Mail Stop 0510
April 19, 2005
By U.S. Mail and facsimile to (302)456-6770
Mr. Anthony J. Simonetta
Vice President - Finance and Chief Financial Officer
Strategic Diagnostics Inc.
111 Pencader Drive
Newark, Deleware 19702
Re: Strategic Diagnostics Inc.
Form 10-K for the year ended December 31, 2004
File No. 000-22400
Dear Mr. Simonetta:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 2004
Letter to Shareholders
1. We note that you introduced the STARs program during 2004. If
the
costs of this program are material, please revise future filings
to
disclose how you are accounting for the costs of this program.
Year Ended December 31, 2003 versus year ended December 31, 2002 -
Non-GAAP Financial Measures, page 30
2. We note that you have presented the non-GAAP measure "pro forma
net income" for the twelve months ended December 31, 2003 and have
the following comments.
* Do not label your non-GAAP measure as "pro forma" as this
implies
compliance with the requirements of Article 11.
* We note that this non-GAAP measure includes your inventory
writedown of $3.0 million. It is unclear to us why the $389,000
recovery from sales of certain of this inventory in 2004 is not
addressed and presented in your discussion of non-GAAP financial
measures. Please do so in future filings.
Critical Accounting Policies - Deferred Taxes, page 34
3. In future filings, provide the following additional disclosures
regarding your accounting for deferred taxes:
* the amount and timing of your projected future taxable income
necessary to fully utilize your net operating loss carryforwards;
* address the negative indicators you considered in reviewing the
recoverability of your deferred tax asset; and
* address the positive and negative indicators you considered in
concluding that a full valuation allowance was necessary for
deferred
tax assets in certain state jurisdictions and a substantial
valuation
allowance for foreign deferred tax assets.
Critical Accounting Policies - Revenue Recognition, pages 34 and
35
4. We note that your discussion under Revenue Recognition is
merely a
repeat of your accounting policy in Note 2 of the Notes to the
Consolidated Financial Statements. Expand your discussion in
future
filings to discuss the significant assumptions and judgments that
are
involved in recognizing your revenue and the impact that changes
in
these underlying assumptions and judgments could have on your
financial statements.
Item 9A. Controls and Procedures
5. We note your disclosure that your Chief Executive Officer and
Chief Financial Officer concluded that your disclosure controls
and
procedures were functioning effectively to provide reasonable
assurance that the information required to be disclosed in reports
filed under the Exchange Act was recorded, processed, summarized
and
reported within the time periods specified in the Commission`s
rules
and forms. In future filings, revise to clarify, if true, that
your
officers concluded that your disclosure controls and procedures
are
also effective for the purpose of ensuring that material
information
required to be in this report is made known to management and
others,
as appropriate, to allow timely decisions regarding required
disclosures. Alternatively, you may simply conclude that your
disclosure controls are effective or ineffective, whichever the
case
may be. See Exchange Act Rule 13a-15(e). Address this comment as
it
relates to your disclosures under Item 4. Controls and Procedures
included in your Form 10-Q for the quarter ended March 31, 2005.
Summary of Significant Accounting Policies, page F-6
Revenue Recognition, page F-8
6. We note that you recognize the revenue from the sale of
immunoassay-based test kits and the sale of certain antibodies and
immunochemical reagents upon shipment and transfer of title or
when
the services are provided. Please supplementally provide for us a
comprehensive description of your revenue arrangements, including
a
discussion of whether your products and services are provided
under
revenue arrangements with multiple deliverables. If applicable,
address for us how you have applied the guidance set forth in EITF
00-21: Revenue Arrangements with Multiple Deliverables.
7. Tell us how you determined that it was appropriate to use
percentage of completion accounting for your sales of certain
antibodies and immunochemical reagents. Tell us the nature of the
product or service you are providing. In this regard, please note
that you should not analogize to the percentage-of-completion
model
for revenue recognition other than the contracts specifically
included in the scope of (a) Accounting Research Bulletin (ARB)
No.
45, Long-Term Construction-Type Contracts , and (b) Statement of
Position (SOP) 81-1, Accounting for Performance of Construction-
Type
and Certain Production-Type Contracts.
8. If product related services are more that 10% of caption
product
related revenues, separately present these services and their
related
costs on the face of your statement of operations as required by
Rule
5-04(b)(1)(a).
Note 9. Segment, Geographic and Customer Information, page F-16
9. Please tell us more about the organizational changes you made
during 2003 and why these changes caused you to combine the two
previously reported segments into one reporting segment. Address
whether you still have the two previous operating segments, test
kits
and antibody. If so, address, with specific reference to the
criteria set forth in paragraph 17 of SFAS 131, the
appropriateness
of aggregating these operating segments into one reportable
segment.
Also, address for us the nature of financial information received
by
and reviewed by your chief operating decision maker.
10. Provide the product and disclosure information required by
paragraph 37 of SFAS 131.
* * *
Please respond to these comments within 10 business days, or
tell us when you will provide us with a response. Please provide
us
with a supplemental response letter that keys your responses to
our
comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
If you have any questions regarding these comments, please
direct them to Patricia Armelin, Staff Accountant, at (202) 824-
5563,
Jeanne Baker at (202) 942-1835 or, in their absence, to the
undersigned at (202) 824-5373.
Sincerely,
John Cash
Accounting Branch Chief
??
??
??
??
Mr. Anthony J. Simonetta
April 19, 2005
Page 1 of 4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE