reconcile net income to
  cash used in operating activities:
     Depreciation and amortization and other, net               643            181           135
     Acquired research and development write-off                  -          8,266             -
     Equity in (income) of TSD BioServices                        -           (178)          (41)
     Amortization of deferred compensation                        6             43            34
     Imputed interest on note payable                             -              -            75
(Increase) decrease in:
  Receivables                                                  (825)          (753)            1
  Inventories                                                    10            208           (70)
  Other current assets                                          336           (696)           33
  Note receivable and other assets                               81             56           (45)
Increase (decrease) in:
  Accounts payable                                             (947)           472          (262)
  Accrued expenses                                           (1,113)           589           138
  Deferred revenue                                              (41)          (170)          211
-------------------------------------------------------------------------------------------------
Net cash used in operating activities                          (173)          (370)       (1,017)

Cash Flows from Investing Activities:
  Purchase of property and equipment                           (159)           (67)          (41)
  Proceeds from EnSys and Ohmicron acquisitions                   -            807             -
  Short-term investment activity                              2,072              -             -
  Restricted cash                                                 -             56            26
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities           1,913            796           (15)

Cash Flows from Financing Activities :
  Proceeds from exercise of incentive stock options               9              -             -
  Repayments on capital lease obligations                       (87)           (17)
  Proceeds from sale of preferred stock, net                      -            473             -
  Proceeds from note payable                                      -              -         1,000
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities             (78)           456         1,000

Net Increase (Decrease) in Cash and Cash Equivalents          1,663            882           (32)

Cash and Cash Equivalents, Beginning of Period                  917             35             67
-------------------------------------------------------------------------------------------------

Cash and Cash Equivalents, End of Period                   $  2,580       $    917       $     35
-------------------------------------------------------------------------------------------------

Supplemental Cash Flow Disclosure :

Cash paid for interest                                     $     36       $      3       $      0
-------------------------------------------------------------------------------------------------

</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, 1997
                  (in thousands, except share and per share data)

1.   BACKGROUND:

BUSINESS

Strategic Diagnostics Inc. (the "Company") develops, manufactures and markets
immunoassay based test kits for rapid and inexpensive detection of a wide
variety of substances in the water quality, industrial and agricultural markets.

BASIS OF PRESENTATION

The Company is the entity resulting from the combination of Strategic
Diagnostics Inc. ("SDI") Ohmicron Corporation ("Ohmicron") and EnSys
Environmental Products, Inc. ("EnSys").

The historical financial statements presented herein include the consolidated
financial statements of Strategic Diagnostics Inc. for all periods and the
actual results of Ohmicron Corporation from August 30, 1996 (Note 3) and EnSys
Environmental Products, Inc. from December 30, 1996 (Note 3).  As used herein,
unless the context requires otherwise, the Company collectively refers to SDI
and its subsidiaries for the periods indicated.  All significant intercompany
balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which supersedes APB Opinion No. 15 ("APB No. 15"), "Earnings Per
Share," and which is effective for all periods ending after December 16, 1997.
SFAS 128 requires dual presentation of basic and diluted earnings per share
("EPS") for complex capital structures.  Basic EPS is computed by dividing
income by the weighted-average number of common shares outstanding for the
period.  Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options and warrants.
The calculation of the Company's basic and diluted EPS measured under SFAS 128
for each period presented is not materially different than the primary and fully
diluted EPS measured under APB No. 15 for each period presented.

Outstanding options to purchase 976,500 shares of Common stock at $1.875 to
$6.25 were excluded from the computation of diluted earnings per share, as the
options' exercise price was greater than the average market price of the common
shares.


                                         F-6
<PAGE>

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.

ACCOUNTS RECEIVABLE

As of December 31, 1997 and 1996, the allowance for doubtful accounts was $120
and $180, respectively. In 1997, 1996 and 1995, approximately $60, $2 and $10 of
write-offs were charged to this allowance which was offset by approximately $0,
$81 and $9 charged to earnings in each of the respective years.  If receivables
become uncollectible or unbillable, 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.


At December 31, accounts receivable consisted of the following:
<TABLE>
<CAPTION>
                                                   1997        1996
                                                 --------    --------
     <S>                                         <C>         <C>
     Accounts receivable                         $  2,745    $  1,739
     Unbilled accounts receivable                     414         595
                                                 --------    --------
                                                 $  3,159    $  2,334
                                                 --------    --------
                                                 --------    --------
</TABLE>

INVENTORIES

The Company's inventories, which consist primarily of test kit components and
accessories, are valued at the lower of cost or market.  Cost is determined
using standard costs which approximate average cost.  Realization of the
Company's inventories is dependent upon the successful marketing of its
products.  At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
                                                   1997        1996
                                                 --------    --------
     <S>                                         <C>         <C>
     Raw materials                               $    619    $    626
     Work in progress                                  51         356
     Finished goods                                   877         575
                                                 --------    --------
                                                 $  1,547    $  1,557
                                                 --------    --------
                                                 --------    --------
</TABLE>

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.

REVENUE RECOGNITION

Product related revenues which include the sale of immunoassay-based test kits
are generally recognized upon shipment. Included in product related revenues are
also the sale of antibodies and immunochemical reagents which are sold through
longer term development agreements.  These revenues are recognized on a
percentage of completion method.  Contract revenues recorded under the Company's
collaborative agreements are recognized upon the completion of certain
performance requirements of the contracts.  License revenue is recognized upon
transfer of such licenses.

RESEARCH AND DEVELOPMENT


                                         F-7
<PAGE>

Research and development costs are charged to expense as incurred.

OTHER INCOME

Other income of $178 and $41 was recorded in 1996 and 1995, respectively, 
for the Company's equity in the income of TSD BioServices (Note 3).

INCOME TAXES

As of December 31, 1997, the Company had federal net operating loss
carryforwards, including those acquired (Note 3), of approximately $15,780,
which begin to expire as follows:
<TABLE>

<S>                                                                 <C>
2001                                                                $    13
2002                                                                    716
2003                                                                    489
2004                                                                  1,362
2005                                                                  2,565
2006                                                                  2,603
2007                                                                  2,584
2008                                                                  1,182
2009                                                                  2,081
2010                                                                  2,185
                                                                    -------
Total                                                               $15,780
                                                                    -------
                                                                    -------
</TABLE>

The amount of the net operating loss carryforwards which can be utilized in any
one period, if any, will be limited by  federal tax regulations since a
cumulative change in ownership of more than 50% has occurred within a three year
period. The benefits of the utilization of acquired net operating losses, if
any, will be recorded as a reduction of the remaining unamoritized intangibles
that were acquired in the transaction in which the utilized net operating losses
were acquired.  Any benefits obtained in excess of the remaining related
intangibles will be reported as a reduction in the income tax provision during
the year in which management determines that it is more likely  than not that
these benefits will be realized.  As of December 31, 1997 approximately $4,400
of future utilization, if any, of acquired net operating losses will be recorded
as a reduction of the related acquired intangibles.

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 amoritization, other non-deductible
reserves and the accretion of preferred stock for financial and federal income
tax reporting.

Significant components of the Company's deferred tax assets as of December 31
are as follows:
<TABLE>
<CAPTION>
                                                    1997        1996
                                                   ------      ------
     <S>                                           <C>         <C>
     Net operating loss carryforwards               5,429       5,439
     Amoritization and depreciation                   517         832
     Non-deductible reserves                          127         262
     Inventory costs not currently deductible         129         266
                                                   ------      ------

            Total deferred tax assets               6,202       6,799

     Valuation allowance                           (6,202)     (6,799)
                                                   ------      ------

     Net deferred tax assets
                                                   ------      ------
                                                   ------      ------
</TABLE>


                                         F-8
<PAGE>

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:
<TABLE>
<CAPTION>
                                                  1997     1996       1995
                                                  ----     ----       ----
<S>                                              <C>      <C>        <C>
Statutory tax rate                                 34.0%  (34.0)%    (34.0)%
State taxes, net of U.S. Federal benefit            -        .1        (.4)
Write-off of acquired research and
       development                                  -      33.5         -
Increase in (utilization of) net operating loss
       carryforwards                               (.6)    (3.2)      34.4
Changes in net valuation reserve                 (34.9)     3.1         .1
Other, net                                         1.5       .5        (.1)
                                                 ------   ------     ------
                                                    -  %     -  %       -  %
                                                 ------   ------     ------
                                                 ------   ------     ------
</TABLE>

Management continually reviews the valuation allowance and will recognize
deferred tax benefits only as reassessment indicates that it is more likely than
not that these benefits will be realized.  The total amount of future taxable
income in the U.S. necessary to realize the Company's gross deferred tax assets
is approximately $18,000. Management believes that the Company will generate
future taxable income; however, management also believes that the recorded
valuation allowance is consistent with the provisions of SFAS 109, "Accounting
for Income Taxes."


RECLASSIFICATION

Certain reclassifications have been made to the prior year financial statements
to conform to current year financial statement presentation.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure," which is effective for all periods ending after December 15,
1997.  This statement establishes standards for disclosing information about an
entity's capital structure.  In adopting SFAS 129, the company disclosed
additional information regarding the Series A Preferred Stock  in the financial
statements and the notes hereto.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130").  This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.  SFAS 130 is effective for financial statements issued for
fiscal years beginning after December 15, 1997.  Management believes that SFAS
130 will not have a material effect on the Company's financial statement
disclosures.

In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" ("SFAS 131").  This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997.  Management
believes that SFAS No. 131 will not have a material effect on the Company's
financial statement disclosures.


3.   MERGERS AND ACQUISITIONS:

MERGER WITH ENSYS ENVIRONMENTAL PRODUCTS, INC.

On December 30, 1996, the Company merged with and into EnSys Environmental
Products, Inc. (the "Merger").  The Merger agreement provided that SDI common
and preferred stockholders receive .7392048 shares of EnSys stock for each share
of SDI Common or Preferred Stock.  This resulted in the former SDI stockholders
owning 5,780,136 shares of EnSys Common Stock and 2,164,362 shares of EnSys
Series A


                                         F-9
<PAGE>

Convertible Preferred Stock or approximately 52% of the 15,219,532 voting shares
outstanding after the Merger.  In addition to the common and preferred stock
noted above, current SDI option and warrant holders received options and
warrants to purchase .7818026 shares of EnSys Common Stock for each option or
warrant held.  Upon consummation of the Merger, SDI option and warrant holders
received options and warrants for the purchase of 383,216 and 599,644 shares,
respectively, of EnSys Common Stock.  The difference in exchange ratios between
stockholders and option and warrant holders is due to the stock preferences
received by SDI's preferred stockholders upon exchange of their shares.  The
cost of receiving these preferences was shared by all SDI stockholders upon
exchange of their shares, but was not borne by the SDI option and warrant
holders.

The Merger was accounted for as a purchase transaction with SDI as the acquiring
company.  Based on the $1.75 per share closing price of EnSys Common Stock on
October 14, 1996, (date of transaction public announcement) the estimated total
purchase price of EnSys was $16,133, which consists of the following: (i) the
$12,731 market value of the outstanding shares of EnSys Common Stock (7,275,034
shares multiplied by $1.75 per share), (ii) the $328 fair value of the
outstanding options and warrants to purchase EnSys Common Stock and (iii)
estimated transaction costs of approximately $3,074.  Since SDI is the acquirer
for accounting purposes, the EnSys options and warrants are required to be
valued for purchase accounting purposes as if they are additional consideration
in the transaction.  The valuation for EnSys options and warrants was provided
by an investment banking firm using a traditional valuation approach.  Of the
approximately $3,074 of estimated transaction costs, approximately $457 relates
to severance payments to former EnSys employees, $362 to facility termination
and moving and $36 to employee relocation.  In connection with the Merger,
approximately 35 EnSys employees were terminated in December 1996.

In connection with the Merger, all identifiable assets acquired by SDI including
intangible assets were assigned a portion of the cost of the acquired company
based on an independent valuation of EnSys' assets.  Such allocation included
the identification and evaluation of each development project to determine if
technological feasibility had been achieved and if there were any alternative
future uses.  EnSys' primary research and development focus at the time of the
merger, the "One Step" assay, was evaluated and it was determined that
technological feasibility had not been achieved.  In addition, since alternative
uses of this developmental technology did not exist, the costs of such
technology were charged to expense in accordance with SFAS No. 2.  Based on the
foregoing purchase price, the amount allocated to acquired research and
development of $4,353 was charged to the statement of operations at December 30,
1996, the effective date of the Merger.  The remaining amount of intangible
assets of approximately $1,167 included approximately $472 for developed
technology, $55 for assembled workforce and $640 for goodwill.  The intangible
assets purchased are amortized on a straight-line basis over 7-10 years.

ACQUISITION OF OHMICRON CORPORATION

On August 30, 1996, SDI acquired Ohmicron and certain of its wholly owned
subsidiaries for 2,268,456 shares of common stock.  Prior to the acquisition,
Ohmicron spun-off certain assets and liabilities of another of its wholly-owned
subsidiaries, Ohmicron Medical Diagnostics, Inc.  The acquisition of Ohmicron
was recorded as a purchase using the fair value of the SDI common stock issued
to Ohmicron.  The total purchase price of approximately $4,503, including
transaction and other costs of $533, has been allocated to the fair market value
of the assets acquired and liabilities assumed.  Based on the foregoing purchase
price, the amount allocated to acquired research and development of $3,913 was
charged to the statement of operations at the time of the acquisition.  In
connection with the Ohmicron transaction, all identifiable assets acquired
including intangible assets were assigned a portion of the cost of the acquired
company based on an independent valuation of Ohmicron's assets.  Such allocation
included the evaluation of each development project identified to determine if
technological feasibility had been achieved and if there were any alternative
future uses.  Based on this analysis, it has been determined that technological
feasibility has not been achieved, and that alternative uses of this
developmental technology do not exist.  The cost of such technology has
therefore been charged to expense in accordance with SFAS No. 2, "Accounting for
Research and Development Costs."  The remaining amount of intangible assets of
approximately $590 included approximately $384 for developed technology, $103
for assembled workforce and $103 for goodwill.  The intangible assets purchased
are amortized on a straight-line basis over 7-10 years.  The fair market value
of the common stock issued to Ohmicron was based on several factors including
recent equity transactions, as well as the subsequently negotiated merger with
EnSys.


                                         F-10
<PAGE>

The redeemable convertible preferred stock was mandatorily redeemable and
received dividends, registration rights and senior liquidation rights to the
common stock (see Note 11).  The common stock was valued at $1.75 per share
reflecting a discount from the redeemable convertible preferred stock due to the
difference in preferences between the two classes of stock.

TSD BIOSERVICES DISSOLUTION

In October 1996, SDI entered into an agreement with Taconic Farms, Inc.
("Taconic") to dissolve TSD BioServices; a partnership between Taconic and SDI
and to liquidate its assets, in connection with which certain of the rights and
assets were distributed to SDI.  Upon dissolution, certain rights and assets
formerly owned by the joint venture were placed in a wholly-owned subsidiary of
SDI.  The agreement to dissolve TSD Bio Services provides that each of the
former partners receive rights to perform services that were considered to be
either a core part of that partner's expertise, or an area in which the partner
wanted to increase its market presence or technical competency.  The dissolution
agreement also provided that certain services previously provided by TSD
BioServices, such as ascites production and sales and marketing, would be
subcontracted to Taconic by SDI in the future based on established fees set
annually.  For accounting purposes, this transaction was treated as a purchase,
with the consideration provided being SDI's investment of $338, which
approximates the fair market value of the assets received.

UNAUDITED PRO FORMA COMBINED RESULTS OF OPERATIONS

The following table summarizes the unaudited pro forma combined results of
operations for the years ended December 31, 1996 and 1995, assuming that the
Merger, the Ohmicron acquisition and the TSD dissolution had occurred on January
1, 1995:
<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31
                                              ----------------------
                                                1996          1995
                                             ----------    ----------
                                                    (unaudited)
     <S>                                     <C>           <C>
     Revenues                                $   12,700    $   11,184
                                             ----------    ----------
                                             ----------    ----------
     Net loss                                $   (5,973)   $   (7,721)
                                             ----------    ----------
                                             ----------    ----------
     Basic and Diluted Net loss per share    $    (0.47)   $    (0.66)
                                             ----------    ----------
                                             ----------    ----------
</TABLE>

The above pro forma information excludes the $8,266 one-time charge to earnings
for acquired research and development.  The shares used in computing pro forma
net loss per share assumes that the Merger with EnSys, the acquisition of
Ohmicron and the TSD BioServices dissolution had occurred January 1, 1995.


                                         F-11
<PAGE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The following table displays the net non cash assets that were acquired during
1996 as a result of the Merger and the Ohmicron Acquisition:
<TABLE>
          <S>                                                <C>
          Non cash (assets) liabilities:
            Short term investments                          $  (5,710)
            Receivables                                          (808)
            Inventories                                        (1,318)
            Property and equipment                               (443)
            Restricted cash                                      (126)
            Note receivable                                      (357)
            Intangibles                                        (2,135)
            Accounts payable                                    1,483
            Accrued expenses including acquisition costs        1,128
            Deferred revenue                                      100
            Capital lease obligations                             152
                                                            ---------
                                                               (8,034)
            Issuance of common stock                           17,107
            Acquired research and development                  (8,266)
                                                            ---------
          Net cash acquired in business acquisitions        $     807
                                                            ---------
                                                            ---------
</TABLE>

4.        SHORT-TERM INVESTMENTS:

At December 31, 1997, short-term investments consisted primarily of 
commercial paper. Contractual maturities of the Company's investments as of 
December 31, 1997 are $3,550 in 1998 and $100 in 2000. The Company considers 
these investments as being available-for-sale in accordance with SFAS No. 115 
"Accounting for Certain Investments in Debt and Equity Securities." 
Available-for-sale securities are carried at fair value, based on quoted 
market prices, with unrealized gains and losses reported as a separate 
component of stockholders' equity.  As of December 31, 1997, unrealized gains 
were not material to the financial statements.  Interest income and other 
realized gains were  $310, $11, and $8 in 1997, 1996, and 1995, respectively.

5.        PROPERTY AND EQUIPMENT:

At December 31, property and equipment consisted of the following:
<TABLE>
<CAPTION>
                                                          1997         1996
                                                        --------     --------
      <S>                                               <C>          <C>
      Equipment                                         $  1,071     $  1,002
      Furniture and fixtures                                  66           66
      Leasehold improvements                                 288          198
                                                        --------     --------
      Less- Accumulated depreciation and amortization       (929)        (538)
                                                        --------     --------
                                                        $    496     $    728
                                                        --------     --------
                                                        --------     --------
</TABLE>

Depreciation expense was $391, $91, and $130 in 1997, 1996, and 1995
respectively.

6.   OTHER ASSETS:

As of December 31, other assets consisted of the following:
<TABLE>
<CAPTION>
                                                          1997         1996
                                                        --------     --------
      <S>                                               <C>          <C>
      Restricted cash                                   $    100     $    119
      Deferred rent                                          192          171
      Note receivable--(Net of allowance)                    276          341
      Deposits and other                                      66           84
                                                        --------     --------
                                                        $    634     $    715
                                                        --------     --------
                                                        --------     --------
</TABLE>


                                         F-12
<PAGE>

The Company maintains a note receivable from a former executive of EnSys.  The
original loan amount was $350 and is secured by the individual's personal
residence.  The loan bears interest at 5.8% per annum.  At December 31, 1997,
the outstanding loan balance was approximately $344 of which approximately $6 in
principal is payable annually through the year 2000 with the balance payable in
January 2001.

7.   INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
                                             1997        1996       Lives
                                             ----        ----       -----
    <S>                                     <C>         <C>         <C>
    Developed Technology                    $1,250      $1,250        7
    Goodwill                                   743         743        7
    Other                                      208         208      5 to 7
    Less - Accumulated Amoritization          (369)        (91)
                                            ------      ------
                                            $1,832      $2,110
                                            ------      ------
                                            ------      ------
</TABLE>

Amortization of these intangible assets was $278 and $91 in 1997 and 1996,
respectively.

8.  ACCRUED EXPENSES:
<TABLE>
<CAPTION>
       As of December 31, accrued expenses consisted of the following:

                                                        1997        1996
                                                      --------    --------
    <S>                                               <C>         <C>
    Legal and professional                            $    131    $    260
    Merger costs                                           118       1,069
    Accrued taxes, salaries, and other                     704         737
                                                      --------    --------
                                                      $    953    $  2,066
                                                      --------    --------
                                                      --------    --------
</TABLE>

9.  NOTES PAYABLE:

In October 1994 and April 1995, the holders of the redeemable convertible
preferred stock provided $500 and $1,000, in working capital loans to the
Company.  These notes bore interest at 9% and 10% per annum, respectively,
and each became due during 1995.  In addition, 87,349 and 223,372 warrants
were issued, respectively, for the purchase of common stock of the Company at
an exercise price of $2.37 per share.  The warrant values deemed for
accounting purposes were $23 and $75, respectively, which were recorded as an
asset and amortized over the term of the loans.  The warrants have an
exercise period of five years.

In January 1996, the Company converted the $1,500 of Note Payable and $124 of
accrued interest into 685,952 shares of redeemable convertible preferred
stock (Note 10).

                                         F-13
<PAGE>

10. CAPITAL LEASES:

The Company leases equipment under capital lease agreements which expire at
various dates through 2001.  Certain of the leases contain options to
purchase the equipment at the end of the respective lease terms.  As of
December 31, 1997, future minimum capital lease payments are as follows:
<TABLE>

          <S>                                                     <C>
          1998                                                    $     32
          1999                                                          16
          2000                                                          12
          2001                                                           8
                                                                  --------
                                                                        68
          Less- Amount representing interest                           (20)
                                                                  --------
          Present value of  minimum lease payments                      48
          Less- Current portion of capital lease obligations           (23)
                                                                  --------
                                                                  $     25
                                                                  --------
                                                                  --------
</TABLE>

Interest expense was $36, $3, and $214 in 1997, 1996, and 1995 respectively.

11.  SERIES A PREFERRED STOCK:

In June 1993, the Company sold 1,267,208 shares of redeemable convertible
preferred stock and received proceeds of $3,000 less $47 of transaction
costs.  In connection with the 1996 financing, the Company converted the
$1,500 of notes payable and $124 of accrued interest into 685,952 shares of
redeemable convertible preferred stock at $2.37 per share (Note 9) and
received an additional investment of $500 for the purchase of 211,202 shares
less transaction costs of $27.  All such shares were redeemable with
cumulative dividends, at the option of the holders, as defined, beginning in
1998.  Dividends have been accreted through the Merger (Note 3).

In connection with the Merger, the redeemable convertible preferred stock
plus cumulative dividends were converted into 2,164,362 shares of a newly
issued class of Series A Preferred Stock ("Series A").  The Series A has no
redemption provisions outside the control of the Company.  As a result, the
Series A is classified as a component of stockholders' equity.

The Series A is convertible into one share of common stock at the option of
the holder at any time, or at the option of the Company if the closing share
price of the Company's common stock exceeds $4.50 per share for a period of
45 business days.  The Series A carries an aggregate and per share
liquidation preference of $6,378 and $2.95, respectively, as of December 31,
1997.  The Series A contains no annual dividend provisions and is only
redeemable in the event the Company converts the Series A into securities of
a lesser value, as defined.

12.  STOCK OPTIONS AND WARRANTS:

STOCK OPTIONS

The Company has two stock option plans (the "1993 Plan" and the "1995 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 SDI options were converted
into the 1995 Plan.  A maximum of 1,700,000 shares of common stock are
issuable under the 1995 Plan  and options to purchase up to 300,000 shares of
common stock had been authorized under the 1993 Plan.

Certain additional options have been granted outside the plans.  These
options generally follow the provisions of the 1995 Plan.


                                         F-14
<PAGE>

Information with respect to the stock options granted under the plans and
options granted separately from the plans is summarized as follows:
<TABLE>
<CAPTION>

                                                                Price           Aggregate
                                                Number          Range           Proceeds
                                             ---------------------------------------------
       <S>                                    <C>          <C>                 <C>
       Balance, December 31, 1994               278,415    $ 0.19 - $ 0.64     $       101
         Granted                                146,275      0.19 -   0.64              39
         Cancelled                              (27,402)              0.64             (18)
                                              ---------    ---------------     -----------
       Balance, December 31, 1995               397,288      0.19 -   0.64             122
       Options acquired in conjunction
         with the Merger                        461,023      0.25 -   7.50           1,226
         Granted                                200,000      2.00 -   2.20             420
         Cancelled                              (14,072)              0.64              (9)
                                              ---------    ---------------     -----------
       Balance, December 31, 1996             1,044,239    $ 0.19 - $ 7.50     $     1,759
         Granted                                545,000               1.88           1,022
         Cancelled                             (204,198)     0.19 -   7.50            (576)
         Exercised                              (25,502)     0.19 -   0.64              (7)
                                              ---------    ---------------     -----------
       Balance, December 31, 1997             1,359,539    $ 0.19 - $ 6.25     $     2,198
                                              ---------    ---------------     -----------
                                              ---------    ---------------     -----------
</TABLE>


As of December 31, 1997, options covering 692,497 shares were exercisable
with an aggregate exercise price of $942 and 614,959 shares were available
for future grant under the plans.

For options granted, the Company recognizes as deferred compensation the
excess of the deemed value for accounting purposes of the common stock
issuable upon the exercise of options over the aggregate exercise price of
such options.  The deferred compensation is amortized over the vesting period
of the options.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation."  Effective January 1, 1995, the Company adopted the disclosure
requirement of this pronouncement.  Had compensation cost for the Company's
stock option plans been determined based upon the fair value at the grant
date for awards under SFAS 123, the Company's net income (loss) applicable to
common stockholders for 1997, 1996 and 1995 would have been $1,493, $(9,113)
and $(1,610) and diluted net income (loss) per share applicable to common
stockholders would have been $0.10, $(2.15) and $(0.46), respectively.
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost,
and thus pro forma net income (loss), may not be representative of that to be
expected in future years.

The weighted average fair value at the date of grant for options granted
during 1997, 1996 and 1995 is estimated at $1.37, $1.46 and $0.47 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 80%, risk-free interest rate of 6.4% in 1997, 6.4% in
1996 and 6.5% in 1995, and an expected option life of 6 years.

WARRANTS

In December 1994, in connection with a prior collaboration agreement, the
Company issued to Conoco a warrant that enables Conoco to purchase 164,179
shares of the Company's common stock for an exercise price of one dollar.  In
connection with this exchange, the Company recorded a charge of $105 in 1994
in the statement of operations reflecting the fair value of the warrant.  If
Conoco exercises this warrant, and the Company completes an equity financing
with aggregate proceeds of $7 million or greater, then Conoco has the right
to require the Company to repurchase the warrant at a price equal to 164,179
shares multiplied by the price per share received in the equity financing.
The warrant expires in November 1999.

In connection with the original issuance of the redeemable convertible
preferred stock and the notes payable issued in October 1995 and April 1995
which were subsequently converted to redeemable convertible stock in

                                         F-15
<PAGE>

January 1996, the Company granted warrants to purchase a total of 429,992
shares of common stock at an exercise price of $2.37.  The warrants have an
expire five years from the dates of grant.

At December 31, 1997, the Company maintains 3,530 of outstanding warrants.
These warrants are exercisable at $4.96 per share and expire in 2001.

13.  EM COLLABORATIVE AGREEMENT:

In February 1992, SDI entered into an agreement with EM Industries, Inc. (an
affilitate of Merck KgaA, "EM") for the development and manufacture of a
product line of immunoassays capable of identifying and quantifying certain
substances found on the priority pollutant list published by the
Environmental Protection Agency.  In connection with this agreement, the
Company received $0, $400 and $600 in 1997, 1996 and 1995, respectively, for
the achievement of certain defined development milestones.  In September
1996, the Company acquired the product rights to the D TECH-Registered
Trademark-product line from EM in exchange for a royalty payment based on
sales of specified products into selected markets and 48,048 shares of common
stock.

14.  MAJOR CUSTOMERS

During 1995, EM and two customers accounted for 26%, 17% and 14% of the
Company's revenue, respectively.  During 1996, EM and EnSys (Note 3)
accounted for 11% and 19%, respectively of the Company's revenues.  During
1997, Rohm & Haas and Delta and Pine Land Company each accounted for 10% of
the Company's revenues.

15.  TSD BIOSERVICES TRANSACTIONS:

TSD purchased certain supplies, raw materials and services from Taconic and
the Company.  In 1996 and 1995, the Company included in revenues $53 and $275
of contract and other revenues resulting from transactions with TSD.  In
October 1996, TSD was dissolved (Note 3).

In 1991, TSD entered into a five-year management agreement with each of its
partners.  The agreements provided that the partners could charge TSD
BioServices for work performed on behalf of the partnership by any of the
partners' principals. TSD BioServices partners elected not to charge TSD
BioServices for these and certain other expenses related to the partnership,
but rather elected to absorb such costs in the parent organizations.  Such
costs were immaterial and the management agreement was terminated in 1996.

16.  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, 1997, 1996 and 1995, was $466, $250 and $226, respectively.  Future
commitments under these noncancelable leases at December 31:
<TABLE>

               <S>                                         <C>
               1998                                          $676
               1999                                           563
               2000                                           436
               2001                                           383
               2002                                           351
               2003 and thereafter                          1,650
                                                           ------
                                                           $4,059
                                                           ------
</TABLE>

In July 1993, the Company purchased certain equipment, inventory, cell lines
and product rights and other assets for Macra-Registered Trademark-Lp(a) from
Terumo Medical Corporation ("Terumo") for $128.  In connection with this
agreement, the Company agreed to pay Terumo a royalty on net sales of the
Macra-Registered Trademark-Lp(a) product.  The royalty is based on a
specified formula, but generally requires the Company to pay a 6% royalty on
the net sales of Macra-Registered Trademark-products, with a minimum royalty
payment each year of $10.  The Company paid Terumo $25, $15 and $25 in
royalties under this agreement in 1997, 1996 and 1995, respectively.


                                         F-16
<PAGE>

The Company is party 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.

17.  RETIREMENT SAVINGS PLAN:

In 1992, the Company instituted 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 1997, 1996 and 1995, the Company recognized expense of $76, $51
and $51, respectively, associated with this plan.


                                         F-17
<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.


                                  STRATEGIC DIAGNOSTICS INC.

Date:  March 11, 1998              /s/ Richard C. Birkmeyer
                                  ----------------------------
                                  Richard C. Birkmeyer
                                  President, Chief Executive Officer
                                  (Principal Executive Officer) and Director

Date:  March 11, 1998              /s/ Arthur A. Koch, Jr.
                                  ----------------------------
                                  Arthur A. Koch, Jr.
                                  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 11, 1998               /s/ Richard J. Defieux
                                  ------------------------------
                                  Richard J. Defieux
                                  Director

Date:  March 11, 1998              /s/ Robert E. Finnigan
                                  ------------------------------
                                  Robert E. Finnigan
                                  Director

Date:  March 11, 1998              /s/ Stephen O. Jaeger
                                  ------------------------------
                                  Stephen O. Jaeger
                                  Director

Date:  March 11, 1998              /s/ Kathleen E. Lamb
                                  ------------------------------
                                  Kathleen E/. Lamb
                                  Director

Date:  March 11, 1998              /s/ Curtis Lee Smith, Jr.
                                  ------------------------------
                                  Curtis Lee Smith, Jr.
                                  Director

Date:  March 11, 1998              /s/ Grover C. Wrenn
                                  ------------------------------
                                  Grover C. Wrenn
                                  Director