t76757_10qa.htm

10-Q/A 1 t76757_10qa.htm FORM 10-Q (AMENDMENT NO. 1) t76757_10qa.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

(Amendment No. 1)

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

For the Quarterly Period Ended March 31, 2013

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	(I.R.S. employer
incorporation or organization)	identification no.)

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

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

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 April 30, 2013, there were 21,117,060 outstanding shares of the Registrant’s common stock, par value $.01 per share.

Explanatory Note

We are filing this Amended Quarterly Report on Form 10-Q/A (the “Amended 10-Q”) to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, as filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2013 (the “Original Form 10-Q”), to reclassify the financial results of the Company’s Life Sciences Business as continuing operations rather than as discontinued operations, held for sale, as initially reported. Details of the restatements are discussed below and in Note 1 to the accompanying restated consolidated financial statements.

Description of Restatement

On June 6, 2013, management concluded that the Company would amend and restate its previously issued consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 to present the results of its Life Sciences Business as continuing operations. These results had been previously presented as discontinued operations held for sale. The determination to restate the results as continuing operations reflects the fact that the required stockholder vote regarding approval of the sale of the assets comprising the Life Sciences Business has not yet occurred. This vote is expected to take place in early July 2013. As the restatement is one of presentation only, stockholder’s equity, net loss and cash used in operating activities are not impacted. On June 11, 2013, the Audit Committee of the Board of Directors of the Company agreed with management's conclusion and approved the filing of the Amended 10-Q.

Other than to change the presentation of our results as described above, and to address in Part I, Item 4 the impact of the need for these changes on our management’s assessment of our disclosure controls and procedures, no other changes have been made to the Original Form 10-Q. This Amendment does not reflect subsequent events or circumstances that may have occurred after the filing date of the Original Form 10-Q or modify or update in any way disclosures made in the Original Form 10-Q or otherwise update disclosures (including the exhibits to the Original Form 10-Q) other than the updating of the exhibits to include updated Certifications of the Chief Executive and Chief Financial Officers.

STRATEGIC DIAGNOSTICS INC.

INDEX

	Item	Page
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets – March 31, 2013 and December 31, 2012		2
Consolidated Statements of Operations – Three months ended March 31, 2013 and 2012		3
Consolidated Statements of Comprehensive Loss – Three months ended March 31, 2013 and 2012		4
Consolidated Statements of Cash Flows – Three months ended March 31, 2013 and 2012		5
Notes to Consolidated Interim Financial Statements		6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		22
ITEM 4. Controls and Procedures		22
PART II OTHER INFORMATION		23
ITEM 6. Exhibits		23
SIGNATURES		24

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31,			December 31,
	2013			2012
ASSETS	Restated
Current Assets :
Cash and cash equivalents	$	16,026		$	18,145
Receivables, net		2,451			2,276
Inventories		2,276			1,990
Other current assets		880			457
Total current assets		21,633			22,868

Property and equipment, net		4,868			4,637
Other assets		25			28
Deferred tax asset		35			37
Total assets	$	26,561		$	27,570

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities :
Current portion of long-term debt	$	55		$	47
Accounts payable		553			419
Accrued expenses		2,110			1,771
Deferred revenue		37			32
Total current liabilities		2,755			2,269

Long-term debt		215			191

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,
21,521,461 and 21,467,700 issued
at March 31, 2013 and December 31, 2012, respectively		215			215
Additional paid-in capital		43,003			42,879
Treasury stock, 406,627 common shares at cost
at March 31, 2013 and December 31, 2012		(555	)		(555	)
Accumulated deficit		(18,789	)		(17,195	)
Cumulative translation adjustments		(283	)		(234	)
Total stockholders’ equity		23,591			25,110
Total liabilities and stockholders’ equity	$	26,561		$	27,570

The accompanying notes are an integral part of these statements.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended March 31,
	2013			2012
	Restated

Revenues	$	3,383		$	3,980

Cost of sales		1,705			1,697

Gross profit		1,678			2,283

Operating expenses:
Research and development		486			958
Selling, general and administrative		2,781			2,824
Total operating expenses		3,267			3,782

Operating loss		(1,589	)		(1,499	)

Interest expense, net		(5	)		(7	)

Loss from continuing operations before taxes		(1,594	)		(1,506	)

Income tax expense (benefit)		-			-

Loss from continuing operations, net of taxes		(1,594	)		(1,506	)

Income from discontinued operations		-			309

Net loss	$	(1,594	)	$	(1,197	)

Basic loss per share from continuing operations	$	(0.08	)	$	(0.07	)
Basic income per share from discontinued operations		0.00			0.01

Basic net loss per share	$	(0.08	)	$	(0.06	)

Shares used in computing basic net income (loss) per share		20,619,165			20,488,242

Diluted loss per share from continuing operations	$	(0.08	)	$	(0.07	)
Diluted income per share from discontinued operations		0.00			0.01

Diluted net loss per share	$	(0.08	)	$	(0.06	)

Shares used in computing diluted net loss per share		20,619,165			20,488,242

The accompanying notes are an integral part of these statements.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2013			2012

Net loss	$	(1,594	)	$	(1,197	)

Foreign currency translation adjustment		(49	)		22

Comprehensive loss	$	(1,643	)	$	(1,175	)

The accompanying notes are an integral part of these statements

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months
	Ended March 31,
	2013			2012
	Restated
Cash Flows from Operating Activities :
Net loss	$	(1,594	)	$	(1,197	)
Less: Income from discontinued operations		-			309
Loss from continuing operations		(1,594	)		(1,506	)
Adjustments to reconcile net loss to net
cash used in operating activities :
Depreciation and amortization		235			226
Share-based compensation expense		120			134
Deferred income tax provision		2			-
(Increase) decrease in :
Receivables		(175	)		380
Inventories		(286	)		(80	)
Other current assets		(423	)		(541	)
Other assets		6			(23	)
Increase (decrease) in :
Accounts payable		(11	)		25
Accrued expenses		339			370
Deferred revenue		5			334
Net operating activities from discontinued operations		-			375
Net cash used in operating activities		(1,782	)		(306	)

Cash Flows from Investing Activities :
Purchase of property and equipment		(277	)		(585	)
Net cash used in investing activities		(277	)		(585	)

Cash Flows from Financing Activities :
Proceeds from employee stock purchase plan		2			2
Restricted cash requirement		-			100
Repayments on financing obligations		(13	)		(100	)
Net cash provided by (used in) financing activities		(11	)		2

Effect of exchange rate changes on cash		(49	)		22

Net decrease in Cash and Cash Equivalents		(2,119	)		(867	)

Cash and Cash Equivalents, Beginning of Period		18,145			10,665

Cash and Cash Equivalents, End of Period	$	16,026		$	9,798

Supplemental Cash Flow Disclosure :

Cash paid for taxes, net of tax refunds		27			14

Cash paid for interest		5			9

Noncash investing activity, purchase of property and equipment		145			-

Noncash investing activity, capital lease obligations		45			-

The accompanying notes are an integral part of these statements.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

1. RESTATEMENT

On June 6, 2013, management of Strategic Diagnostics Inc., a Delaware corporation (“SDIX Inc.”), concluded that SDIX would amend and restate its previously issued consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 to present the results of its Life Sciences Business as continuing operations. These results had been previously presented as discontinued operations held for sale. The determination to restate the results as continuing operations reflects the fact that the required stockholder vote regarding approval of the sale of the assets comprising the Life Sciences Business has not yet occurred. This vote is expected to take place in early July 2013. As the restatement is one of presentation only, stockholder’s equity, net loss and cash used in operating activities are not impacted. On June 11, 2013, the Audit Committee of the Board of Directors of the Company agreed with management's conclusion and approved the filing of an amendment to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, as filed with the Securities and Exchange Commission on May 15, 2013.

The impact of the restatement on the Company’s March 31, 2013 and December 31, 2012 Consolidated Balance Sheet is outlined below.
(in thousands, except share data)

	March 31, 2013									December 31, 2012
	Restated			As Reported			Variance			Restated			As Reported			Variance
ASSETS
Current Assets :
Cash and cash equivalents	$	16,026		$	16,026			-		$	18,145		$	18,145			-
Receivables, net		2,451			-			2,451			2,276			-			2,276
Inventories		2,276			-			2,276			1,990			-			1,990
Other current assets		880			510			370			457			71			386
Current assets held for sale		-			5,097			(5,097	)		-			4,652			(4,652	)
Total current assets		21,633			21,633			-			22,868			22,868			-

Property and equipment, net		4,868			-			4,868			4,637			-			4,637
Other assets		25			-			25			28			-			28
Deferred tax asset		35			35			-			37			37			-
Non-current assets held for sale		-			4,893			(4,893	)		-			4,665			(4,665	)
Total assets	$	26,561		$	26,561		$	-		$	27,570		$	27,570		$	-

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities :
Current portion of long-term debt	$	55		$	-		$	55		$	47		$	-		$	47
Accounts payable		553			-			553			419			-			419
Accrued expenses		2,110			1,905			205			1,771			1,437			334
Deferred revenue		37			-			37			32			-			32
Current liabilities held for sale		-			850			(850	)		-			832			(832	)
Total current liabilities		2,755			2,755			-			2,269			2,269			-

Long-term debt		215			-			215			191			-			191
Non-current liabilities held for sale		-			215			(215	)		-			191			(191	)
Total non-current liabilities		215			215			-			191			191			-

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, 21,521,461 and 21,467,700 issued at March 31, 2013 and December 31, 2012, respectively		215			215			-			215			215			-
Additional paid-in capital		43,003			43,003			-			42,879			42,879			-
Treasury stock, 406,627 common shares at cost at March 31, 2013 and December 31, 2012		(555	)		(555	)		-			(555	)		(555	)		-
Accumulated deficit		(18,789	)		(18,789	)		-			(17,195	)		(17,195	)		-
Cumulative translation adjustments		(283	)		(283	)		-			(234	)		(234	)		-
Total stockholders’ equity		23,591			23,591			-			25,110			25,110			-
Total liabilities and stockholders’ equity	$	26,561		$	26,561		$	-		$	27,570		$	27,570		$	-

The accompanying notes are an integral part of these statements.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

The impact of the restatement on the Company’s March 31, 2013 and March 31, 2012 Consolidated Statement of Operations is outlined below.
(in thousands, except share data)

	Three months ended March 31, 2013									Three months ended March 31, 2012
	Restated			As Reported			Variance			Restated			As Reported			Variance

Revenues	$	3,383		$	-		$	3,383		$	3,980		$	-		$	3,980

Cost of sales		1,705			-			1,705			1,697			-			1,697
Gross profit		1,678			-			1,678			2,283			-			2,283

Operating expenses:
Research and development		486			-			486			958			-			958
Selling, general and administrative		2,781			454			2,327			2,824			441			2,383
Total operating expenses		3,267			454			2,813			3,782			441			3,341

Operating loss		(1,589	)		(454	)		(1,135	)		(1,499	)		(441	)		(1,058	)

Interest expense, net		(5	)		-			(5	)		(7	)		-			(7	)

Loss from continuing operations before taxes		(1,594	)		(454	)		(1,140	)		(1,506	)		(441	)		(1,065	)

Income tax expense (benefit)		-			-			-			-			-			-

Loss from continuing operations, net of taxes		(1,594	)		(454	)		(1,140	)		(1,506	)		(441	)		(1,065	)

Income (loss) from discontinued operations		-			(1,140	)		1,140			309			(756	)		1,065

Net loss	$	(1,594	)	$	(1,594	)	$	-		$	(1,197	)	$	(1,197	)	$	-

Basic loss per share from continuing operations	$	(0.08	)	$	(0.02	)	$	(0.06	)	$	(0.07	)	$	(0.02	)	$	(0.05	)
Basic net income (loss) per share from discontinued operations		0.00			(0.06	)		0.06			0.01			(0.04	)		0.05

Basic net loss per share	$	(0.08	)	$	(0.08	)	$	-		$	(0.06	)	$	(0.06	)	$	-

Shares used in computing basic net income (loss)per share		20,619,165			20,619,165			-			20,488,242			20,488,242			-

Diluted loss per share from continuing operations	$	(0.08	)	$	(0.02	)	$	(0.06	)	$	(0.07	)	$	(0.02	)	$	(0.05	)
Diluted net income (loss) per share from discontinued operations		0.00			(0.06	)		0.06			0.01			(0.04	)		0.05

Diluted net loss per share	$	(0.08	)	$	(0.08	)	$	-		$	(0.06	)	$	(0.06	)	$	-

Shares used in computing diluted net loss per share		20,619,165			20,619,165			-			20,488,242			20,488,242			-

The consolidated statement of cash flows has also been restated to present information on a gross basis. However, net cash provided by (used in) operating activities, financing activities and investing activities were not impacted by the restatement.

2. SUBSEQUENT EVENTS

On April 5, 2013, SDIX Inc., SDIX, LLC, a Delaware limited liability company (the “Purchaser”) and OriGene Technologies, Inc., a Delaware corporation and the ultimate parent of the Purchaser (“Parent” or “OriGene”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”).

Pursuant to the terms and conditions of the Asset Purchase Agreement, the Purchaser will acquire all of SDIX Inc.’s right, title, and interest in substantially all of the assets, equipment, inventory, and intellectual property (the “Purchased Assets”) related exclusively to SDIX Inc.’s Life Sciences Business, the product portfolio in respect of which includes a full suite of integrated capabilities, including antibody and assay design, development and production and the Advanced Technologies Business (the “Asset Sale”). The Purchaser will also assume and agree to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement. Parent unconditionally guarantees Purchaser’s obligations in the Asset Purchase Agreement. The purchase price for the Purchased Assets is $16,000, which is subject to a post-closing working capital adjustment. SDIX Inc. will retain the cash from the purchase price, less the escrow amount (described below) until such amount, if any, is released from escrow.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

SDIX Inc. and Purchaser each made customary representations, warranties and covenants in the Asset Purchase Agreement. At closing, $1,300 of the purchase price will be placed in escrow to be governed by the terms of a separate escrow agreement. The Asset Purchase Agreement contains indemnification provisions pursuant to which SDIX Inc. and the Purchaser have agreed to indemnify the other for certain losses, including with respect to environmental, litigation, tax and other matters.

Customary covenants govern the time between the date of the Asset Purchase Agreement and the closing regarding conduct of the Business, access to information pertaining to the Business, confidentiality, publicity, and notification of certain events. The Asset Purchase Agreement also contains restrictive covenants, including, that SDIX Inc. not (i) engage in a competing business for a period of five years after the closing date, (ii) directly or indirectly solicit Purchaser’s employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchaser’s customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.

The closing will occur by August 31, 2013, unless otherwise agreed by SDIX Inc. and Purchaser. The Asset Purchase Agreement may be terminated (i) by mutual written consent of SDIX Inc. and the Purchaser, (ii) if closing does not occur on or before August 31, 2013, (iii) if stockholder approval is not obtained by SDIX Inc., (iv) if SDIX Inc. receives a Superior Proposal, as defined in the Agreement, (v) by Purchaser if there has been a Material Adverse Effect, as defined in the Asset Purchase Agreement, and in other circumstances. SDIX Inc. has agreed to pay the Purchaser a termination fee of $480 if, among other things, (i) stockholder approval is not obtained by SDIX Inc., (ii) SDIX Inc. changes its recommendation to the stockholders or (iii) SDIX Inc. accepts an Acquisition Proposal, as defined in the Asset Purchase Agreement, and a transaction is consummated within 12 months of termination of the Asset Purchase Agreement.

Except as otherwise indicated, the disclosure set forth in these Notes to Consolidated Interim Financial Statements and elsewhere in this Form 10-Q does not give effect to the closing of the Asset Sale, which is subject to conditions as described above. Should the Asset Sale be consummated, SDIX Inc. will no longer own its historical operating assets, and its past business operations will be discontinued.

3.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Strategic Diagnostics Inc. and its subsidiaries (“SDIX” or the “Company”) 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 supplies products, custom services and critical reagents used across the life science research and development markets. The Company’s Genomic Antibody Technology® (“GAT”) is being used in proteomic research, disease understanding and drug/biomarker discovery among academic, biotech, in-vitro diagnostic (“IVD”) and large pharmaceutical customers.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

By applying its core competencies of creating proprietary antibodies and assay development, the Company has produced sophisticated testing and reagent systems that are responsive to each customer’s analytical information needs.

SDIX is a customer-centric organization. The Company’s goals are to consistently deliver increased value to its customers that facilitate their business results, reduce costs and help in the management of risk. SDIX sales professionals focus on delivering a quantifiable “return on investment” to their customers by reducing time and total costs associated with applications for which the Company’s products are used. In addition, the Company believes its tests provide high levels of accuracy and reliability, which deliver more actionable test results to the customer as compared to alternative products. The Company is focused on sustaining profitable growth by leveraging its expertise in antibodies and immuno-technologies to successfully develop proprietary products and services that enhance the competitive advantage of its customers.

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 has achieved meaningful economies of scale for the products it offers through the utilization of its facilities in Newark, Delaware and its facility in Windham, Maine for the manufacture of antibody products and services.

The continued economic downturn, including disruptions in the capital and credit markets, may continue indefinitely and intensify, and could adversely affect our results of operations, cash flows and financial condition or those of our customers and suppliers. These circumstances could adversely affect our access to liquidity needed to conduct or expand our business or conduct acquisitions or make other discretionary investments. These circumstances may also adversely impact the capital needs of our customers and suppliers, which, in turn, could adversely affect their ability to purchase our products or supply us with necessary equipment and raw materials. This could adversely affect our results of operations, cash flows and financial condition. A weakening business climate could cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers or suppliers adversely affected by economic conditions. Our ability to collect accounts receivable may be delayed or precluded if our customers are unable to pay their obligations.

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, 2012. 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.

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 immunoassay-based test kits and certain antibodies and immunochemical reagents are recognized upon the shipment of the product and transfer of title, or when related services are provided. 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. During the first three months of 2012, the Company recognized approximately $920 in revenue related to this $1,250 agreement. The amount recognized was comprised of $95 for materials supplied, $9 in consulting services provided and $816 in technology access fees. In November 2012, the Company announced this agreement had been terminated by Beckton Dickinson (BD) Diagnostics and that all revenues related to the initial $1,250 payment had been earned.

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.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

4. 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 March 31, 2013 and 2012, conversion of stock options and unvested restricted shares totaling 495,000 and 349,398, 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
	March 31,
	2013		2012

Weighted average common shares outstanding		20,619,165		20,488,242

Shares used in computing basic loss per share		20,619,165		20,488,242

Dilutive effect of stock options and unvested restricted stock units		-		-

Shares used in computing diluted loss per share		20,619,165		20,488,242

5. DISCONTINUED OPERATIONS

On October 16, 2012, the Company completed the sale of its Food Pathogens and AG-GMO products assets to Romer Labs for approximately $12,075, net of transaction fees. These assets included intellectual property, inventory, commercial contracts and equipment. The Company recognized a gain on the sale of these assets, after transaction fees, of $9,882.

The Company may receive additional consideration of up to $600 if it is able to meet certain conditions by April 30, 2013 as provided for in the Asset Purchase Agreement. As of April 30, 2013, the Company received $150 pursuant to this additional consideration, and is currently seeking an extension of time to meet the remaining conditions to receive the $450 balance remaining. Any such, additional consideration will be recorded as a gain on sale of assets as it is received.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

In accordance with Accounting Standards Codification (ASC) 360, Property, Plant and Equipment, the results of operations and cash flow activity of the Food Pathogen and AG-GMO products assets 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 March 31,
		2013		2012

Revenues		$	-	$	1,657

Cost of sales			-		745

	Gross profit		-		912

Operating expenses:
	Research and development		-		140
	Selling, general and administrative		-		463
	Total operating expenses		-		603

Operating income			-		309

Income tax expense			-		-

Income from discontinued operations		$	-	$	309

For comparative purposes, items from discontinued operations in the Company’s March 31, 2012 Consolidated Balance Sheet included approximately $899 of accounts receivable, $1,157 of inventory, $1,178 of intangible assets and $37 of net property and equipment.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

6.	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 month periods ended March 31, 2013 and 2012 is summarized as follows:

	Three Months Ended
	March 31,
		2013		2012


Stock options		$	77	$	106
Employee stock purchase plan			-		1
Restricted stock awards			43		27

Total share-based compensation expense		$	120	$	134

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 three month periods ended March 31, 2013 and 2012. Proceeds received from employee payments into the ESPP in the three month periods ended March 31, 2013 and 2012, were $2 in both periods. These amounts are recorded in the cash flows from financing activities section of the Company’s consolidated statements of cash flows.

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 three months ended March 31, 2013 is summarized as follows:


									Weighted	Aggregate
	Number								Average Remaining	Instrinsic
	of Shares			Price Range					Contractual term	Value

Balance, January 1, 2013		2,170,043		$	1.49	-	$	4.65

Granted		81,200		$	1.19	-	$	1.19
Cancelled / Forfeited		(32,800	)	$	2.00	-	$	3.45

Balance, March 31, 2013		2,218,443		$	1.19	-	$	4.65	6.6 years	$	-

Vested and excercisable at
March 31, 2013		1,327,101		$	1.49	-	$	4.65	5.7 years	$	-

Expected to vest as of
March 31, 2013		2,143,309		$	1.19	-	$	4.65	6.6 years	$	-

During the three month period ended March 31, 2013, there were 81,200 options granted with a weighted average grant date fair value, based on a Black-Scholes option pricing model, of $0.44 per share. The assumptions used in the Black-Scholes model are as follows: dividend yield 0%, expected volatility 47.1%, risk-free interest rate 1.17% and expected life of 6.25 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 March 31, 2013:

					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

$	1.19	-	$	2.51		1,904,302		7.1	Years	$	1.82		1,012,960	$	1.76
$	3.05	-	$	3.57		66,300		1.8	Years	$	3.52		66,300	$	3.52
$	3.69	-	$	4.65		247,841		3.9	Years	$	4.17		247,841	$	4.17
$	1.19	-	$	4.65		2,218,443		6.6	Years	$	2.13		1,327,101	$	2.30

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, 2012 and changes during the three month period ended March 31, 2013 is presented below.

				Weighted Average
				Grant Date		Aggregate
	Shares			Fair Value		Intrinsic Value

Non-vested RSA’s at January 1, 2013		445,000		$	1.60
Granted		100,000		$	1.08
Cancelled / forfeited		(50,000	)	$	1.59

Non-vested RSA’s at March 31, 2013		495,000		$	1.50	$	485

Expected to vest at March 31, 2013		448,125		$	1.50	$	439

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 March 31, 2013, the weighted average remaining term of non-vested restricted stock was 2.5 years.

The Company also issued 410,000 performance-based Restricted Stock Units (“RSUs”) during the period ended March 31, 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. As of March 31, 2013, performance related to 85,000 RSUs has been met, and these shares are included in the Restricted Stock summary above. No expense has been recognized for the remaining awards as the probability of achieving the targets is currently assessed as not probable.

The Company also issued 315,000 performance-based Restricted Stock Units (“RSUs”) during the year ended December 31, 2011, of which 50,000 have been forfeited. 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. No expense has been recognized for these awards as the probability of achieving the targets is currently assessed as not probable.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

7. 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 March 31, 2013 and December 31, 2012, inventories consisted of the following:


	March 31,		December 31,
	2013		2012

Raw materials	$	695	$	692
Work in progress		1,162		1,023
Finished goods		419		275
Inventories	$	2,276	$	1,990

8. DEBT

On March 26, 2012, the Company entered into a Master Equipment Lease agreement with a commercial bank (as amended November 14, 2012). The agreement is for a $500 revolving line of credit to lease equipment. The equipment leased 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 $316 against this Master Equipment Lease agreement, which includes four separate leases, of which $270 is outstanding as of March 31, 2013. Each of the 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 agreement, including 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 March 31, 2013, the Company was in compliance with all applicable loan covenants.

9. 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, 2012. During the three month period ended March 31, 2013, the Company’s management concluded that the full valuation allowance for U.S. federal and state net deferred tax assets is appropriate as the facts and circumstances during the first three months of 2013 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 March 31, 2013, the Company had no interest or penalties accrued related to uncertain tax positions due to the available NOLs.

STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

As of March 31, 2013, the Company provided a liability for approximately $596 of unrecognized tax benefits. For the three months ended March 31, 2013, unrecognized tax benefits increased by $6 to $596, 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 in recent years. For state purposes, the statute of limitations remains open in a similar manner for states that have generated net operating losses. 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.

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, 2012.

Restatement

On June 6, 2013, management concluded that the Company would amend and restate its previously issued consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 to present the results of its Life Sciences Business as continuing operations. These results had been previously presented as discontinued operations held for sale. The determination to restate the results as continuing operations reflect the fact that the required stockholder vote regarding approval of the sale of the assets comprising the Life Sciences Business has not yet occurred. This vote is expected to take place in early July 2013. As the restatement is one of presentation only, stockholder’s equity, net loss and cash used in operating activities are not impacted. See Note 1 to the Company’s consolidated financial statements in Item 1 above for details on the impact of the restatement on the Company’s consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012. On June 11, 2013, the Audit Committee of the Board of Directors of the Company agreed with management's conclusion and approved the filing of an amendment to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on May 15, 2013.

Introductory Note

On April 5, 2013, SDIX, the Purchaser and OriGene entered into the Asset Purchase Agreement.

Pursuant to the terms and conditions of the Asset Purchase Agreement, the Purchaser will acquire all of the Company’s right, title, and interest in the Purchased Assets related exclusively to the Company’s Life Sciences Business, the product portfolio in respect of which includes a full suite of integrated capabilities, including antibody and assay design, development and production and the Advanced Technologies Business. The Purchaser will also assume and agree to discharge the Assumed Liabilities, as defined in the Asset Purchase Agreement. Parent unconditionally guarantees Purchaser’s obligations in the Asset Purchase Agreement. The purchase price for the Purchased Assets is $16.0 million, which is subject to a post-closing working capital adjustment. The Company will retain the cash from the purchase price, less the escrow amount (described below) until such amount, if any, is released from escrow.

The Company and Purchaser each made customary representations, warranties and covenants in the Asset Purchase Agreement. At closing, $1.3 million of the purchase price will be placed in escrow to be governed by the terms of a separate escrow agreement. The Asset Purchase Agreement contains indemnification provisions pursuant to which the Company and the Purchaser have agreed to indemnify the other for certain losses, including with respect to environmental, litigation, tax and other matters.

Customary covenants govern the time between the date of the Asset Purchase Agreement and the closing regarding conduct of the Business, access to information pertaining to the Business, confidentiality, publicity, and notification of certain events. The Asset Purchase Agreement also contains restrictive covenants, including, that the Company not (i) engage in a competing business for a period of five years after the closing date, (ii) directly or indirectly solicit Purchaser’s employees for a period of two years after the closing date, (iii) directly or indirectly solicit the Purchaser’s customers for a period of five years after the closing date and (iv) disparage the Purchaser at any time.

The closing will occur by August 31, 2013, unless otherwise agreed by the Company and Purchaser. The Asset Purchase Agreement may be terminated (i) by mutual written consent of the Company and the Purchaser, (ii) if closing does not occur on or before August 31, 2013, (iii) if stockholder approval is not obtained by the Company, (iv) if the Company receives a Superior Proposal, as defined in the Agreement, (v) by Purchaser if there has been a Material Adverse Effect, as defined in the Asset Purchase Agreement, and in other circumstances. The Company has agreed to pay the Purchaser a termination fee of $480,000 if, among other things, (i) stockholder approval is not obtained by the Company, (ii) the Company changes its recommendation to the stockholders or (iii) the Company accepts an Acquisition Proposal, as defined in the Asset Purchase Agreement, and a transaction is consummated within 12 months of termination of the Asset Purchase Agreement.

Except as otherwise indicated, the disclosure set forth in this Form 10-Q does not give effect to the closing of the Asset Sale, which is subject to conditions as described above. Should the Asset Sale be consummated, the Company will no longer own its historical operating assets, and its past business operations will be discontinued.

Overview

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 has achieved meaningful economies of scale for the products it offers through the utilization of its consolidated 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 to assay development, it produces sophisticated diagnostic testing and reagent systems that are responsive to customer diagnostic and information 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. In addition, the Company believes its tests provide high levels of accuracy, reliability and actionability of essential test results as compared to alternative products. 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 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 2011, 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 Company sold its Water Quality and Environmental products assets in 2011 and its Food Pathogen and AG-GMO products assets in 2012, as part of its overall strategy to focus on its core Life Science operations. Financial information of the Food/AG-GMO product groups has been separately reclassified within the consolidated financial statements as a discontinued operation. See Note 5 of the Notes to the Consolidated Financial Statements for further information.

The Company continued to develop multiple channels to market worldwide through an approach that includes direct sales, inside sales, distributors and agents.

Results of Operations

Three Months Ended March 31, 2013 versus Three Months Ended March 31, 2012

Revenues

Revenues for the three months ended March 31, 2013 decreased 15%, from $4.0 million to $3.4 million. This decrease was primarily the result of lower sales to academic customers of 52%, from $0.2 million to $0.1 million, content/resellers of 31%, from $0.7 million to $0.4 million and IVD customers of 17% from $2.7 million to $2.3 million. The Company recorded an increase in sales of 33% to its biopharma customers from $0.4 million to $0.6 million. Included in IVD sales for 2012 was $0.9 million recognized pursuant to the Beckton Dickinson (BD) Diagnostics multiple-element arrangement as described in Note 2, Revenue Recognition.

Gross profit

Gross profit for the three months ended March 31, 2013 was $1.7 million compared to $2.3 million for the same period in 2012. Gross margins were 50% and 57% for the three month periods ended March 31, 2013 and 2012, respectively. The decrease in gross profit was primarily attributable to the lower level of sales in the 2013 period; the decrease in gross margin was primarily attributable to the technology access fees recognized in the 2012 period as revenue pursuant to the BD Diagnostics multiple-element arrangement.

Research and development

Research and development expenses were $486,000, or 14% of revenues for the three month period ended March 31, 2013, compared to $958,000, or 24% of revenues for the three month period ended March 31, 2012. This decrease was primarily the result of decreased levels of personnel and their related costs in the 2013 period.

Selling, general and administrative

Selling, general and administrative expenses were $2.8 million for the three month periods ended March 31, 2013 and 2012. Lower levels of personnel and their related cost were offset by higher professional fees for legal services, primarily related to the previously announced OriGene Asset Purchase Agreement.

Interest expense, net

The Company had net interest expense of $5,000 for the three month period ended March 31, 2013 compared to net interest expense of $7,000 for the three month period ended March 31, 2012. The decrease was primarily due to lower levels of debt in the 2013 period.

Income taxes

The Company recorded no income tax provision for the three month periods ended March 31, 2013 and March 31, 2012. The Company has full valuation allowances placed against U.S. federal and state deferred tax assets.

Loss from continuing operations

Loss from continuing operations was $1.6 million, or $0.08 per diluted share, for the three month period ended March 31, 2013, and $1.5 million, or $0.07 per diluted share, for the three month period ended March 31, 2012. Diluted shares utilized in these computations were 20.6 million and 20.5 million for the 2013 and 2012 three month periods respectively.

Income from discontinued operations

Income from the Company’s discontinued operations of its Food Pathogen and AG-GMO products assets were $309,000 for the three month period ended March 31, 2012. Income per share from discontinued operations was $0.01 per diluted share for the three month period ended March 31, 2012. Diluted shares utilized in this computation were 20.5 million.

Net loss

Net loss was $1.6 million, or $0.08 per diluted share, for the three month period ended March 31, 2013, compared to a net loss of $1.2 million, or $0.06 per diluted share, for the same period in 2012. Diluted shares utilized were 20.6 million and 20.5 million for the 2013 and 2012 periods, respectively.

Liquidity and Capital Resources

The net cash used in operating activities was $1.8 million for the first three months of 2013 compared to net cash used in operating activities of $306,000 for the first three months of 2012. The net cash used in operating activities for the 2013 period was primarily the result of the net loss incurred and an increase in other current assets, accounts receivable and inventories, partially offset by an increase in accrued expenses. The net cash used in operating activities for the 2012 period was primarily the result of the net loss incurred and an increase in other current assets, partially offset by a decrease in accounts receivable and increases in accrued expenses and deferred revenues.

Net cash used in investing activities of $277,000 for the first three months of 2013 related to the capital expenditures for the period. This compares to net cash used in investing activities of $585,000 for the first three months of 2012. The capital expenditures for the 2013 and 2012 periods were primarily related to purchases of manufacturing and laboratory equipment, as well as leasehold improvements.

Net cash used in financing activities of $11,000 for the first three months of 2013 was attributable to scheduled debt repayments. Net cash provided by financing activities of $2,000 for the first three months of 2012 was the result of a reduction in the Company’s restricted cash requirement 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 $18.9 million at March 31, 2013 compared to $20.6 million at December 31, 2012.

On March 26, 2012, the Company entered into a Master Equipment Lease agreement with a commercial bank (as amended November 14, 2012). The agreement is for a $500,000 revolving line of credit to lease equipment. The equipment leased 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 $316,000 against this Master Equipment Lease agreement, which includes four separate leases, of which $270,000 is outstanding as of March 31, 2013. Each of the 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 agreement, including tangible net worth of not less than $15 million, minimum liquidity of $2 million and a requirement to maintain its primary banking accounts with the commercial bank. As of March 31, 2013, the Company was in compliance with all applicable loan covenants.

For the three months ended March 31, 2013, the Company satisfied all of its cash requirements from cash available and on-hand. At March 31, 2013, the Company had $270,000 of debt and $23.6 million of stockholders’ equity.

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 Company has identified a material weakness with respect to the reporting of the results of the Company’s Life Sciences Business in accordance with the requirements of Accounting Standards Codification (ASC) 360, Property, Plant and Equipment. The design of the Company’s controls established to determine the appropriate classification of the assets and results of operations as either continuing operations held for use or discontinued operations was not effective and a material error occurred in the presentation of the financial statements originally issued for the quarter ended March 31, 2013. As discussed in Footnote 1 to the Company’s consolidated financial statements in Item I above, on June 6, 2013, management concluded that the Company would amend its previously issued consolidated financial statements for the three months ended March 31, 2012 and 2013 to correct its accounting for the operations of its Life Sciences Business.

Based on the Company’s evaluation and the material weakness described above, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2013.

Remediation Efforts. Subsequent to the identification of this material weakness, the Company is revising its controls around disclosure and classification of strategic transactions to ensure these transactions are reported in accordance with U.S. generally accepted accounting principles.

(b)	Change in Internal Control over Financial Reporting

Other than the material weakness described above, 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

PART II – OTHER INFORMATION

Item 6. Exhibits

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

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: June 11, 2013		/s/ Francis M. DiNuzzo
		Francis M. DiNuzzo President, Chief Executive Officer (Principal Executive Officer)

Date: June 11, 2013		/s/ Kevin J. Bratton
		Kevin J. Bratton Vice President – Finance and Chief Financial Officer (Principal Financial and Accounting Officer)