10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2012

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

For the Transition Period From _________ to _________

Commission File Number 000-22400

STRATEGIC DIAGNOSTICS INC.

(Exact name of Registrant as specified in its charter)

Delaware	56-1581761
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer 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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes: x         No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes: x          No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes: o          No: x

As of October 30, 2012, there were 20,986,071 outstanding shares of the Registrant’s common stock, par value $.01 per share.

STRATEGIC DIAGNOSTICS INC.

INDEX

	Item	Page
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets – September 30, 2012 and December 31, 2011		2
Consolidated Statements of Operations – Three and nine months ended September 30, 2012 and 2011		3
Consolidated Statements of Comprehensive Loss – Three and nine months ended September 30, 2012 and 2011		4
Consolidated Statements of Cash Flows – Nine months ended September 30, 2012 and 2011		5
Notes to Consolidated Interim Financial Statements		6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		19
ITEM 4. Controls and Procedures		19
PART II OTHER INFORMATION		20
ITEM 6. Exhibits		20
SIGNATURES		21

1

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	September 30,			December 31,
	2012			2011
ASSETS
Current Assets :
Cash and cash equivalents	$	6,995		$	10,665
Restricted cash		-			300
Receivables, net		3,173			3,758
Inventories		1,763			2,142
Other current assets		662			618
Current assets held for sale		948			-
Total current assets		13,541			17,483
Property and equipment, net		4,743			3,890
Other assets		52			6
Deferred tax asset		37			36
Intangible assets, net		-			1,207
Non-current assets held for sale		1,245			-
Total assets	$	19,618		$	22,622
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities :
Current portion of debt	$	46		$	300
Accounts payable		401			556
Accrued expenses		2,044			1,769
Deferred revenue		117			-
Total current liabilities		2,608			2,625
Long-term debt		204			-
Stockholders' Equity:
Preferred stock, $.01 par value, 20,920,648 shares authorized,
no shares issued or outstanding		-			-
Common stock, $.01 par value, 50,000,000 shares authorized,
21,389,259 and 21,000,960 issued
at September 30, 2012 and December 31, 2011, respectively		210			210
Additional paid-in capital		42,610			42,146
Treasury stock, 406,627 common shares at cost
at September 30, 2012 and December 31, 2011		(555	)		(555	)
Accumulated deficit		(25,221	)		(21,537	)
Cumulative translation adjustments		(238	)		(267	)
Total stockholders' equity		16,806			19,997
Total liabilities and stockholders' equity	$	19,618		$	22,622

The accompanying notes are an integral part of these statements.

2

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	3,995		$	4,085		$	11,610		$	12,735
Cost of sales		2,085			1,793			5,664			5,784
Gross profit		1,910			2,292			5,946			6,951
Operating expenses:
Research and development		987			930			2,837			2,414
Selling, general and administrative		2,638			2,882			8,429			9,214
Total operating expenses		3,625			3,812			11,266			11,628
Operating loss		(1,715	)		(1,520	)		(5,320	)		(4,677	)
Interest expense, net		(5	)		(10	)		(22	)		(27	)
Loss from continuing operations before taxes		(1,720	)		(1,530	)		(5,342	)		(4,704	)
Income tax expense		-			27			-			29
Loss from continuing operations, net of taxes		(1,720	)		(1,557	)		(5,342	)		(4,733	)
Income from discontinued operations		690			863			1,658			2,724
Net loss	$	(1,030	)	$	(694	)	$	(3,684	)	$	(2,009	)
Basic loss per share from continuing operations	$	(0.08	)	$	(0.08	)	$	(0.26	)	$	(0.23	)
Basic income per share from discontinued operations		0.03			0.04			0.08			0.13
Basic net loss per share	$	(0.05	)	$	(0.03	)	$	(0.18	)	$	(0.10	)
Shares used in computing basic net loss per share		20,536,745			20,467,245			20,510,751			20,423,521
Diluted loss per share from continuing operations	$	(0.08	)	$	(0.08	)	$	(0.26	)	$	(0.23	)
Diluted income per share from discontinued operations		0.03			0.04			0.08			0.13
Diluted net loss per share	$	(0.05	)	$	(0.03	)	$	(0.18	)	$	(0.10	)
Shares used in computing diluted net loss per share		20,536,745			20,467,245			20,510,751			20,423,521

The accompanying notes are an integral part of these statements.

3

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net loss	$	(1,030	)	$	(694	)	$	(3,684	)	$	(2,009	)
Foreign currency translation adjustment		25			(17	)		29			(1	)
Comprehensive loss	$	(1,005	)	$	(711	)	$	(3,655	)	$	(2,010	)

The accompanying notes are an integral part of these statements

4

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months
	Ended September 30,
	2012			2011
Cash Flows from Operating Activities :
Net loss	$	(3,684	)	$	(2,009	)
Add: Income from discontinued operations		1,658			2,724
Loss from continuing operations		(5,342	)		(4,733	)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities :
Depreciation and amortization		857			928
Share-based compensation expense		455			376
Deferred income tax provision		(1	)		1
(Increase) decrease in :
Receivables		585			(60	)
Inventories		(569	)		(43	)
Other current assets		(44	)		(379	)
Other assets		(46	)		36
Increase (decrease) in :
Accounts payable		(155	)		(42	)
Accrued expenses		275			673
Deferred revenue		117			63
Net cash used in operating activities		(2,210	)		(456	)
Cash Flows from Investing Activities :
Purchase of property and equipment		(1,478	)		(641	)
Net cash used in investing activities		(1,478	)		(641	)
Cash Flows from Financing Activities :
Proceeds from employee stock purchase plan		10			13
Proceeds from stock option exercises		-			64
Restricted cash requirement		300			300
Repayments on financing obligations		(321	)		(300	)
Net cash provided by (used in) financing activities		(11	)		77
Effect of exchange rate changes on cash		29			(1	)
Net decrease in Cash and Cash Equivalents		(3,670	)		(1,021	)
Cash and Cash Equivalents, Beginning of Period		10,665			8,056
Cash and Cash Equivalents, End of Period	$	6,995		$	7,035
Supplemental Cash Flow Disclosure :
Capital lease obligations		271			-
Cash paid for taxes, net of tax refunds		32			32
Cash paid for interest		27			39

The accompanying notes are an integral part of these statements.

5

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Strategic Diagnostics Inc. and its subsidiaries (“SDIX,” the “Company,” “we,” “our” or “us”), is a biotechnology company with a core mission of developing, commercializing and marketing innovative, effective products and solutions, many of which are proprietary, that preserve and enhance the quality of human health and wellness. The Company serves the pharmaceutical, biotechnology and diagnostic markets.

SDIX is a customer-centric organization. Our goals are to consistently deliver increased value to our customers through products and services that facilitate business results, reduce costs and help manage risk. SDIX sales professionals focus among other things on delivering a quantifiable “return on investment” to our customers, demonstrating to them how to reduce time and total costs associated with applications for which the Company’s products are used.

The Company is focused on leveraging its expertise in antibodies and immuno-technologies to successfully develop proprietary products and services that enhance the competitive advantage of our customers and drive profitable growth.

The Company believes that our competitive position has been enhanced through the combination of talent, technology, and resources resulting from the business development activities we have pursued since our inception. The Company utilizes its facilities in Newark, Delaware and Windham, Maine for the manufacture of antibodies.

The Company’s Life Sciences product portfolio includes a full suite of integrated capabilities including antibody and assay design, development and production. These capabilities, combined with our proprietary Genomic Antibody Technology™ (“GAT™”), are being used today to help discover the mechanisms of disease, facilitate the development of new drugs, and provide the means for rapid diagnosis.

On October 16, 2012, the Company completed the sale of the assets, equipment, inventory and intellectual property related to the Company’s former business units comprised of the development, manufacturing and sale of diagnostics kits for the detection of various food pathogens and genetically modified organisms.  See Note 3.

SDIX has been developing antibody based solutions which have advanced our customers’ immuno-based work for 20 years. By applying its core competencies of creating proprietary, high-quality antibodies and assay development solutions, the Company has produced sophisticated reagent systems that are responsive to our customers’ analytical information needs.

Basis of Presentation and Interim Financial Statements

The accompanying unaudited consolidated interim financial statements of the Company have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  In the opinion of management, the accompanying consolidated interim financial statements include all adjustments (all of which are of a normal recurring nature) necessary for a fair presentation of the results of operations.  The interim operating results are not necessarily indicative of the results to be expected for the entire year.

6

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

Revenue Recognition

Revenues composed of sales of certain antibodies and immunochemical reagents are recognized upon the shipment of the product and transfer of title, or when related services are provided. Revenues associated with such products or services are recognized when persuasive evidence of an order exists, shipment of product has occurred or services have been provided, the price is fixed and determinable and collectability is reasonably assured. Management is required to make judgments based on actual experience about whether or not collectability is reasonably assured.

The Company enters into contracts related to the production of custom antibodies, which provide for the performance of defined tasks for a fixed price, with delivery of the product upon completion of production. The standard time to complete a project is typically longer than 30 days but less than 12 months, and effort is expended over the life of the project. Revenues related to sales of custom antibody projects are recognized when a project’s specifications have been met and the related materials have been shipped.

Fees associated with products and services added on to a custom antibody project subsequent to delivery of the initial project are billed monthly and recognized as revenue as the services and other deliverables are provided.  Sales taxes collected from customers are presented net in the consolidated statement of operations.

The Company follows Accounting Standards Codification, (ASC) 605-25 “Revenue Recognition – Multiple-Element Arrangements” to determine the recognition of revenue under collaboration agreements that include multiple elements.  The deliverables under these agreements are evaluated to determine if they have stand-alone value and revenue is allocated to the elements based upon their relative selling prices.  Since the adoption of this standard, the Company has entered into one agreement with multiple-elements.  In the three months ended September 30, 2012, the Company recognized approximately $108 in revenue related to this agreement, comprised of $95 for materials shipped and $13 for consulting services provided.  In the nine months ended September 30, 2012, the Company recognized approximately $1,137, in revenue related to this agreement which has an entire value of $1,250.  The amount recognized was comprised of $286 for materials supplied, $35 for consulting services provided and $816 for technology access fees.

Use of Estimates

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

New and Recently Adopted Accounting Standards

In June 2011, the Financial Accounting Standards Board, (FASB) issued Accounting Standards Update (ASU) 2011-05 Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which amends current comprehensive income guidance.  This ASU increases the prominence of other comprehensive income in financial statements.  Under this ASU, the Company has chosen to present the components of net loss and comprehensive loss in consecutive financial statements.  The Company adopted the provisions of this guidance January 1, 2012, which resulted in adding the Consolidated Statements of Comprehensive Loss to our Consolidated Financial Statements.

7

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

2.             BASIC AND DILUTED LOSS PER SHARE

 Basic loss per share (EPS) is computed by dividing net loss available for common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is similar to basic EPS, except that the dilutive effect of converting or exercising all potentially dilutive securities is also included in the denominator such as stock options and restricted stock units. Basic loss per share excludes potentially dilutive securities.  For the three month periods ended September 30, 2012 and 2011, conversion of stock options and unvested restricted shares totaling 445,000 and 316,752, respectively, into common share equivalents, and for the nine month periods ended September 30, 2012 and 2011, conversion of stock options and unvested restricted shares totaling 492,570 and 371,466, respectively, into common share equivalents were excluded from this calculation because they were anti-dilutive, due to the net loss incurred in each of the periods.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Weighted average common shares outstanding		20,536,745		20,467,245		20,510,751		20,423,521
Shares used in computing basic loss per share		20,536,745		20,467,245		20,510,751		20,423,521
Dilutive effect of stock options and
unvested restricted shares		-		-		-		-
Shares used in computing diluted loss per share		20,536,745		20,467,245		20,510,751		20,423,521

3.             DISCONTINUED OPERATIONS

On December 8, 2011, the Company completed the sale of its water and environmental products assets to Modern Water PLC for approximately $4,217, net of transaction fees.  These assets included intellectual property, inventory, commercial contracts and equipment.  The Company recognized a gain during the fourth quarter of 2011 on the sale of these assets, after transaction fees, of $3,033.

On September 28, 2012, the Company entered into an agreement for the sale of its food and Ag/GMO product assets, comprised of the development, manufacturing and sale of diagnostics kits for the detection of various food pathogens and genetically modified organisms (the “Food Safety and Ag/GMO Products”) to Romer Labs Technology, Inc. (“Romer”) for approximately $12,400, net of transaction fees.  These assets have been reclassified as held for sale in the Consolidated Balance Sheet at September 30, 2012.  The Company expects to recognize a gain of approximately $10,200 during the fourth quarter of 2012 on the sale of these assets. The Company will not have any significant continuing involvement in the operations of the Food Safety and Ag/GMO products after disposition.The transaction was completed on October 16, 2012.

8

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

The significant components of assets held for sale consist of the following:

	September 30, 2012
Inventories	$	948
Property and equipment, net		124
Intangible assets, net		1,121
Total assets	$	2,193

In accordance with Accounting Standards Codification (ASC) 360, Property, Plant and Equipment, the results of operations and cash flow activity of the water and environmental, food and Ag/GMO products were reclassified separately as a discontinued operation within the consolidated financial statements for all periods presented.  The following table presents key information associated with the operating results of the discontinued operation for the reporting periods included in the Company’s consolidated statements of operations:

Results of Operations of Discontinued Operations
	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues	$	1,869	$	2,830	$	5,383	$	8,726
Cost of sales		563		1,071		1,961		3,353
Gross profit		1,306		1,759		3,422		5,373
Operating expenses:
Research and development		76		126		301		347
Selling, general and administrative		540		770		1,463		2,302
Total operating expenses		616		896		1,764		2,649
Operating income		690		863		1,658		2,724
Income tax expense		-		-				-
Income from discontinued operations	$	690	$	863	$	1,658	$	2,724

9

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

4. SHARE-BASED COMPENSATION

Under various plans, executives, key employees and outside directors receive awards of options to purchase common stock. The Company has a stock option plan (the “2000 Plan”) which authorizes the granting of incentive and nonqualified stock options and restricted stock units. 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. A maximum of 8,000,000 shares of common stock are issuable under the 2000 Plan. Certain additional options have been granted outside the 2000 Plan. These options generally follow the provisions of the 2000 Plan.  The Company issues new shares to satisfy option exercises and the vesting of restricted stock awards.

The Company also has an Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible full-time employees to purchase shares of common stock at 90 percent of the lower of the fair market value of a share of common stock on the first or last day of the quarter. Eligible employees are provided the opportunity to acquire Company common stock during each quarter. No more than 661,157 shares of common stock may be issued under the ESPP. Such stock may be unissued shares or treasury shares of the Company or may be outstanding shares purchased in the open market or otherwise on behalf of the ESPP.  The Company’s ESPP is compensatory and therefore, the Company is required to recognize compensation expense related to the discount from market value of shares sold under the ESPP.  The Company issues new shares to satisfy shares purchased under the ESPP.

Share-based compensation expense recorded in the three and nine month periods ended September 30, 2012 and 2011 is summarized as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
		2012		2011		2012		2011
Stock options		$	74	$	98	$	333	$	285
Employee stock purchase plan			-		-		1		2
Restricted stock awards			21		28		121		89
Total share-based compensation expense		$	95	$	126	$	455	$	376

Share-based compensation expense is a component of selling, general and administrative expense, and is recorded as a non-cash expense in the operating activities section of the Company’s consolidated statements of cash flows.

No options were exercised in the nine month period ended September 30, 2012.  Proceeds from the exercise of stock options were $64 in the nine month period ended September 30, 2011.  Proceeds received from employee payments into the ESPP in the nine month periods ended September 30, 2012 and 2011, were $10 and $13, respectively.  These amounts are recorded in the cash flows from financing activities section of the Company’s consolidated statements of cash flows.

10

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

Information with respect to the activity of outstanding stock options granted under the 2000 Plan and options granted separately from the 2000 Plan for the nine months ended September 30, 2012 is summarized as follows:

									Weighted	Aggregate
	Number								Average Remaining	Instrinsic
	of Shares			Price Range					Contractual term	Value
Balance, January 1, 2012		2,425,794		$	1.49	-	$	4.65
Granted		739,500		$	1.60	-	$	2.10
Cancelled / Forfeited		(694,891	)	$	1.50	-	$	4.65
Balance, September 30, 2012		2,470,403		$	1.49	-	$	4.65	7.0 years	$	-
Vested and excercisable at
September 30, 2012		1,282,503		$	1.49	-	$	4.65	5.8 years	$	-
Expected to vest as of
September 30, 2012		2,368,363		$	1.49	-	$	4.65	7.0 years	$	-

During the nine month period ended September 30, 2012, there were 739,500 options granted with a weighted average grant date fair value, based on a Black-Scholes option pricing model, of $0.83 per share.  Of the options granted, 60,000 were granted to nonemployees.  The assumptions used in the Black-Scholes model are as follows: dividend yield 0%, expected volatility 48.31%, risk-free interest rate 1.13% and expected life of 6.28 years.  The Company uses the Simplified Method for determining the expected life of options granted to employees which is computed using the sum of the average vesting period and the contractual life of the option and dividing by two, for all periods presented.  The Company uses the contractual life of the option to determine the expected life of the option for nonemployees.

The following table provides additional information about the Company’s stock options outstanding and exercisable at September 30, 2012:

					Options Outstanding							Options Exercisable
							Weighted Average							Wtd. Average
	Range of				Number of		Remaining			Exercise		Number of		Exercise
	Exercise Prices				Shares		Contractual Life			Price		Shares		Price
$	1.49	-	$	2.51		2,112,852		7.6	Years	$	1.85		924,952	$	1.75
$	3.05	-	$	3.57		106,700		1.5	Years	$	3.42		106,700	$	3.42
$	3.69	-	$	4.65		250,851		4.5	Years	$	4.17		250,851	$	4.17
$	1.49	-	$	4.65		2,470,403		7.0	Years	$	2.16		1,282,503	$	2.36

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STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

A summary of the status of the Company’s unvested restricted stock as of December 31, 2011 and changes during the nine month period ended September 30, 2012 is presented below.

				Weighted Average
				Grant Date		Aggregate
	Shares			Fair Value		Intrinsic Value
Non-vested RSA's at January 1, 2012		116,250		$	1.78
Granted		677,500		$	1.65
Vested		(52,500	)	$	1.84
Cancelled / forfeited		(296,250	)	$	1.75
Non-vested RSA's at September 30, 2012		445,000		$	1.60	$	579
Expected to vest at September 30, 2012		403,125		$	1.60	$	524

Restricted stock granted is generally scheduled to vest over periods of two to four years. The cost of the grant is charged to operations over the vesting period.  At September 30, 2012, the weighted average remaining term of non-vested restricted stock was 2.7 years.

The Company also issued 410,000 performance-based Restricted Stock Units (“RSUs”) during the nine months ended September 30, 2012, of which 200,000 have been forfeited.  The fair value of an RSU is equal to the market value of a share of stock on the date of grant.  The performance-based RSUs vest based upon the achievement of certain goals related to the Company’s senior management team, for periods ranging from June 30, 2012 through December 31, 2015.  Unless forfeited, the performance-based RSUs will be paid out in the form of stock, if the Company meets the performance targets.  If the designated performance targets are not met, no payout will be made.

The Company also issued 315,000 performance-based RSUs during the nine months ended September 30, 2011.  The performance-based RSUs vest based upon the achievement of certain revenue targets.  50% of the RSUs vest upon the achievement of certain revenue growth targets during any 12-month period prior to December 31, 2012, and any remaining unvested RSUs vest upon the achievement of certain revenue growth targets during any 12-month period prior to December 31, 2014.  Unless forfeited, the performance-based RSUs will be paid out in the form of stock, if the Company meets the performance targets.  If the designated performance targets are not met during any 12-month period prior to December 31, 2014, no payout will be made.  No expense has been recognized for these performance-based RSUs, as the probability of achieving the targets is currently assessed at not probable.

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STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

5. INVENTORIES

The Company’s inventories are valued at the lower of cost or market. For inventories that consist primarily of test kit components, bulk serum and antibody products, cost is determined using the first in, first out method. For inventories that consist of costs associated with the production of custom antibodies, cost is determined using the specific identification method. At September 30, 2012 and December 31, 2011, inventories consisted of the following:

	September 30,		December 31,
	2012		2011
Raw materials	$	415	$	706
Work in progress		1,010		717
Finished goods		338		719
Inventories	$	1,763	$	2,142

6. INTANGIBLE ASSETS

At September 30, 2012 and December 31, 2011, intangible assets consisted of the following:

	September 30,			December 31,
	2012			2011			Lives
Intangible assets		17			2,614			2-20
Accumulated amortization		(17	)		(1,407	)
Net intangible assets	$	-		$	1,207

7. DEBT

On March 26, 2012, the Company entered into a Master Equipment Lease agreement with a commercial bank.  The agreement is for a $500 revolving line of credit to purchase equipment.  The equipment purchased has a distinct lease schedule under the agreement and provides for specific terms of payment related to that particular equipment lease.  For accounting purposes, the leases are considered capital leases and accordingly are recorded as debt and amortized with an imputed interest rate according to the terms of the applicable equipment lease.  All leases carry a one dollar buyout at lease end.

To date, the Company has borrowed $271 against this Master Lease agreement, which includes three separate leases, of which $250 is outstanding as of September 30, 2012.  Each of three leases contains a 60 month term with an imputed interest rate of approximately 4.3%.

The Company has certain financial covenants to meet related to this Master Equipment Lease, including a debt coverage ratio of not less than 1.25 to 1 based upon a trailing 12 month basis, tangible net worth of not less than $15,000, minimum liquidity of $2,000 and a requirement to maintain its primary banking accounts with the commercial bank.  As of September 30, 2012, the Company was not in compliance with all applicable loan covenants and received a waiver of any action for non-compliance from the commercial bank for the quarter ended September 30, 2012.

13

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

8. INCOME TAXES

The Company evaluates its deferred tax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets is required.  The Company had a full valuation allowance offsetting its U.S. federal and state net deferred tax assets which primarily represent net operating loss carryforwards (“NOLs”) at December 31, 2011.  During the nine-month period ended September 30, 2012, the Company’s management concluded that a full valuation allowance for U.S. federal and state net deferred tax assets remains appropriate as the facts and circumstances during the first nine months of 2012 did not change management’s conclusion that a full valuation allowance is necessary.

The Company is subject to U.S. federal and UK income tax, as well as income taxes of multiple state jurisdictions.   The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.  At September 30, 2012, the Company had no interest or penalties accrued related to uncertain tax positions due to the available NOLs.

As of January 1, 2012, the Company provided a liability for approximately $554 of unrecognized tax benefits, which if recognized in a period where there was not a full valuation allowance, would affect the effective tax rate.  For the nine months ended September 30, 2012, unrecognized tax benefits increased by $18 to $572, which if recognized in a period where there was not a full valuation allowance, would affect the effective tax rate.

For federal purposes, post-1992 tax years remain open to examination as a result of earlier net operating losses being utilized. For state purposes, the statute of limitations remains open in a similar manner. The Company does not expect that the total amount of unrecognized tax benefits related to positions taken in prior periods will change significantly during the next 12 months.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements reflecting the current expectations of Strategic Diagnostics Inc. and its subsidiaries (the “Company” or “SDIX”). In addition, when used in this quarterly report, the words “anticipate,” “enable,” “estimate,” “intend,” “expect,” “believe,” “potential,” “may,” “will,” “should,” “project” and similar expressions as they relate to the Company are intended to identify said forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated at this time. Such risks and uncertainties include, without limitation, changes in demand for products, delays in product development, delays in market acceptance of new products, retention of customers, attraction and retention of management and key employees, adequate supply of raw materials, inability to obtain or delays in obtaining third party approvals or required government approvals, the ability to meet increased market demand, competition, protection of intellectual property, non-infringement of intellectual property, seasonality, the ability to obtain financing and other factors more fully described in the Company’s public filings with the SEC including, without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Background

SDIX is a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.

The Company believes that its competitive position has been enhanced through the combination of talent, technology and resources resulting from the business development activities it has pursued since its inception. The Company utilizes its facilities in Newark, Delaware and Windham, Maine for the manufacture of antibodies.

The Company believes that by applying its core competency of creating custom antibodies, it produces sophisticated antibodiesand reagents that are responsive to customer needs. Customers benefit from a quantifiable “return on investment” by reducing time, labor and/or material costs associated with applications for which the Company’s products are used. The Company is focused on sustaining this competitive advantage by leveraging its expertise in immunology, proteomics, and other bio-reactive technologies to continue its successful customer-focused research and development efforts. The Company believes that an established product base, quality manufacturing expertise, experienced sales and marketing organization, established network of distributors, corporate partner relationships and proven research and development expertise will be critical elements of its potential future success.

The Company’s Life Sciences product portfolio includes a full suite of integrated capabilities including antibody and assay design, development and production. These capabilities, combined with our proprietary Genomic Antibody Technology™ (“GAT™”), are being used today to help discover the mechanisms of disease, facilitate the development of new drugs, and provide the means for rapid diagnosis. In 2009, the Company continued the transition from a fragmented product offering and marketing strategy to becoming a focused organization, with proven, proprietary technologies tied directly to its customers’ needs. The transition is most evident in the Life Science immuno-solutions initiative where the Company believes significant progress is being made.  In 2011, the Company sold its Water Quality assets, and in 2012 the Company sold its Food and Ag/GMO assets, as part of its overall strategy to focus on its core Life Science operations.  Financial information of the Water Quality, Food and Ag/GMO products has been separately reclassified within the consolidated financial statements as a discontinued operation.  See Note 3 of the Notes to the Consolidated Financial Statements for further information.

Results of Operations

Three Months Ended September 30, 2012 versus Three Months Ended September 30, 2011
 

Revenues

Revenues for the three months ended September 30, 2012 decreased 2% to $4.0 million, compared to $4.1 million for the same period in 2011.

15

This decrease was primarily the result of decreased sales to the Company’s content/reseller customer category.  Sales to the Company’s biopharma customers increased 36% to $0.8 million and sales to the Company’s in-vitro diagnostic customers increased 7% to $2.6 million.  These increases were more than offset by a decline in sales to the Company’s content/reseller customers of 39% to $0.5 million and a decrease of 51% in sales to the Company’s academic/government customers to $0.1 million.  Included in the in-vitro diagnostic sales is $0.1 million recognized pursuant to the Becton Dickinson (BD) Diagnostics multiple-element arrangement as described in Note 1, Revenue Recognition.  These decreases were primarily related to a change in the business strategy of the Company’s largest content customer that has reduced its use of the Company’s polyclonal services.  The Company believes revenue from this customer will continue at reduced levels.

Gross profit

Gross profit for the three months ended September 30, 2012 was $1.9 million compared to $2.3 million for the same period in 2011. Gross margins were 48% and 56% for the three month periods ended September 30, 2012 and 2011, respectively.  The decreases in gross profit and gross margin were primarily attributable to the lower level of sales and change in product mix in the 2012 period.

Research and development

Research and development expenses were $987,000, or 25% of revenues, for the three-month period ended September 30, 2012, compared to $930,000, or 23% of revenues, for the three-month period ended September 30, 2011.  This increase was primarily the result of increased spending related to the development of the Company’s advanced technologies.

Selling, general and administrative

Selling, general and administrative expenses were $2.6 million for the three-month period ended September 30, 2012 and $2.9 million for the three-month period ended September 30, 2011.  This decrease was primarily the result of lower levels of personnel and their related cost.

Interest expense, net

The Company had net interest expense of $5,000 for the three-month period ended September 30, 2012 compared to net interest expense of $10,000 for the three-month period ended September 30, 2011. This decrease was primarily due to the borrowings against the equipment financing revolving line of credit the Company secured in March 2012.

Income taxes

The Company recorded no income tax provision for the three-month period ended September 30, 2012 compared to a tax expense of $27,000 for the three-month period ended September 30, 2011.  The Company has full valuation allowances placed against U.S. federal and state deferred tax assets.

Loss from continuing operations

Loss from continuing operations for the three-month period ended September 30, 2012 was $1.7 million, or $0.08 per diluted share, compared to a loss from continuing operations of $1.6 million, or $0.08 per diluted share, for the three-month period ended September 30, 2011.  Diluted shares utilized in these computations were 20.5 million for both the 2012 and 2011 three-month periods.

Income from discontinued operations

Income from the Company’s discontinued operations of its food and Ag/GMO assets was $690,000 for the three-month period ended September 30, 2012.  Income from the Company’s discontinued operations of its water and environmental, food and Ag/GMO assets was $863,000 for the three-month period ended September 30, 2011.  Income per share from discontinued operations was $0.03 per diluted share for the three-month period ended September 30, 2012, and $0.04 per diluted share for the three-month period ended September 30, 2011.  Diluted shares utilized in these computations were 20.5 million for both the 2012 and 2011 three-month periods.

16

Net loss

Net loss was $1.0 million, or $0.05 per diluted share, for the three-month period ended September 30, 2012, compared to a net loss of $694,000, or $0.03 per diluted share, for the same period in 2011. Diluted shares utilized were 20.5 million for both the 2012 and 2011 three-month periods.

Nine Months Ended September 30, 2012 versus Nine Months Ended September 30, 2011

 Revenues

Revenues for the nine months ended September 30, 2012 decreased 9% to $11.6 million, compared to $12.7 million for the same period in 2011. This decrease was primarily the result of decreased sales to all of the Company’s customer categories, except in-vitro diagnostic.  Sales to the Company’s in-vitro diagnostic customers increased 4% to  $7.6 million, sales to biopharma customers decreased 23% to $1.8 million, sales to content/resellers decreased 28% to $1.8 million and sales to academic/government customers decreased 27% to $0.4 million.  Included in the in-vitro diagnostic sales is $1.1 million recognized pursuant to the Becton Dickinson (BD) Diagnostics multiple-element arrangement as described in Note 1, Revenue Recognition.  These decreases were primarily related to the timing of IVD sales, a softening biopharmaceutical market and a change in the business strategy of the Company’s largest content customer that has reduced its use of the Company’s polyclonal services.  The Company believes revenue from this customer will continue at reduced levels.

Gross profit

Gross profit for the nine months ended September 30, 2012 was $5.9 million compared to $7.0 million for the same period in 2011. Gross margins were 51% and 55% for the nine-month periods ended September 30, 2012 and 2011, respectively.  The decreases in gross profit and gross margin were primarily attributable to the lower level of sales and change in product mix in the 2012 period.

Research and development

Research and development expenses were $2.8 million, or 24% of revenues, for the nine-month period ended September 30, 2012, compared to $2.4 million, or 19% of revenues for the nine-month period ended September 30, 2011.  This increase was primarily the result of increased spending related to the development of the Company’s advanced technologies.

Selling, general and administrative

Selling, general and administrative expenses were $8.4 million for the nine-month period ended September 30, 2012 and $9.2 million for the nine-month period ended September 30, 2011.  This decrease was primarily the result of lower levels of personnel and their related cost.

Interest expense, net

The Company had net interest expense of $22,000 for the nine-month periods ended September 30, 2012 and $27,000 for the nine-month period ended September 30, 2011.  This decrease was primarily attributable to the lower levels of debt in the 2012 period.

Income taxes

The Company recorded no income tax provision for the nine-month period ended September 30, 2012 compared to a tax expense of $29,000 for the nine month period ended September 30, 2011.  The Company has full valuation allowances placed against U.S. federal and state deferred tax assets.

Loss from continuing operations

Loss from continuing operations for the nine-month period ended September 30, 2012 was $5.3 million, or $0.26 per diluted share, compared to a loss from continuing operations of $4.7 million, or $0.23 per diluted share, for the nine-month period ended September 30, 2011.  Diluted shares utilized in these computations were 20.5 million and 20.4 million for the 2012 and 2011 nine-month periods, respectively.

17

Income from discontinued operations

Income from the Company’s discontinued operations of its food and Ag/GMO assets was $1.7 million for the nine-month period ended September 30, 2012. Income from the Company’s discontinued operations of its water and environmental, food and Ag/GMO assets was $2.7 million for the nine-month period ended September 30, 2011. Income per share from discontinued operations was $0.08 per diluted share for the nine-month period ended September 30, 2012 and $0.13 per diluted share for the nine-month period ended September 30, 2011.  Diluted shares utilized in these computations were 20.5 million and 20.4 million for the 2012 and 2011 nine month periods, respectively.

Net loss

Net loss was $3.7 million, or $0.18 per diluted share, for the nine-month period ended September 30, 2012, compared to a net loss of $2.0 million, or $0.10 per diluted share, for the same period in 2011. Diluted shares utilized were 20.5 million and 20.4 million for the 2012 and 2011 periods, respectively.

Liquidity and Capital Resources

The net cash used in operating activities was $2.2 million for the first nine months of 2012 compared to net cash used in operating activities of $456,000 for the first nine months of 2011.  The net cash used in operating activities for the 2012 period was primarily the result of the net loss incurred and an increase in inventories, partially offset by an increase in accrued expenses and deferred revenue.  The net cash used in operating activities for the 2011 period was primarily the result of the net loss incurred for the period, partially offset by an increase in accrued expenses.

Net cash used in investing activities of $1.5 million for the first nine months of 2012 related to the capital expenditures for the period. This compares to net cash used in investing activities of $641,000 for the first nine months of 2011. The capital expenditures for the 2012 period were primarily related to purchases of manufacturing and laboratory equipment, as well as leasehold improvements.  The capital expenditures for the 2011 period were primarily related to leasehold improvements and computer equipment.

Net cash used in financing activities of $11,000 for the first nine months of 2012 was attributable to a reduction in the Company’s restricted cash requirement offset by scheduled debt repayments.  Net cash provided by financing activities of $77,000 for the first nine months of 2011 was the result of a reduction in the Company’s restricted cash requirement, proceeds for the exercise of stock options and payments into the Company’s Employee Stock Purchase Plan, offset by scheduled debt repayments. The Company’s working capital (current assets less current liabilities) was $10.9 million at September 30, 2012 compared to $14.9 million at December 31, 2011.

On March 26, 2012, the Company entered into a Master Equipment Lease agreement with a commercial bank.  The agreement is for a $500,000 revolving line of credit to purchase equipment.  The equipment purchased has a distinct schedule under the agreement and provides for specific terms of payment related to that particular equipment lease.  For accounting purposes, the leases are considered capital leases and accordingly are recorded as debt and amortized with an imputed interest rate according to the terms of the applicable equipment lease.  All leases carry a one dollar buyout at lease end.

To date, the Company has borrowed $271,000 against this Master Lease agreement, which includes three separate leases, of which $250,000 is outstanding as of September 30, 2012.  Each of three leases contains a 60 month term with an imputed interest rate of approximately 4.3%.

The Company has certain financial covenants to meet related to this Master Equipment Lease, including a debt coverage ratio of not less than 1.25 to 1 based upon a trailing 12 months basis, tangible net worth of not less than $15.0 million, minimum liquidity of $2.0 million and a requirement to maintain its primary banking accounts with the Commercial Bank.  As of September 30, 2012, the Company was not in compliance with all applicable loan covenants and received a waiver of any action for non-compliance from the commercial bank for the quarter ended September 30, 2012.

18

For the nine months ended September 30, 2012, the Company satisfied all of its cash requirements from cash available and on-hand, and the above noted Master Equipment Lease agreement.  At September 30, 2012, the Company had $250,000 of debt and $16.8 million of stockholders’ equity.

Based upon its cash and cash equivalents on hand, cash to be received from the sale of its food and Ag/GMO product assets,  credit facilities, current product sales and the anticipated sales of new products, the Company believes it has, or has access to, sufficient resources to meet its operating requirements through at least the next 12 months.  In reaching this conclusion, the Company has taken into account its expectation of increased capital expenditures in 2012 and into 2013 with respect to certain renovations and modifications to its facilities in Newark, Delaware.  These renovations are designed to provide for larger and improved R&D laboratory space to accommodate the advanced technology development efforts and also to modernize the animal facility and ensure that biosecurity measures are aligned with current industry practices and all for the Company to minimize and ameliorate the effects of animal diseases.

The Company’s ability to meet its long-term capital needs will depend on a number of factors, including compliance with new loan covenants, the success of its current and future products, the focus and direction of its research and development programs, competitive and technological advances, future relationships with corporate partners, government regulation, the Company’s marketing and distribution strategy, its successful sale of additional common stock and/or the Company successfully locating and obtaining other financing, and the success of the Company’s plan to make future acquisitions. Accordingly, no assurance can be given that the Company will be able to meet the future liquidity requirements that may arise from these inherent and similar uncertainties.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company conducts operations in the United Kingdom. The consolidated financial statements of the Company are denominated in U.S. dollars and changes in exchange rates between foreign countries and the U.S. dollar will affect the translation of financial results of foreign subsidiaries into U.S. dollars for purposes of recording the Company’s consolidated financial results. Historically, the effects of translation have not been material to the consolidated financial results.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2012, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

19

PART II – OTHER INFORMATION

Item 6. Exhibits
2.1	Asset Purchase Agreement, dated as of September 28, 2012, between the Company and Romer Labs Technology, Inc. (Incorporated herein by reference from Company’s Current Report on Form 8-K/A filed on October 23, 2012.) *
10.1	Separation Agreement and General Release, dated as of September 26, 2012, between the Company and Klaus Lindpaintner. (Incorporated herein by reference from Company’s Current Report on Form 8-K filed on October 1, 2012.)
31.1	Certifications of the Chief Executive Officer of Strategic Diagnostics Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2	Certifications of the Chief Financial Officer of Strategic Diagnostics Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1	Certification of the Chief Executive Officer of Strategic Diagnostics Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer of Strategic Diagnostics Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document _____________ *   Schedules are omitted. The Company hereby undertakes to furnish the SEC supplementally upon request a copy of omitted Schedules to the Asset Purchase Agreement.

20

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STRATEGIC DIAGNOSTICS INC.
Date: November 14, 2012	/s/ Francis M. DiNuzzo
	Francis M. DiNuzzo President, Chief Executive Officer (Principal Executive Officer)

Date: November 14, 2012	/s/ Kevin J. Bratton
	Kevin J. Bratton Vice President – Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

21

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Francis M. DiNuzzo, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2012 of Strategic Diagnostics Inc. (the “registrant”);

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2012	/s/ Francis M. DiNuzzo
	Francis M. DiNuzzo Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification

I, Kevin J. Bratton, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2012 of Strategic Diagnostics Inc. (the “registrant”);

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2012	/s/ Kevin J. Bratton
	Kevin J. Bratton Chief Financial Officer

EX-32.1

Exhibit 32.1

Section 1350 Certifications

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Strategic Diagnostics Inc. (the “Company”) hereby certifies, based on such officer’s knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Date: November 14, 2012	/s/ Francis M. DiNuzzo
	Francis M. DiNuzzo Chief Executive Officer

EX-32.2

Exhibit 32.2

Section 1350 Certifications

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Strategic Diagnostics Inc. (the “Company”) hereby certifies, based on such officer’s knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Date: November 14, 2012	/s/ Kevin J. Bratton
	Kevin J. Bratton Chief Financial Officer

XML

Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Minimum	Sep. 30, 2012 Maximum
Finite-Lived Intangible Assets [Line Items]
Intangible assets	$ 17	$ 2,614
Accumulated amortization	(17)	(1,407)
Net intangible assets		$ 1,207
Intangible assets lives			2 years	20 years

XML

Components of Assets Held for Sale (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Inventories	$ 948
Property and equipment, net	124
Intangible assets, net	1,121
Total assets	$ 2,193

XML

DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2012

DISCONTINUED OPERATIONS

3.             DISCONTINUED OPERATIONS

On December 8, 2011, the Company completed the sale of its water and environmental products assets to Modern Water PLC for approximately $4,217, net of transaction fees.  These assets included intellectual property, inventory, commercial contracts and equipment.  The Company recognized a gain during the fourth quarter of 2011 on the sale of these assets, after transaction fees, of $3,033.

On September 28, 2012, the Company entered into an agreement for the sale of its food and Ag/GMO product assets, comprised of the development, manufacturing and sale of diagnostics kits for the detection of various food pathogens and genetically modified organisms (the “Food Safety and Ag/GMO Products”) to Romer Labs Technology, Inc. (“Romer”) for approximately $12,400, net of transaction fees.  These assets have been reclassified as held for sale in the Consolidated Balance Sheet at September 30, 2012.  The Company expects to recognize a gain of approximately $10,200 during the fourth quarter of 2012 on the sale of these assets. The Company will not have any significant continuing involvement in the operations of the Food Safety and Ag/GMO products after disposition.The transaction was completed on October 16, 2012.

The significant components of assets held for sale consist of the following:

	September 30, 2012
Inventories	$	948
Property and equipment, net		124
Intangible assets, net		1,121
Total assets	$	2,193

In accordance with Accounting Standards Codification (ASC) 360, Property, Plant and Equipment, the results of operations and cash flow activity of the water and environmental, food and Ag/GMO products were reclassified separately as a discontinued operation within the consolidated financial statements for all periods presented.  The following table presents key information associated with the operating results of the discontinued operation for the reporting periods included in the Company’s consolidated statements of operations:

Results of Operations of Discontinued Operations
	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues	$	1,869	$	2,830	$	5,383	$	8,726
Cost of sales		563		1,071		1,961		3,353
Gross profit		1,306		1,759		3,422		5,373
Operating expenses:
Research and development		76		126		301		347
Selling, general and administrative		540		770		1,463		2,302
Total operating expenses		616		896		1,764		2,649
Operating income		690		863		1,658		2,724
Income tax expense		-		-				-
Income from discontinued operations	$	690	$	863	$	1,658	$	2,724

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Activity of Outstanding Stock Options (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012
Number of Shares
Beginning Balance	2,425,794
Granted	739,500
Cancelled / Forfeited	(694,891)
Ending Balance	2,470,403
Vested and excercisable at September 30, 2012	1,282,503
Expected to vest as of September 30, 2012	2,368,363
Weighted Average Remaining Contractual Term
Balance, September 30, 2012	7 years
Vested and excercisable at September 30, 2012	5 years 9 months 18 days
Expected to vest as of September 30, 2012	7 years
Aggregate Instrinsic Value
Balance, September 30, 2012
Vested and excercisable at September 30, 2012
Expected to vest as of September 30, 2012
Balance, January 1, 2012
Number of Shares
Price range, lower limit	$ 1.49
Price range, upper limit	$ 4.65
Granted
Number of Shares
Price range, lower limit	$ 1.60
Price range, upper limit	$ 2.10
Cancelled / Forfeited
Number of Shares
Price range, lower limit	$ 1.50
Price range, upper limit	$ 4.65
Balance, June 30, 2012
Number of Shares
Price range, lower limit	$ 1.49
Price range, upper limit	$ 4.65
Vested and exercisable at June 30, 2012
Number of Shares
Price range, lower limit	$ 1.49
Price range, upper limit	$ 4.65
Expected to vest as of June 30, 2012
Number of Shares
Price range, lower limit	$ 1.49
Price range, upper limit	$ 4.65

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Share Based Compensation Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 95	$ 126	$ 455	$ 376
Stock Options
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	74	98	333	285
Employee Stock Purchase Plan
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense			1	2
Restricted stock
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 21	$ 28	$ 121	$ 89

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Additional Information About Stock Options Outstanding and Exercisable (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012
Range 1
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Limit	$ 1.49
Upper Limit	$ 2.51
Options Outstanding, Number of Shares	2,112,852
Options Outstanding, Weighted Average Remaining Contractual Life	7 years 7 months 6 days
Options Outstanding, Weighted Average Exercise Price	$ 1.85
Options Exercisable, Number of Shares	924,952
Options Exercisable, Wtd. Average Exercise Price	$ 1.75
Range 2
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Limit	$ 3.05
Upper Limit	$ 3.57
Options Outstanding, Number of Shares	106,700
Options Outstanding, Weighted Average Remaining Contractual Life	1 year 6 months
Options Outstanding, Weighted Average Exercise Price	$ 3.42
Options Exercisable, Number of Shares	106,700
Options Exercisable, Wtd. Average Exercise Price	$ 3.42
Range 3
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Limit	$ 3.69
Upper Limit	$ 4.65
Options Outstanding, Number of Shares	250,851
Options Outstanding, Weighted Average Remaining Contractual Life	4 years 6 months
Options Outstanding, Weighted Average Exercise Price	$ 4.17
Options Exercisable, Number of Shares	250,851
Options Exercisable, Wtd. Average Exercise Price	$ 4.17
Range 4
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Limit	$ 1.49
Upper Limit	$ 4.65
Options Outstanding, Number of Shares	2,470,403
Options Outstanding, Weighted Average Remaining Contractual Life	7 years
Options Outstanding, Weighted Average Exercise Price	$ 2.16
Options Exercisable, Number of Shares	1,282,503
Options Exercisable, Wtd. Average Exercise Price	$ 2.36

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Status of Unvested Restricted Stock Activity (Detail) (Restricted stock, USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Restricted stock
Shares
Beginning Balance	116,250
Granted	677,500
Vested	(52,500)
Cancelled / forfeited	(296,250)
Ending Balance	445,000
Expected to vest at September 30, 2012	403,125
Weighted Average Grant Date Fair Value
Beginning Balance	$ 1.78
Granted	$ 1.65
Vested	$ 1.84
Cancelled / forfeited	$ 1.75
Ending Balance	$ 1.60
Expected to vest at September 30, 2012	$ 1.60
Aggregate Intrinsic Value
Non-vested RSA's at September 30, 2012	$ 579
Expected to vest at September 30, 2012	$ 524

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BASIC AND DILUTED LOSS PER SHARE

9 Months Ended

Sep. 30, 2012

BASIC AND DILUTED LOSS PER SHARE

2.             BASIC AND DILUTED LOSS PER SHARE

 Basic loss per share (EPS) is computed by dividing net loss available for common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is similar to basic EPS, except that the dilutive effect of converting or exercising all potentially dilutive securities is also included in the denominator such as stock options and restricted stock units. Basic loss per share excludes potentially dilutive securities.  For the three month periods ended September 30, 2012 and 2011, conversion of stock options and unvested restricted shares totaling 445,000 and 316,752, respectively, into common share equivalents, and for the nine month periods ended September 30, 2012 and 2011, conversion of stock options and unvested restricted shares totaling 492,570 and 371,466, respectively, into common share equivalents were excluded from this calculation because they were anti-dilutive, due to the net loss incurred in each of the periods.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Weighted average common shares outstanding		20,536,745		20,467,245		20,510,751		20,423,521
Shares used in computing basic loss per share		20,536,745		20,467,245		20,510,751		20,423,521
Dilutive effect of stock options and
unvested restricted shares		-		-		-		-
Shares used in computing diluted loss per share		20,536,745		20,467,245		20,510,751		20,423,521

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Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Inventory [Line Items]
Raw materials	$ 415	$ 706
Work in progress	1,010	717
Finished goods	338	719
Inventories	$ 1,763	$ 2,142

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current Assets :
Cash and cash equivalents	$ 6,995	$ 10,665
Restricted cash		300
Receivables, net	3,173	3,758
Inventories	1,763	2,142
Other current assets	662	618
Current assets held for sale	948
Total current assets	13,541	17,483
Property and equipment, net	4,743	3,890
Other assets	52	6
Deferred tax asset	37	36
Intangible assets, net		1,207
Non-current assets held for sale	1,245
Total assets	19,618	22,622
Current Liabilities :
Current portion of debt	46	300
Accounts payable	401	556
Accrued expenses	2,044	1,769
Deferred revenue	117
Total current liabilities	2,608	2,625
Long-term debt	204
Stockholders' Equity:
Preferred stock, $.01 par value, 20,920,648 shares authorized, no shares issued or outstanding
Common stock, $.01 par value, 50,000,000 shares authorized, 21,389,259 and 21,000,960 issued at September 30, 2012 and December 31, 2011, respectively	210	210
Additional paid-in capital	42,610	42,146
Treasury stock, 406,627 common shares at cost at September 30, 2012 and December 31, 2011	(555)	(555)
Accumulated deficit	(25,221)	(21,537)
Cumulative translation adjustments	(238)	(267)
Total stockholders' equity	16,806	19,997
Total liabilities and stockholders' equity	$ 19,618	$ 22,622

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows from Operating Activities :
Net loss	$ (3,684)	$ (2,009)
Add: Income from discontinued operations	1,658	2,724
Loss from continuing operations	(5,342)	(4,733)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities :
Depreciation and amortization	857	928
Share-based compensation expense	455	376
Deferred income tax provision	(1)	1
(Increase) decrease in :
Receivables	585	(60)
Inventories	(569)	(43)
Other current assets	(44)	(379)
Other assets	(46)	36
Increase (decrease) in :
Accounts payable	(155)	(42)
Accrued expenses	275	673
Deferred revenue	117	63
Net cash used in operating activities	(2,210)	(456)
Cash Flows from Investing Activities :
Purchase of property and equipment	(1,478)	(641)
Net cash used in investing activities	(1,478)	(641)
Cash Flows from Financing Activities :
Proceeds from employee stock purchase plan	10	13
Proceeds from stock option exercises		64
Restricted cash requirement	300	300
Repayments on financing obligations	(321)	(300)
Net cash provided by (used in) financing activities	(11)	77
Effect of exchange rate changes on cash	29	(1)
Net decrease in Cash and Cash Equivalents	(3,670)	(1,021)
Cash and Cash Equivalents, Beginning of Period	10,665	8,056
Cash and Cash Equivalents, End of Period	6,995	7,035
Supplemental Cash Flow Disclosure :
Capital lease obligations	271
Cash paid for taxes, net of tax refunds	32	32
Cash paid for interest	$ 27	$ 39

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Income Taxes - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Income Taxes [Line Items]
Unrecognized tax benefits, which if recognized in a period where there was not a full valuation allowance would affect the effective tax rate	$ 572	$ 554
Increase in unrecognized tax benefits, if recognized, would affect the effective tax rate	$ 18

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Basic and Diluted Loss Per Share - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share Disclosure [Line Items]
Conversion of stock options and unvested restricted shares excluded from computation of earnings per share	445,000	316,752	492,570	371,466

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Discontinued Operations - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		1 Months Ended	3 Months Ended
	Dec. 31, 2011	Dec. 31, 2011 Water and Environmental Products Assets	Oct. 31, 2012 Segment, Discontinued Operations Food Safety and Ag/GMO Products	Dec. 31, 2012 Segment, Discontinued Operations Food Safety and Ag/GMO Products
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Proceed from the sale of discontinued operations, net of transaction fees		$ 4,217	$ 12,400
Gain on sale of discontinued operations	3,033
Expected gain on sale of held for sale assets				$ 10,200

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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2012

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Strategic Diagnostics Inc. and its subsidiaries (“SDIX,” the “Company,” “we,” “our” or “us”), is a biotechnology company with a core mission of developing, commercializing and marketing innovative, effective products and solutions, many of which are proprietary, that preserve and enhance the quality of human health and wellness. The Company serves the pharmaceutical, biotechnology and diagnostic markets.

SDIX is a customer-centric organization. Our goals are to consistently deliver increased value to our customers through products and services that facilitate business results, reduce costs and help manage risk. SDIX sales professionals focus among other things on delivering a quantifiable “return on investment” to our customers, demonstrating to them how to reduce time and total costs associated with applications for which the Company’s products are used.

The Company is focused on leveraging its expertise in antibodies and immuno-technologies to successfully develop proprietary products and services that enhance the competitive advantage of our customers and drive profitable growth.

The Company believes that our competitive position has been enhanced through the combination of talent, technology, and resources resulting from the business development activities we have pursued since our inception. The Company utilizes its facilities in Newark, Delaware and Windham, Maine for the manufacture of antibodies.

The Company’s Life Sciences product portfolio includes a full suite of integrated capabilities including antibody and assay design, development and production. These capabilities, combined with our proprietary Genomic Antibody Technology™ (“GAT™”), are being used today to help discover the mechanisms of disease, facilitate the development of new drugs, and provide the means for rapid diagnosis.

On October 16, 2012, the Company completed the sale of the assets, equipment, inventory and intellectual property related to the Company’s former business units comprised of the development, manufacturing and sale of diagnostics kits for the detection of various food pathogens and genetically modified organisms.  See Note 3.

SDIX has been developing antibody based solutions which have advanced our customers’ immuno-based work for 20 years. By applying its core competencies of creating proprietary, high-quality antibodies and assay development solutions, the Company has produced sophisticated reagent systems that are responsive to our customers’ analytical information needs.

Basis of Presentation and Interim Financial Statements

The accompanying unaudited consolidated interim financial statements of the Company have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  In the opinion of management, the accompanying consolidated interim financial statements include all adjustments (all of which are of a normal recurring nature) necessary for a fair presentation of the results of operations.  The interim operating results are not necessarily indicative of the results to be expected for the entire year.

Revenue Recognition

Revenues composed of sales of certain antibodies and immunochemical reagents are recognized upon the shipment of the product and transfer of title, or when related services are provided. Revenues associated with such products or services are recognized when persuasive evidence of an order exists, shipment of product has occurred or services have been provided, the price is fixed and determinable and collectability is reasonably assured. Management is required to make judgments based on actual experience about whether or not collectability is reasonably assured.

The Company enters into contracts related to the production of custom antibodies, which provide for the performance of defined tasks for a fixed price, with delivery of the product upon completion of production. The standard time to complete a project is typically longer than 30 days but less than 12 months, and effort is expended over the life of the project. Revenues related to sales of custom antibody projects are recognized when a project’s specifications have been met and the related materials have been shipped.

Fees associated with products and services added on to a custom antibody project subsequent to delivery of the initial project are billed monthly and recognized as revenue as the services and other deliverables are provided.  Sales taxes collected from customers are presented net in the consolidated statement of operations.

The Company follows Accounting Standards Codification, (ASC) 605-25 “Revenue Recognition – Multiple-Element Arrangements” to determine the recognition of revenue under collaboration agreements that include multiple elements.  The deliverables under these agreements are evaluated to determine if they have stand-alone value and revenue is allocated to the elements based upon their relative selling prices.  Since the adoption of this standard, the Company has entered into one agreement with multiple-elements.  In the three months ended September 30, 2012, the Company recognized approximately $108 in revenue related to this agreement, comprised of $95 for materials shipped and $13 for consulting services provided.  In the nine months ended September 30, 2012, the Company recognized approximately $1,137, in revenue related to this agreement which has an entire value of $1,250.  The amount recognized was comprised of $286 for materials supplied, $35 for consulting services provided and $816 for technology access fees.

Use of Estimates

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

New and Recently Adopted Accounting Standards

In June 2011, the Financial Accounting Standards Board, (FASB) issued Accounting Standards Update (ASU) 2011-05 Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which amends current comprehensive income guidance.  This ASU increases the prominence of other comprehensive income in financial statements.  Under this ASU, the Company has chosen to present the components of net loss and comprehensive loss in consecutive financial statements.  The Company adopted the provisions of this guidance January 1, 2012, which resulted in adding the Consolidated Statements of Comprehensive Loss to our Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	20,920,648	20,920,648
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	21,389,259	21,000,960
Treasury stock, common shares	406,627	406,627

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DISCONTINUED OPERATIONS (Tables)

9 Months Ended

Sep. 30, 2012

Components of Assets Held for Sale

The significant components of assets held for sale consist of the following:

	September 30, 2012
Inventories	$	948
Property and equipment, net		124
Intangible assets, net		1,121
Total assets	$	2,193

Operating Results of Discontinued Operation

The following table presents key information associated with the operating results of the discontinued operation for the reporting periods included in the Company’s consolidated statements of operations:

Results of Operations of Discontinued Operations
	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues	$	1,869	$	2,830	$	5,383	$	8,726
Cost of sales		563		1,071		1,961		3,353
Gross profit		1,306		1,759		3,422		5,373
Operating expenses:
Research and development		76		126		301		347
Selling, general and administrative		540		770		1,463		2,302
Total operating expenses		616		896		1,764		2,649
Operating income		690		863		1,658		2,724
Income tax expense		-		-				-
Income from discontinued operations	$	690	$	863	$	1,658	$	2,724

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 30, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	SDIX
Entity Registrant Name	STRATEGIC DIAGNOSTICS INC/DE/
Entity Central Index Key	0000911649
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		20,986,071

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SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2012

Share Based Compensation Expense

Share-based compensation expense recorded in the three and nine month periods ended September 30, 2012 and 2011 is summarized as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
		2012		2011		2012		2011
Stock options		$	74	$	98	$	333	$	285
Employee stock purchase plan			-		-		1		2
Restricted stock awards			21		28		121		89
Total share-based compensation expense		$	95	$	126	$	455	$	376

Activity of Outstanding Stock Options Granted

Information with respect to the activity of outstanding stock options granted under the 2000 Plan and options granted separately from the 2000 Plan for the nine months ended September 30, 2012 is summarized as follows:

									Weighted	Aggregate
	Number								Average Remaining	Instrinsic
	of Shares			Price Range					Contractual term	Value
Balance, January 1, 2012		2,425,794		$	1.49	-	$	4.65
Granted		739,500		$	1.60	-	$	2.10
Cancelled / Forfeited		(694,891	)	$	1.50	-	$	4.65
Balance, September 30, 2012		2,470,403		$	1.49	-	$	4.65	7.0 years	$	-
Vested and excercisable at
September 30, 2012		1,282,503		$	1.49	-	$	4.65	5.8 years	$	-
Expected to vest as of
September 30, 2012		2,368,363		$	1.49	-	$	4.65	7.0 years	$	-

Additional Information About Stock Options Outstanding and Exercisable

The following table provides additional information about the Company’s stock options outstanding and exercisable at September 30, 2012:

					Options Outstanding							Options Exercisable
							Weighted Average							Wtd. Average
	Range of				Number of		Remaining			Exercise		Number of		Exercise
	Exercise Prices				Shares		Contractual Life			Price		Shares		Price
$	1.49	-	$	2.51		2,112,852		7.6	Years	$	1.85		924,952	$	1.75
$	3.05	-	$	3.57		106,700		1.5	Years	$	3.42		106,700	$	3.42
$	3.69	-	$	4.65		250,851		4.5	Years	$	4.17		250,851	$	4.17
$	1.49	-	$	4.65		2,470,403		7.0	Years	$	2.16		1,282,503	$	2.36

Status of Unvested Restricted Stock Activity

A summary of the status of the Company’s unvested restricted stock as of December 31, 2011 and changes during the nine month period ended September 30, 2012 is presented below.

				Weighted Average
				Grant Date		Aggregate
	Shares			Fair Value		Intrinsic Value
Non-vested RSA's at January 1, 2012		116,250		$	1.78
Granted		677,500		$	1.65
Vested		(52,500	)	$	1.84
Cancelled / forfeited		(296,250	)	$	1.75
Non-vested RSA's at September 30, 2012		445,000		$	1.60	$	579
Expected to vest at September 30, 2012		403,125		$	1.60	$	524

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues	$ 3,995	$ 4,085	$ 11,610	$ 12,735
Cost of sales	2,085	1,793	5,664	5,784
Gross profit	1,910	2,292	5,946	6,951
Operating expenses:
Research and development	987	930	2,837	2,414
Selling, general and administrative	2,638	2,882	8,429	9,214
Total operating expenses	3,625	3,812	11,266	11,628
Operating loss	(1,715)	(1,520)	(5,320)	(4,677)
Interest expense, net	(5)	(10)	(22)	(27)
Loss from continuing operations before taxes	(1,720)	(1,530)	(5,342)	(4,704)
Income tax expense		27		29
Loss from continuing operations, net of taxes	(1,720)	(1,557)	(5,342)	(4,733)
Income from discontinued operations	690	863	1,658	2,724
Net loss	$ (1,030)	$ (694)	$ (3,684)	$ (2,009)
Basic loss per share from continuing operations	$ (0.08)	$ (0.08)	$ (0.26)	$ (0.23)
Basic income per share from discontinued operations	$ 0.03	$ 0.04	$ 0.08	$ 0.13
Basic net loss per share	$ (0.05)	$ (0.03)	$ (0.18)	$ (0.10)
Shares used in computing basic net loss per share	20,536,745	20,467,245	20,510,751	20,423,521
Diluted loss per share from continuing operations	$ (0.08)	$ (0.08)	$ (0.26)	$ (0.23)
Diluted income per share from discontinued operations	$ 0.03	$ 0.04	$ 0.08	$ 0.13
Diluted net loss per share	$ (0.05)	$ (0.03)	$ (0.18)	$ (0.10)
Shares used in computing diluted net loss per share	20,536,745	20,467,245	20,510,751	20,423,521

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INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2012

INTANGIBLE ASSETS

6. INTANGIBLE ASSETS

At September 30, 2012 and December 31, 2011, intangible assets consisted of the following:

	September 30,			December 31,
	2012			2011			Lives
Intangible assets		17			2,614			2-20
Accumulated amortization		(17	)		(1,407	)
Net intangible assets	$	-		$	1,207

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INVENTORIES

9 Months Ended

Sep. 30, 2012

INVENTORIES

5. INVENTORIES

The Company’s inventories are valued at the lower of cost or market. For inventories that consist primarily of test kit components, bulk serum and antibody products, cost is determined using the first in, first out method. For inventories that consist of costs associated with the production of custom antibodies, cost is determined using the specific identification method. At September 30, 2012 and December 31, 2011, inventories consisted of the following:

	September 30,		December 31,
	2012		2011
Raw materials	$	415	$	706
Work in progress		1,010		717
Finished goods		338		719
Inventories	$	1,763	$	2,142

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Weighted Average Number of Shares Used in Computing Basic and Diluted Loss Per Share (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Weighted Average Number of Shares Outstanding [Line Items]
Weighted average common shares outstanding	20,536,745	20,467,245	20,510,751	20,423,521
Shares used in computing basic loss per share	20,536,745	20,467,245	20,510,751	20,423,521
Dilutive effect of stock options and unvested restricted shares
Shares used in computing diluted loss per share	20,536,745	20,467,245	20,510,751	20,423,521

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INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2012

Inventories

At September 30, 2012 and December 31, 2011, inventories consisted of the following:

	September 30,		December 31,
	2012		2011
Raw materials	$	415	$	706
Work in progress		1,010		717
Finished goods		338		719
Inventories	$	1,763	$	2,142

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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2012

Business

Business

Strategic Diagnostics Inc. and its subsidiaries (“SDIX,” the “Company,” “we,” “our” or “us”), is a biotechnology company with a core mission of developing, commercializing and marketing innovative, effective products and solutions, many of which are proprietary, that preserve and enhance the quality of human health and wellness. The Company serves the pharmaceutical, biotechnology and diagnostic markets.

SDIX is a customer-centric organization. Our goals are to consistently deliver increased value to our customers through products and services that facilitate business results, reduce costs and help manage risk. SDIX sales professionals focus among other things on delivering a quantifiable “return on investment” to our customers, demonstrating to them how to reduce time and total costs associated with applications for which the Company’s products are used.

The Company is focused on leveraging its expertise in antibodies and immuno-technologies to successfully develop proprietary products and services that enhance the competitive advantage of our customers and drive profitable growth.

The Company believes that our competitive position has been enhanced through the combination of talent, technology, and resources resulting from the business development activities we have pursued since our inception. The Company utilizes its facilities in Newark, Delaware and Windham, Maine for the manufacture of antibodies.

The Company’s Life Sciences product portfolio includes a full suite of integrated capabilities including antibody and assay design, development and production. These capabilities, combined with our proprietary Genomic Antibody Technology™ (“GAT™”), are being used today to help discover the mechanisms of disease, facilitate the development of new drugs, and provide the means for rapid diagnosis.

On October 16, 2012, the Company completed the sale of the assets, equipment, inventory and intellectual property related to the Company’s former business units comprised of the development, manufacturing and sale of diagnostics kits for the detection of various food pathogens and genetically modified organisms.  See Note 3.

SDIX has been developing antibody based solutions which have advanced our customers’ immuno-based work for 20 years. By applying its core competencies of creating proprietary, high-quality antibodies and assay development solutions, the Company has produced sophisticated reagent systems that are responsive to our customers’ analytical information needs.

Basis of Presentation and Interim Financial Statements

Basis of Presentation and Interim Financial Statements

The accompanying unaudited consolidated interim financial statements of the Company have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  In the opinion of management, the accompanying consolidated interim financial statements include all adjustments (all of which are of a normal recurring nature) necessary for a fair presentation of the results of operations.  The interim operating results are not necessarily indicative of the results to be expected for the entire year.

Revenue Recognition

Revenue Recognition

Revenues composed of sales of certain antibodies and immunochemical reagents are recognized upon the shipment of the product and transfer of title, or when related services are provided. Revenues associated with such products or services are recognized when persuasive evidence of an order exists, shipment of product has occurred or services have been provided, the price is fixed and determinable and collectability is reasonably assured. Management is required to make judgments based on actual experience about whether or not collectability is reasonably assured.

The Company enters into contracts related to the production of custom antibodies, which provide for the performance of defined tasks for a fixed price, with delivery of the product upon completion of production. The standard time to complete a project is typically longer than 30 days but less than 12 months, and effort is expended over the life of the project. Revenues related to sales of custom antibody projects are recognized when a project’s specifications have been met and the related materials have been shipped.

Fees associated with products and services added on to a custom antibody project subsequent to delivery of the initial project are billed monthly and recognized as revenue as the services and other deliverables are provided.  Sales taxes collected from customers are presented net in the consolidated statement of operations.

The Company follows Accounting Standards Codification, (ASC) 605-25 “Revenue Recognition – Multiple-Element Arrangements” to determine the recognition of revenue under collaboration agreements that include multiple elements.  The deliverables under these agreements are evaluated to determine if they have stand-alone value and revenue is allocated to the elements based upon their relative selling prices.  Since the adoption of this standard, the Company has entered into one agreement with multiple-elements.  In the three months ended September 30, 2012, the Company recognized approximately $108 in revenue related to this agreement, comprised of $95 for materials shipped and $13 for consulting services provided.  In the nine months ended September 30, 2012, the Company recognized approximately $1,137, in revenue related to this agreement which has an entire value of $1,250.  The amount recognized was comprised of $286 for materials supplied, $35 for consulting services provided and $816 for technology access fees

Use of Estimates

Use of Estimates

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

New and Recently Adopted Accounting Standards

New and Recently Adopted Accounting Standards

In June 2011, the Financial Accounting Standards Board, (FASB) issued Accounting Standards Update (ASU) 2011-05 Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which amends current comprehensive income guidance.  This ASU increases the prominence of other comprehensive income in financial statements.  Under this ASU, the Company has chosen to present the components of net loss and comprehensive loss in consecutive financial statements.  The Company adopted the provisions of this guidance January 1, 2012, which resulted in adding the Consolidated Statements of Comprehensive Loss to our Consolidated Financial Statements.

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DEBT

9 Months Ended

Sep. 30, 2012

DEBT

7. DEBT

On March 26, 2012, the Company entered into a Master Equipment Lease agreement with a commercial bank.  The agreement is for a $500 revolving line of credit to purchase equipment.  The equipment purchased has a distinct lease schedule under the agreement and provides for specific terms of payment related to that particular equipment lease.  For accounting purposes, the leases are considered capital leases and accordingly are recorded as debt and amortized with an imputed interest rate according to the terms of the applicable equipment lease.  All leases carry a one dollar buyout at lease end.

To date, the Company has borrowed $271 against this Master Lease agreement, which includes three separate leases, of which $250 is outstanding as of September 30, 2012.  Each of three leases contains a 60 month term with an imputed interest rate of approximately 4.3%.

The Company has certain financial covenants to meet related to this Master Equipment Lease, including a debt coverage ratio of not less than 1.25 to 1 based upon a trailing 12 month basis, tangible net worth of not less than $15,000, minimum liquidity of $2,000 and a requirement to maintain its primary banking accounts with the commercial bank.  As of September 30, 2012, the Company was not in compliance with all applicable loan covenants and received a waiver of any action for non-compliance from the commercial bank for the quarter ended September 30, 2012.

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INCOME TAXES

9 Months Ended

Sep. 30, 2012

INCOME TAXES

8. INCOME TAXES

The Company evaluates its deferred tax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets is required.  The Company had a full valuation allowance offsetting its U.S. federal and state net deferred tax assets which primarily represent net operating loss carryforwards (“NOLs”) at December 31, 2011.  During the nine-month period ended September 30, 2012, the Company’s management concluded that a full valuation allowance for U.S. federal and state net deferred tax assets remains appropriate as the facts and circumstances during the first nine months of 2012 did not change management’s conclusion that a full valuation allowance is necessary.

The Company is subject to U.S. federal and UK income tax, as well as income taxes of multiple state jurisdictions.   The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.  At September 30, 2012, the Company had no interest or penalties accrued related to uncertain tax positions due to the available NOLs.

As of January 1, 2012, the Company provided a liability for approximately $554 of unrecognized tax benefits, which if recognized in a period where there was not a full valuation allowance, would affect the effective tax rate.  For the nine months ended September 30, 2012, unrecognized tax benefits increased by $18 to $572, which if recognized in a period where there was not a full valuation allowance, would affect the effective tax rate.

For federal purposes, post-1992 tax years remain open to examination as a result of earlier net operating losses being utilized. For state purposes, the statute of limitations remains open in a similar manner. The Company does not expect that the total amount of unrecognized tax benefits related to positions taken in prior periods will change significantly during the next 12 months.

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BASIC AND DILUTED LOSS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2012

Weighted Average Number of Shares

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Weighted average common shares outstanding		20,536,745		20,467,245		20,510,751		20,423,521
Shares used in computing basic loss per share		20,536,745		20,467,245		20,510,751		20,423,521
Dilutive effect of stock options and
unvested restricted shares		-		-		-		-
Shares used in computing diluted loss per share		20,536,745		20,467,245		20,510,751		20,423,521

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Debt - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012 Property	Mar. 26, 2012
Debt Instrument [Line Items]
Revolving line of credit		$ 500,000
Leases buyout at lease end		1
Revolving line of credit, borrowed	271,000
Number of leases	3
Revolving line of credit, outstanding	250,000
Lease term	60 months
lease, Imputed interest rate	4.30%
Minimum
Debt Instrument [Line Items]
Financial covenants, debt coverage ratio		1.25
Financial covenants, tangible net worth		15,000,000
Financial covenants, minimum liquidity		$ 2,000,000

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Description of Business and Summary of Significant Accounting Policies - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Collaborative Arrangement
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Collaboration agreements, revenue recognized	$ 108	$ 1,137
Collaboration agreements, total amount	1,250	1,250
Collaboration agreements, materials supplied	95	286
Collaboration agreements, consulting services provided	13	35
Collaboration agreements, technology access fees		$ 816
Minimum
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Standard project completion period		30 days
Maximum
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Standard project completion period		12 months

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Operating Results of Discontinued Operation (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenues	$ 1,869	$ 2,830	$ 5,383	$ 8,726
Cost of sales	563	1,071	1,961	3,353
Gross profit	1,306	1,759	3,422	5,373
Operating expenses:
Research and development	76	126	301	347
Selling, general and administrative	540	770	1,463	2,302
Total operating expenses	616	896	1,764	2,649
Operating income	690	863	1,658	2,724
Income tax expense
Income from discontinued operations	$ 690	$ 863	$ 1,658	$ 2,724

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net loss	$ (1,030)	$ (694)	$ (3,684)	$ (2,009)
Foreign currency translation adjustment	25	(17)	29	(1)
Comprehensive loss	$ (1,005)	$ (711)	$ (3,655)	$ (2,010)

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SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2012

SHARE-BASED COMPENSATION

4. SHARE-BASED COMPENSATION

Under various plans, executives, key employees and outside directors receive awards of options to purchase common stock. The Company has a stock option plan (the “2000 Plan”) which authorizes the granting of incentive and nonqualified stock options and restricted stock units. 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. A maximum of 8,000,000 shares of common stock are issuable under the 2000 Plan. Certain additional options have been granted outside the 2000 Plan. These options generally follow the provisions of the 2000 Plan.  The Company issues new shares to satisfy option exercises and the vesting of restricted stock awards.

The Company also has an Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible full-time employees to purchase shares of common stock at 90 percent of the lower of the fair market value of a share of common stock on the first or last day of the quarter. Eligible employees are provided the opportunity to acquire Company common stock during each quarter. No more than 661,157 shares of common stock may be issued under the ESPP. Such stock may be unissued shares or treasury shares of the Company or may be outstanding shares purchased in the open market or otherwise on behalf of the ESPP.  The Company’s ESPP is compensatory and therefore, the Company is required to recognize compensation expense related to the discount from market value of shares sold under the ESPP.  The Company issues new shares to satisfy shares purchased under the ESPP.

Share-based compensation expense recorded in the three and nine month periods ended September 30, 2012 and 2011 is summarized as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
		2012		2011		2012		2011
Stock options		$	74	$	98	$	333	$	285
Employee stock purchase plan			-		-		1		2
Restricted stock awards			21		28		121		89
Total share-based compensation expense		$	95	$	126	$	455	$	376

Share-based compensation expense is a component of selling, general and administrative expense, and is recorded as a non-cash expense in the operating activities section of the Company’s consolidated statements of cash flows.

No options were exercised in the nine month period ended September 30, 2012.  Proceeds from the exercise of stock options were $64 in the nine month period ended September 30, 2011.  Proceeds received from employee payments into the ESPP in the nine month periods ended September 30, 2012 and 2011, were $10 and $13, respectively.  These amounts are recorded in the cash flows from financing activities section of the Company’s consolidated statements of cash flows.

Information with respect to the activity of outstanding stock options granted under the 2000 Plan and options granted separately from the 2000 Plan for the nine months ended September 30, 2012 is summarized as follows:

									Weighted	Aggregate
	Number								Average Remaining	Instrinsic
	of Shares			Price Range					Contractual term	Value
Balance, January 1, 2012		2,425,794		$	1.49	-	$	4.65
Granted		739,500		$	1.60	-	$	2.10
Cancelled / Forfeited		(694,891	)	$	1.50	-	$	4.65
Balance, September 30, 2012		2,470,403		$	1.49	-	$	4.65	7.0 years	$	-
Vested and excercisable at
September 30, 2012		1,282,503		$	1.49	-	$	4.65	5.8 years	$	-
Expected to vest as of
September 30, 2012		2,368,363		$	1.49	-	$	4.65	7.0 years	$	-

During the nine month period ended September 30, 2012, there were 739,500 options granted with a weighted average grant date fair value, based on a Black-Scholes option pricing model, of $0.83 per share.  Of the options granted, 60,000 were granted to nonemployees.  The assumptions used in the Black-Scholes model are as follows: dividend yield 0%, expected volatility 48.31%, risk-free interest rate 1.13% and expected life of 6.28 years.  The Company uses the Simplified Method for determining the expected life of options granted to employees which is computed using the sum of the average vesting period and the contractual life of the option and dividing by two, for all periods presented.  The Company uses the contractual life of the option to determine the expected life of the option for nonemployees.

The following table provides additional information about the Company’s stock options outstanding and exercisable at September 30, 2012:

					Options Outstanding							Options Exercisable
							Weighted Average							Wtd. Average
	Range of				Number of		Remaining			Exercise		Number of		Exercise
	Exercise Prices				Shares		Contractual Life			Price		Shares		Price
$	1.49	-	$	2.51		2,112,852		7.6	Years	$	1.85		924,952	$	1.75
$	3.05	-	$	3.57		106,700		1.5	Years	$	3.42		106,700	$	3.42
$	3.69	-	$	4.65		250,851		4.5	Years	$	4.17		250,851	$	4.17
$	1.49	-	$	4.65		2,470,403		7.0	Years	$	2.16		1,282,503	$	2.36

A summary of the status of the Company’s unvested restricted stock as of December 31, 2011 and changes during the nine month period ended September 30, 2012 is presented below.

				Weighted Average
				Grant Date		Aggregate
	Shares			Fair Value		Intrinsic Value
Non-vested RSA's at January 1, 2012		116,250		$	1.78
Granted		677,500		$	1.65
Vested		(52,500	)	$	1.84
Cancelled / forfeited		(296,250	)	$	1.75
Non-vested RSA's at September 30, 2012		445,000		$	1.60	$	579
Expected to vest at September 30, 2012		403,125		$	1.60	$	524

Restricted stock granted is generally scheduled to vest over periods of two to four years. The cost of the grant is charged to operations over the vesting period.  At September 30, 2012, the weighted average remaining term of non-vested restricted stock was 2.7 years.

The Company also issued 410,000 performance-based Restricted Stock Units (“RSUs”) during the nine months ended September 30, 2012, of which 200,000 have been forfeited.  The fair value of an RSU is equal to the market value of a share of stock on the date of grant.  The performance-based RSUs vest based upon the achievement of certain goals related to the Company’s senior management team, for periods ranging from June 30, 2012 through December 31, 2015.  Unless forfeited, the performance-based RSUs will be paid out in the form of stock, if the Company meets the performance targets.  If the designated performance targets are not met, no payout will be made.

The Company also issued 315,000 performance-based RSUs during the nine months ended September 30, 2011.  The performance-based RSUs vest based upon the achievement of certain revenue targets.  50% of the RSUs vest upon the achievement of certain revenue growth targets during any 12-month period prior to December 31, 2012, and any remaining unvested RSUs vest upon the achievement of certain revenue growth targets during any 12-month period prior to December 31, 2014.  Unless forfeited, the performance-based RSUs will be paid out in the form of stock, if the Company meets the performance targets.  If the designated performance targets are not met during any 12-month period prior to December 31, 2014, no payout will be made.  No expense has been recognized for these performance-based RSUs, as the probability of achieving the targets is currently assessed at not probable.

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Share Based Compensation - Additional Information (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Proceeds from the exercise of stock options		$ 64
Proceeds from employee stock purchase plan	$ 10	$ 13
Number of options granted	739,500
Weighted average grant date fair value of options granted	$ 0.83
Fair value assumptions used in Black-Scholes model, dividend yield	0.00%
Fair value assumptions used in Black-Scholes model, expected volatility	48.31%
Fair value assumptions used in Black-Scholes model, risk free interest rate	1.13%
Fair value assumptions used in Black-Scholes model, expected life	6 years 3 months 11 days
Non Employee Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options granted	60,000
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted during the period	410,000	315,000
Forfeited during the period	200,000
Percentage of RSUs vest upon achievement of certain revenue growth during any 12-month period prior to December 31, 2012		50.00%
Restricted stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average remaining term of non-vested restricted stock	2 years 8 months 12 days
Granted during the period	677,500
Forfeited during the period	296,250
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted, vest periods	2 years
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted, vest periods	4 years
2000 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of issuable common stock under the plan	8,000,000
2000 Plan | For stockholders owning more than 10% of the Company's common stock | stockholders owning more than 10% of common stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Purchase price as a percentage of fair market value at date of grant	110.00%
2000 Plan | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Purchase price as a percentage of fair market value at date of grant	100.00%
2000 Plan | Minimum | Nonqualified Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Purchase price as a percentage of fair market value at date of grant	85.00%
Employee Stock Purchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of issuable common stock under the plan	661,157
Employee Stock Purchase Plan, purchase price as percentage of fair market value of a share of common stock on first or last day of quarter	90.00%

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INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2012

Intangible Assets

At September 30, 2012 and December 31, 2011, intangible assets consisted of the following:

	September 30,			December 31,
	2012			2011			Lives
Intangible assets		17			2,614			2-20
Accumulated amortization		(17	)		(1,407	)
Net intangible assets	$	-		$	1,207