October 28, 2005
Mr. John Cash
Accounting Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
Washington, DC 20549
Re: Strategic Diagnostics Inc.
Form 10-K for the year ended December 31, 2004
Filed March 30, 2005
File No. 000-22400
Dear Mr. Cash:
This letter is in response to comments of the Staff contained in your letter to
Anthony J. Simonetta, Vice President -- Finance and Chief Financial Officer of
Strategic Diagnostics Inc. ("management", "we", "our", "us" or the "Company"),
dated October 12, 2005. The comments in the Staff's letter have been set forth
below, along with the Company's responses thereto.
The information contained herein is being furnished by the Company on a
supplemental basis.
FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 2004
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o A DESCRIPTION OF THE NATURE OF THE COSTS INCURRED TO PRODUCE YOUR FARM
ANIMALS.
The costs incurred to produce our farm animals include the following:
o Salaries and benefits for the individuals, who feed the animals, clean
the cages and generally care for the animals.
o Professional fees for the periodic visits to the farm by a Veterinarian
to assess the health of the animals.
Mr. John Cash
October 28, 2005
Page Two
o Animal feed, water and bedding materials.
o Operating expenses (such as depreciation, utilities, maintenance &
repairs) related to the housing of the animals.
o HOW YOU ACCOUNT FOR THE COSTS TO MAINTAIN YOUR FARM SUCH AS THE
DEPRECIATION ON ANY BUILDINGS, LABOR, MAINTENANCE, THE COST OF ANIMAL FEED,
ETC.
The costs associated with maintaining the farm, including such things as
depreciation on buildings, labor, repairs and maintenance and animal feed
are directly charged as incurred as a component of Cost of Goods Sold
(COGS).
o HOW THE AMOUNT TO BE CAPITALIZED FOR YOUR FARM ANIMALS IS DETERMINED.
For animals we breed, the Company assigns a rate by animal type that is
estimated to approximate the cost of breeding the animal. These breeding
costs include: the purchase price of the breeding parents, animal feed,
animal bedding, animal husbandry, animal disposal and pro rata building
costs. The rate is updated annually at the end of the calendar year. For
animals we purchase, the rate is the cost of acquisition. To determine the
amount to be capitalized each period, a census is taken at the end of a
period and the cost of all animals waiting to be assigned to projects is
accumulated at the applicable rates. The change in total animal costs from
the prior period to the current period is then charged or credited to COGS.
o WHAT PERCENTAGE OF COSTS THE ANIMALS REPRESENT OF YOUR TOTAL COSTS FOR A
GIVEN CUSTOMIZED ANTIBODY ARRANGEMENT.
The percentages of costs animals represent for a typical customized
antibody arrangement are approximately:
o Rabbit 20%
o Mouse 55%
o Goat 26%
o Rat 17%
o Guinea Pig 40%
o Chicken 10%
o THE AVERAGE COST ASSIGNED TO THE ANIMALS THAT YOU PRODUCE, BY SPECIFIC
ANIMAL TYPE (E.G. RATS, RABBITS).
Mr. John Cash
October 28, 2005
Page Three
The average costs assigned to the animals we breed as of December 31, 2004
(the last time updated) are as follows:
o Rabbits - $16.24
o Mice - $ 6.81
All other species are purchased from outside vendors.
o THE PERCENTAGE OF ANIMALS THAT ARE PRODUCED BY YOU VERSUS THOSE THAT ARE
PURCHASED FROM THIRD PARTIES.
Approximately 99% of the rabbits and 85% of the mice used in projects are
bred by us. Substantially all of our custom antibody projects use either
rabbits or mice. As noted above, all other species of animals are purchased
from outside vendors.
o THE AVERAGE PER ANIMAL PURCHASE PRICE FOR EACH PERIOD PRESENTED, BY
SPECIFIC ANIMAL TYPE.
2ND QTR 2005 2004 2003 2002
------------ ---- ---- ----
o Goats - $200.00 $200.00 $200.00 $200.00
o Sheep - $200.00 $200.00 $200.00 $200.00
o Mice - $ 10.84 $ 9.90 $ 9.00 $ 8.33
o Guinea Pig - $ 72.15 $ 64.50 $ 50.50 $ 48.60
o Rats - $ 24.20 $ 24.20 $ 22.70 N/A
o Rabbits - $ 93.00 $ 90.00 N/A $ 65.00
o Chickens - $10.01 $ 10.01 N/A N/A
N/A means no such animals were purchased in the applicable year.
o WHY YOU BELIEVE IT IS APPROPRIATE TO INCLUDE THE CAPITALIZED AMOUNTS IN
YOUR "OTHER CURRENT ASSETS" ACCOUNT, INSTEAD OF YOUR INVENTORY ACCOUNT.
All animals used in our antibody projects, whether bred by us or not, are
not the end product they are a tool that enables us to produce the product.
We do not breed animals for sale. The animals in question have not yet been
assigned to a project and, therefore, we believe represent an "other
current asset" to the Company. In addition, the cost of the animals
capitalized at any given period end is relatively small in relation to our
total inventory (e.g. at June 30, 2005, $61,000 in capitalized animal costs
compared to $3.1 million in inventory). Based upon all of the above,
Mr. John Cash
October 28, 2005
Page Four
management concluded that it is appropriate to include the cost of animals
not yet assigned to projects as an "other current asset".
o DESCRIBE HOW YOUR FARM COSTS ARE RECOGNIZED FOR FINANCIAL REPORTING
PURPOSES AS MANUFACTURING COSTS AND ALSO APPLIED TO INDIVIDUAL CONTRACTS.
EXPLAIN HOW SUCH COSTS ARE ACCUMULATED IN AND SUBTRACTED FROM OTHER CURRENT
ASSETS. A BRIEF EXAMPLE INCLUDING A SERIES OF JOURNAL ENTRIES MAY BE
HELPFUL IN THIS REGARD.
o Farm costs are recognized for financial reporting purposes as
manufacturing costs as incurred. The farm costs assigned to individual
contracts are represented by the cost of animals we breed and
subsequently assign to a project.
o As noted above, a census is taken at the end of each period and the cost
of all animals waiting to be assigned to projects is accumulated at the
applicable rates. The change from the prior period to the current period
is then charged or credited to COGS.
o Attached is the June 30, 2005 journal entry for capitalized animal costs
with supporting census.
Any comments or questions with respect to the foregoing should be addressed to
Anthony J. Simonetta of the Company at 302-456-6789 ext. 305.
Very truly yours,
/s/ Anthony J. Simonetta
Anthony J. Simonetta, Vice President - Finance and CFO
cc: Ellen Goitia, KPMG
Justin Chairman, Morgan Lewis
Patricia Armelin, SEC
Jeanne Baker, SEC
STRATEGIC DIAGNOSTICS INC.
ANIMAL CENSUS - JUNE 2005
JUNE 2005 MAY 2005
MAINE # of Animals Cost Value # of Animals Cost Value
Goats - Maine 49 $200.00 $9,800.00 35 $200.00 $7,000.00
Sheep - Maine 0 $200.00 $0.00 0 $200.00 $0.00
Rabbits - Maine 861 $16.24 $13,982.64 830 $16.24 $13,479.20
Chickens - Maine 82 $10.01 $820.82 42 $10.01 $420.42
Mice - Maine 71 $6.81 $483.51 195 $6.81 $1,327.95
Guinea Pigs - Maine 13 $72.15 $937.95 4 $72.15 $288.60
Rats 0 $24.20 $0.00 32 $24.20 $774.40
Subtotal Maine 1,076 $26,024.92 1,138 $23,290.57
DELAWARE
Mice - unassigned 4,043 $6.81 $27,532.83 1,874 $6.81 $12,761.94
Mice - Breeding 1,059 $6.81 $7,211.79 1,730 $6.81 $11,781.30
Subtotal Delaware 5,102 $34,744.62 3,604 $24,543.24
Total Prepaid Animals 6,178 $60,769.54 4,742 $47,833.81
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JOURNAL ENTRY: (DR) (CR)
ANIMAL COSTS - MAINE $2,734.35
ANIMAL COSTS - DELAWARE $10,201.38
PREPAID ANIMAL EXPENSE $13,129.33
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STRATEGIC DIAGNOSTICS INC.
Animal Census - June 30, 2005
JAN FEB MAR APR MAY JUN
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GOATS
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CUSTOM-CA 9 9 8 8 8 8
SBS-ME 95 94 88 90 89 89
CUSTOM-ME 245 248 251 284 278 277
RESERVED 6 2 4 3 6 39
PRESCREENS 0 0 1 0 0 17
FUTURE NEW STARTS 2 0 3 0 0 0
NON-IMMUN-ME 43 39 34 6 35 49
TOTAL 400 392 389 391 416 479
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SHEEP
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SBS-ME 0 0 0 0 0 0
CUSTOM-ME 14 17 16 13 13 13
RESERVED 3 0 0 0 0 0
PRESCREENS 0 0 0 0 0 0
FUTURE NEW STARTS 0 0 0 0 0 0
NON-IMMUN-ME 1 1 1 1 0 0
TOTAL 18 18 17 14 13 13
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RABBITS
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CUSTOM-CA 6 5 5 5 5 5
SBS-ME 13 4 4 4 4 4
CUSTOM-ME 5,213 5,276 5,372 5,474 5,567 5,511
RESERVED 13 12 6 8 27 13
PRESCREENS 126 141 125 112 95 127
FUTURE NEW STARTS 63 110 59 78 72 34
NON-IMMUN-ME 490 334 285 229 326 350
BREEDERS-ME 556 546 530 529 504 511
GROWING KITS 2,830 2,830 2,830 2,830 2,830 2,830
SPEC FEED-ME 31 26 14 4 0 29
TOTAL 9,341 9,284 9,230 9,273 9,430 9,414
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CHICKENS
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SBS-ME 0 0 0 0 0 0
CUSTOM-ME 183 185 160 159 44 58
RESERVED 0 2 0 0 10 0
PRESCREENS 0 0 0 0 0 0
FUTURE NEW STARTS 3 0 0 2 2 2
NON-IMMUN-ME 28 17 67 57 42 82
TOTAL 214 204 227 218 98 142
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MICE
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HYBRIDOMA-ME 0 0 0 0 0 0
MONOCLONAL-ME 0 0 0 0 0 0
CUSTOM-ME 39 22 14 23 25 16
GI 165 439 432 166
RESERVED 0 2 276 0 0 0
PRESCREENS 0 0 0 0 0 0
FUTURE NEW STARTS 0 0 0 0 0 4
NON-IMMUN-ME 19 14 115 102 190 71
BREEDERS-ME 5 5 5 5 5 0
TOTAL 63 43 575 569 652 257
JAN FEB MAR APR MAY JUN
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GUINEA PIGS
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SBS-ME 0 0 0 0 0 0
CUSTOM-ME 56 58 59 53 70 84
RESERVED 5 3 0 0 0 2
PRESCREENS 0 5 0 0 10 5
FUTURE NEW STARTS 0 0 0 4 0 0
NON-IMMUN-ME 18 6 10 3 4 13
BREEDERS 9 9 7 6 0 0
TOTAL 88 81 76 66 84 104
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RATS
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SBS-ME 0 0 0 0 0 0
CUSTOM-ME 7 7 16 20 44 63
RESERVED 0 2 8 3 0 0
PRESCREENS 0 0 0 0 0 0
FUTURE NEW STARTS 0 0 2 0 2 10
NON-IMMUN-ME 0 0 0 0 32 0
TOTAL 7 9 26 23 78 73
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HAMSTERS
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SBS-ME 0 0 0 0 0 0
CUSTOM-ME 0 0 0 0 0
RESERVED 0 0 0 0 0 0
PRESCREENS 0 0 0 0 0 0
FUTURE NEW STARTS 0 0 0 0 0 0
NON-IMMUN-ME 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0
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FARM
TOTAL 10,131 10,031 10,540 10,554 10,771 10,482
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Delaware Mouse Facility
Mice unassigned 2,077 2,529 1,992 3,207 1,874 4,043
Mice-Breeders 1,122 1,041 1,035 1,475 1,730 1,059