SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarter Ended: June 30, 1996

Commission File Number: 0-68440

EnSys Environmental Products, Inc.
(Exact name of registrant as specified in its charter)

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

4222 Emperor Boulevard
Durham, North Carolina 27703
(Address of principal executive offices, including zip code)

(919) 941-5509
(Registrant's Telephone Number, Including Area Code)

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),

YES X NO

and (2) has been subject to such filing requirements for the past 90 days.

YES X NO

The number of shares of common stock outstanding as of August 1, 1996 was
7,170,527

EnSys Environmental Products, Inc.

INDEX

Page No.

Part I - Financial Information

Item 1. Financial Statements:

Balance Sheets as of December 31,
1995 and June 30, 1996....................................................... 3

Statements of Operations for the three months ended
June 30, 1995 and 1996, and for the six months
ended June 30, 1995 and 1996................................................. 4

Statements of Cash Flows for the six months ended
June 30, 1995 and 1996....................................................... 5

Notes to Interim Financial Statements........................................ 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 8

Part II - Other Information

Item 1. Legal Proceedings............................................................ Not Applicable

Item 2. Changes in Securities........................................................ Not Applicable

Item 3. Defaults Upon Senior Securities.............................................. Not Applicable

Item 4. Submission of Matters to a Vote of Security-Holders.......................... 11

Item 5. Other Information............................................................ Not Applicable

Item 6. Exhibits and Reports on Form 8-K............................................. 11

Signatures................................................................................... 12

Exhibit Index................................................................................ 13

Exhibit 11.1................................................................................. 14

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENSYS ENVIRONMENTAL PRODUCTS, INC.

BALANCE SHEETS

December 31, June 30,
1995 1996
---- ----
(Unaudited)

ASSETS

Current assets:
Cash and cash equivalents ........................................ $ 4,467,857 $ 3,762,550
Marketable debt investments (cost of
$7,208,430 at December 31, 1995 and
$5,398,371 at June 30, 1996 (unaudited))....................... 7,190,840 5,377,777
Accounts receivable, trade, less allowance
for doubtful accounts of $96,970 and
$88,316 at December 31, 1995 and
June 30, 1996 (unaudited), respectively........................ 424,119 862,278
Inventory, primarily raw materials................................ 761,098 1,160,581
Prepaids and other current assets................................. 142,273 120,375
----------- -----------
Total current assets........................................... 12,986,187 11,283,561
----------- -----------

Equipment, furniture and fixtures:
Equipment, furniture and fixtures ................................ 1,974,831 2,028,617
Leasehold improvements............................................ 310,313 317,135
----------- -----------
2,285,144 2,345,752
Less accumulated depreciation and
amortization................................................... 1,480,055 1,668,513
----------- -----------
805,089 677,239
----------- -----------
Intangible asset, less accumulated amortization
of $14,167 and $39,167 at December 31, 1995 and
June 30, 1996 (unaudited), respectively .......................... 35,833 437,485
Pledged certificates of deposit ....................................... 100,000 100,000
Other assets........................................................... 402,534 447,202
----------- -----------
$14,329,643 $12,945,487
=========== ===========

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable, trade........................................... $ 79,340 $ 127,162
Accrued expenses:
Salaries and wages............................................. 309,559 201,103
Other.......................................................... 338,485 280,536
Current portion of capital lease obligations .......................... 70,930 55,160
----------- -----------
Total current liabilities...................................... 798,314 663,961
----------- -----------
Capital lease obligations, less current
portion .......................................................... 29,389 11,392
----------- -----------
Total liabilities.............................................. 827,703 675,353
----------- -----------

Stockholders' equity:
Common stock, $.01 par value, 25,000,000, shares authorized, 6,018,935 and
7,153,796 shares issued and outstanding at December 31, 1995
and June 30, 1996 (unaudited), respectively.................... 60,189 71,839
Additional paid-in capital........................................ 31,028,302 32,271,508
Treasury stock at cost (24,146 and 30,146 shares
at December 31, 1995 and June 30, 1996
(unaudited), respectively)..................................... (117,038) (126,038)
Unrealized loss on marketable debt investments.................... (17,590) (13,557)
Accumulated deficit............................................... (17,451,923) (19,933,618)
----------- -----------
Net stockholders' equity ...................................... 13,501,940 12,270,134
----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity............................ $14,329,643 $12,945,487
=========== ===========

See accompanying notes to financial statements.

ENSYS ENVIRONMENTAL PRODUCTS, INC.

STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------
1995 1996 1995 1996
---- ---- ---- ----
(Unaudited) (Unaudited)

Product and service revenues............ $ 967,469 $1,306,916 $1,807,665 $1,911,776
Cost of goods sold...................... 374,885 395,854 671,325 788,094
---------- ---------- ---------- ----------
Gross profit.................... 592,584 911,062 1,136,340 1,123,682
---------- ---------- ---------- ----------

Operating expenses:
Selling, general and administrative 1,408,441 937,810 2,529,423 1,866,058
Research and development........... 178,063 178,989 367,690 2,044,793
---------- ---------- ---------- ----------
Total operating expenses .......... 1,586,504 1,116,799 2,897,113 3,910,851
---------- ---------- ---------- ----------
Operating loss.................. (993,920) (205,737) (1,760,773) (2,787,169)
---------- ---------- ---------- ----------

Other income (expense):
Interest and other income.......... 185,224 147,901 363,388 310,718
Interest expense................... ( 4,539) ( 2,361) (9,826) ( 5,244)
---------- ---------- ---------- ----------
Other income, net............... 180,685 145,540 353,562 305,474
---------- ---------- ---------- ----------
Net loss........................ $ (813,235) $ (60,197) $(1,407,211) $(2,481,695)
========== ========== ========== ==========

Net loss per common and common
equivalent share $ (0.14) $ (0.01) $ (0.24) $ (0.38)
========== ========== =========== ==========

Weighted average common and
common equivalent shares
outstanding........................ 5,950,261 7,138,541 5,936,252 6,578,753
========== ========== ========= =========

See accompanying notes to financial statements.

ENSYS ENVIRONMENTAL PRODUCTS, INC.

STATEMENTS OF CASH FLOWS

Six Months Ended
June 30,
1995 1996
---- ----
(Unaudited)

Operating activities:
Net loss ......................................................... (1,407,211) $(2,481,695)
Adjustments to reconcile net loss to net
cash used by operating activities:
Common stock issued in connection with product
line acquisition.............................................. - 1,237,500
Disposal of capital equipment (gain)/loss....................... 3,320 865
Translation (gain)/loss......................................... (1,758) -
Change in cash due to exchange rates............................ 439 -
Depreciation.................................................... 204,881 189,899
Amortization.................................................... 11,223 25,000
Changes in operating assets and liabilities:
Increase in accounts receivable, trade...................... (264,915) (438,159)
Increase in inventories..................................... (41,748) (399,483)
(Increase) decrease in prepaids and
other current assets..................................... ( 6,528) 21,898
Increase in other assets.................................... (689,719) (471,320)
Increase (decrease) in accounts payable, trade.............. (89,134) 47,822
Increase (decrease) in accrued expenses..................... 398,724 (166,405)
---------- ----------
Net cash used by operating activities....................... (1,882,426) (2,434,078)
---------- ----------

Investing activities:
Capital expenditures.................................................. (308,526) (83,414)
Proceeds from disposal of capital equipment........................... 1,562 20,500
Decrease in marketable debt investments............................... 5,858,168 1,817,096
---------- ----------
Net cash provided by investing
activities............................................... 5,551,204 1,754,182
---------- ----------

Financing activities:
Issuances of capital stock:
Common issued...................................................... 42,759 17,356
Treasury stock repurchased......................................... (9,480) ( 9,000)
---------- ----------
Common (net of redemptions)........................................... 33,279 8,356
Principal payments on capital lease obligations....................... (41,887) (33,767)
--------- ----------

Net cash used by financing activities....................... ( 8,608) (25,411)
---------- ----------
Increase (decrease) in cash and
cash equivalents......................................... 3,660,170 (705,307)
---------- ----------
Cash and cash equivalents at beginning of period........................... 2,324,433 4,467,857
---------- ----------
Cash and cash equivalents at end of period................................. $5,984,603 $3,762,550
========== ==========

See accompanying notes to financial statements.
5

ENSYS ENVIRONMENTAL PRODUCTS, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS

Note 1. Interim Financial Statements

The accompanying unaudited consolidated financial statements of EnSys
Environmental Products, Inc. (the "Company") have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
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,
1995. In the opinion of management, the accompanying financial statements
include all adjustments (of a normal recurring nature) necessary for a fair
presentation. The results of operations for the six month period ended June 30,
1996 are not necessarily indicative of the results to be expected for the full
year.

Note 2. Severance Costs

On April 11, 1995 Alan H. Staple resigned as President and Chief Executive
Officer and the Board of Directors appointed Grover C. Wrenn as President and
Chief Executive Officer of the Company. In connection with Mr. Staple's
resignation, the Company entered into a severance and consulting agreement and
general release with Mr. Staple effective April 11, 1995. Under the terms of the
agreement, the Company was obligated to continue to pay Mr. Staple's salary and
certain other benefits for a period of one year from the effective date of the
agreement. In addition, Mr. Staple agreed to provide consulting services to the
Company for a period commencing on the effective date and ending September 30,
1995 for a consulting fee of $115,000. The Company's Statements of Operations
for the quarter and six months ended June 30, 1995 include charges of $362,745
and $493,630, respectively, to cover the anticipated severance costs associated
with Mr. Staple's resignation as well as those related to the resignation of Dr.
Stephen Friedman on March 31, 1995 from his position as Senior Vice President,
Research and Development on March 31, 1995.

On February 29, 1996, Dr. Ian Mackenzie resigned as Managing Director of EnSys
(Europe) Limited. The Company had entered into an employment agreement effective
October 26, 1993 with Dr. Mackenzie. In connection with his resignation, the
Company paid Dr. Mackenzie the equivalent of six months salary and benefits as
required by his employment agreement. The Company's Statement of Operations for
the six months ended June 30, 1996 includes a charge of $75,000 to cover the
severance costs associated with Dr. Mackenzie's resignation.

Note 3. Recent Developments

On March 29, 1996, the Company acquired from Millipore Corporation ("Millipore")
certain assets, which consist primarily of inventory, work-in-process,
equipment, intellectual property rights, contract rights and customer lists, of
Millipore's "EnvirogardTM" product line. In exchange for such assets, the
Company paid to Millipore $1,000,000 in cash and issued to Millipore 1,100,000
shares of the Company's common stock, par value $0.01 per share (the "Common
Stock"), which represented approximately 15% of the Company's total outstanding
shares after the acquisition. The acquisition resulted in an estimated charge of
$1,700,000 for acquired research and development.

On July 29, 1996, EnSys and Strategic Diagnostics Inc. ("SDI") announced the
signing of a non-binding letter of intent to merge the two companies. Under the
merger proposal, common shareholders of SDI would receive 5,780,781 shares of
EnSys' common stock, and preferred shareholders of SDI would receive 2,164,577
shares of a new class of EnSys convertible preferred stock. An additional
994,214 shares would be reserved for issuance to holders of SDI warrants and
options. Completion of the merger is subject to a number of contingencies,
including the negotiation and signing of a definitive agreement, completion of
due

diligence, and approval by the shareholders of both companies. The transaction,
which would be accounted for as a purchase, is expected to close by the end of
the year.

SDI, founded in 1990, develops, manufactures, and markets immunoassay-based test
kits which serve a wide variety of markets including agriculture and food
processing, industrial pollution, medical, and water treatment. In addition to
providing such tests in a variety of formats for field and laboratory use, SDI
provides antibody and immunoreagent research and development services. Many of
SDI's products have been developed in collaboration with large chemical and
pharmaceutical firms. In July, 1996, SDI signed a definitive agreement to
acquire Ohmicron Corporation, based in Newtown, Pennsylvania, which produces
immunoassay tests for pesticide and industrial pollution applications.

Note 4. Intangibles

The intangibles balance includes an estimate of $407,000 attributed to the value
of customer and employee bases acquired in the Envirogard product line
transaction.

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

Results of Operations

Revenues. Revenues increased 35% to $1,306,916 in the second quarter of 1996
from $967,469 in the second quarter of 1995. Revenues increased 6% to $1,911,776
for the first six months of 1996 from $1,807,665 for the first six months of
1995. The number of tests sold for the second quarter of 1996 increased 124%
over the second quarter of 1995 from approximately 31,800 in the second quarter
of 1995 to approximately 71,100 in the second quarter of 1996. The number of
tests sold for the first six months of 1996 increased 52% from approximately
61,200 in 1995 to approximately 93,350 in 1996. Growth in test volumes outpaced
growth in sales revenues due to the large number of Hydrofluor and Envirogard
tests sold in the second quarter of 1996. Hydrofluor and Envirogard tests have
similar gross margins but lower selling prices than the Company's other
products. The increase in revenues for both the quarter and the six month period
was due to sales of the Envirogard products acquired from Millipore Corporation
on March 29, 1996.

Gross Profit. Gross profit increased 54% to $911,062 in the second quarter of
1996 from $592,584 in the second quarter of 1995. Gross profit decreased 1% to
$1,123,682 for the first six months of 1996 from $1,136,340 for the first six
months of 1995. The increase in gross profit for the quarter was due to growth
in sales revenues. The decrease in gross profit for the six month period was due
to a reserve for slow-moving inventory of $152,349 taken in the first quarter of
1996. Gross profit as a percentage of revenues increased to 70% in the second
quarter of 1996 from 61% in the second quarter of 1995. Gross profit as a
percentage of revenues decreased to 59% for the first six months of 1996 from
63% for the first six months of 1995. The increase in gross profit as a
percentage of revenues for the second quarter of 1996 resulted from economies of
scale as a result of higher manufactured volumes and the containment of
manufacturing costs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 33% to $937,810 in the second quarter of 1996
from $1,408,441 in the second quarter of 1995. Selling, general and
administrative expenses decreased 26% to $1,866,058 for the first six months of
1996 from $2,529,423 for the first six months of 1995. Severance related costs
in selling, general and administrative expenses were $75,000, $362,745 and
$493,630 for the first six months of 1996 and the second quarter and first six
months of 1995, respectively. Excluding these charges, selling, general and
administrative expenses decreased 10% during the second quarter of 1996 and 12%
during the first six months of 1996 from 1995 levels. The lower expense levels
in 1996 are primarily due to reductions in management staffing levels and other
cost containment efforts.

Research and Development Expenses. Research and development expenses increased
1% to $178,989 in the second quarter of 1996 from $178,063 in the second quarter
of 1995. Research and development expenses increased 456% to $2,044,793 for the
first six months of 1996 from $367,690 for the first six months of 1995. The
increase during the first six months included a charge of $1,700,000 for
acquired R&D in connection with the acquisition of the Envirogard product line
from Millipore Corporation. Excluding this charge, R&D costs for the first six
months actually decreased 6% from their 1995 levels. The decrease in research
and development expenses after accounting for the charge for acquired R&D was
caused by a reduction in the number of employees during the last nine months of
1995, including the Senior Vice

President of Research and Development. Current research and development efforts
are focused on the development of the previously announced one-step test.

Interest and Other Income and Interest Expense. Interest and other income
decreased 20% to $147,901 in the second quarter of 1996 from $185,224 in the
second quarter of 1995. Interest and other income decreased 14% to $310,718 for
the first six months of 1996 from $363,388 for the first six months of 1995. The
decrease for the quarter and six months ended June 30, 1996 was primarily due to
the Company having less funds to invest. Interest expense decreased 48% to
$2,361 in the second quarter of 1996 from $4,539 in the second quarter of 1995.
Interest expense decreased 47% to $5,244 for the first six months of 1996 from
$9,826 for the first six months of 1995. The decrease for both the quarter and
the six month period was primarily attributable to the Company paying down
amounts due under lease financing agreements.

Net Loss. The Company's net loss decreased 93% to $60,197 (or $0.01 per share)
in the second quarter of 1996 from $813,235 (or $0.14 per share) in the second
quarter of 1995. The net loss increased 76% to $2,481,695 (or $0.38 per share)
for the first six months of 1996 from $1,407,211 (or $0.24 per share) for the
first six months of 1995. The severance, acquired R&D and inventory reserve
charges accounted for $1,927,349 (or approximately $0.29 per share) of the net
loss during the first six months of 1996. Net of these charges, the net loss
decreased 61% to $554,346 (or $0.08 per share). The severance costs discussed
above accounted for $362,745 (or approximately $0.06 per share) of the net loss
during the second quarter of 1995, and accounted for $493,630 (or approximately
$0.08 per share) of the net loss during the six month period ended June 30,
1995.

Recent Developments

Liquidity and Capital Resources

Working capital which consists principally of cash, cash equivalents and
marketable debt investments was $10.6 million at June 30, 1996 compared to $12.2
million at December 31, 1995. Cash, cash equivalents and marketable debt
investments which consist primarily of money market accounts and investments in
treasury notes and other government backed securities was $9.1 million at June
30, 1996 compared to $11.7 million at December 31, 1995. The decrease in working
capital was due primarily to the funding of the net

loss, and cash outlays of approximately $1.4 million related to the
acquisition of the Envirogard product line from Millipore Corporation.

The Company believes that its available cash will be sufficient to meet its
funding needs for at least the next 24 months.

ENSYS ENVIRONMENTAL PRODUCTS, INC.

Part II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

At a duly called annual meeting of stockholders held on May 15, 1996,
the stockholders of the Company elected the following persons as Class III
directors to the Board of Directors of the Company: Grover C. Wrenn, and John H.
Timoney. Mr. Wrenn was approved by the affirmative vote of 6,413,571 shares of
Common Stock, 449,743 shares of Common Stock being withheld. Mr. Timoney was
approved by the affirmative vote of 6,413,571 shares of Common Stock, 449,743
shares of Common Stock being withheld.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 2.1 Asset Purchase Agreement among EnSys Environmental
Products, Inc., Millipore Corporation, and ImmunoSystems, Inc.*1*(2.1)

Exhibit 11.1 Statement re Computation of Earnings Per Share

Exhibit 11.2 Financial Data Schedule (Included in electronic filing only)

(b) Reports on Form 8-K

The Company filed a Form 8-K dated April 12, 1996, concerning
the acquisition by the Company of the Envirogard product line
from Millipore Corporation.

*1* Incorporated by reference to the designated exhibit of the Company's Form
8-K filed on April 12, 1996. This document has been redacted pursuant
to a confidentiality request filed on April 12, 1996 under Rule 24b-2
of the Securities Exchange Act of 1934, as amended.

SIGNATURES

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

August 14, 1996 ENSYS ENVIRONMENTAL PRODUCTS, INC.

\s\ James M. Terrell III
Name: James M. Terrell III
Title: Chief Accounting Officer
(Principal Financial and Accounting Officer)

ENSYS ENVIRONMENTAL PRODUCTS, INC.

----------------
EXHIBIT INDEX

Exhibit 2.1 Asset Purchase Agreement among EnSys Environmental Products, Inc. *1*(2.1)
Millipore Corporation, and ImmunoSystems, Inc.

Exhibit 11.1 Statement re Computation of Earnings Per Share

Exhibit 11.2 Financial Data Schedule (Included in electronic filing only)