|FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549


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


For the quarterly
period ended March 31, 2005


OR


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


For the transition period  to


Commission file number
1-11394


MEDTOX SCIENTIFIC, INC. (Exact name of registrant as specified in its charter)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Delaware                        | 95-3863205         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporated or organization)   | Identification No.)

|402 West County Road D, St. Paul, Minnesota | 55112     
|------------------------------------------- | ----------
|(Address of principal executive offices)    | (Zip Code)

|Registrant's telephone number including area code:                    (651) 636-7466
|------------------------------------------------------------------------------------

|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


Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).


Yes  No X


The number of shares
of Common Stock, $.15 par value, outstanding as of April 21, 2005, was 7,541,883.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|MEDTOX SCIENTIFIC, INC.


INDEX
|-------------------------------

|                                                                                                | Page
|----------------------------------------------------------------------------------------------- | ----
|Part I        Financial Information:                                                            |     
|                                                                                               
|Item 1:  Financial Statements (Unaudited)                                                      
|                                                                                               
|Consolidated Statements of Operations - Three                                                  
|Months Ended March 31, 2005 and 2004                                                            | 3   
|                                                                                               
|Consolidated Balance Sheets - March 31, 2005                                                   
|and December 31, 2004                                                                           | 4   
|                                                                                               
|Consolidated Statements of Cash Flows - Three                                                  
|Months Ended March 31, 2005 and 2004                                                            | 5   
|                                                                                               
|Notes to Consolidated Financial Statements                                                      | 6   
|                                                                                               
|Item 2:                                                                                        
|                                                                                               
|Management's Discussion and Analysis of                                                        
|Financial Condition and Results of Operations                                                   | 11  
|                                                                                               
|Item 3:                                                                                        
|                                                                                               
|Quantitative and Qualitative Disclosure                                                        
|About Market Risk                                                                               | 21  
|                                                                                               
|Item 4:                                                                                        
|                                                                                               
|Controls and Procedures                                                                         | 21  
|                                                                                               
|Part II       Other Information                                                                 | 22  
|                                                                                               
|Item 1:  Legal Proceedings                                                                      | 22  
|Item 2:                             Unregistered Sales of Equity Securities and Use of
Proceeds | 22  
|Item 3:  Defaults Upon Senior Securities                                                        | 22  
|Item 4:  Submission of Matters to a Vote of Securities Holders                                  | 22  
|Item 5:  Other Information                                                                      | 22  
|Item 6:  Exhibits                                                                               | 22  
|                                                                                               
|Signatures                                                                                      | 23  
|Exhibit Index                                                                                   | 24  

|2
|-

|PART I   FINANCIAL
INFORMATION


Item 1:    FINANCIAL
STATEMENTS (UNAUDITED)


MEDTOX SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS 
(In thousands, except share and per share data) 
(Unaudited)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | Three Months Ended
|---------------------------------------------- | ------------------
|
|REVENUES:                                      |                   
|Laboratory services                            |                   
|Product sales                                  |                   
|                                               |                   
|                                               |                   
|                                               |                   
|COST OF REVENUES:                              |                   
|Cost of services                               |                   
|Cost of sales                                  |                   
|                                               |                   
|                                               |                   
|                                               |                   
|GROSS PROFIT                                   |                   
|                                               |                   
|OPERATING EXPENSES:                            |                   
|Selling, general and administrative            |                   
|Research and development                       |                   
|                                               |                   
|                                               |                   
|                                               |                   
|INCOME FROM OPERATIONS                         |                   
|                                               |                   
|OTHER INCOME (EXPENSE):                        |                   
|Interest expense                               |                   
|Other expense, net                             |                   
|                                               |                   
|                                               |                   
|                                               |                   
|INCOME BEFORE INCOME TAX EXPENSE               |                   
|                                               |                   
|INCOME TAX EXPENSE                             |                   
|                                               |                   
|NET INCOME                                     |                   
|                                               |                   
|BASIC EARNINGS PER COMMON SHARE (1)            |                   
|                                               |                   
|DILUTED EARNINGS PER COMMON SHARE (1)          |                   
|                                               |                   
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: |                   
|Basic (1)                                      |                   
|Diluted (1)                                    |                   

|(1)    
          Share and per share amounts for the three months ended March 31, 2004 have been
          restated for the three-for-two stock split paid on August 20, 2004.


See Notes to Consolidated
Financial Statements (Unaudited).


3
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|MEDTOX SCIENTIFIC, INC. 
CONSOLIDATED BALANCE SHEETS 
(In thousands, except share and per share data) (Unaudited)
|-----------------------------------------------------------------------------------------------------------------

|                                                                             | March 31,
2005 | December 31,
2004
|---------------------------------------------------------------------------- | -------------- | -----------------
|ASSETS                                                                       |                |                  
|CURRENT ASSETS:                                                              |                |                  
|Cash and cash equivalents                                                    |                |                  
|Accounts receivable:                                                         |                |                  
|Trade, less allowance for doubtful accounts ($476 in 2005 and $734 in 2004)  |                |                  
|Other                                                                        |                |                  
|                                                                             |                |                  
|Total accounts receivable                                                    |                |                  
|Inventories                                                                  |                |                  
|Prepaid expenses and other                                                   |                |                  
|Deferred income taxes                                                        |                |                  
|                                                                             |                |                  
|Total current assets                                                         |                |                  
|BUILDING, EQUIPMENT AND IMPROVEMENTS, net                                    |                |                  
|GOODWILL                                                                     |                |                  
|OTHER INTANGIBLE ASSETS, net                                                 |                |                  
|DEFERRED INCOME TAXES, net                                                   |                |                  
|OTHER ASSETS                                                                 |                |                  
|                                                                             |                |                  
|TOTAL ASSETS                                                                 |                |                  
|                                                                             |                |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                         |                |                  
|CURRENT LIABILITIES:                                                         |                |                  
|Line of credit                                                               |                |                  
|Accounts payable                                                             |                |                  
|Accrued expenses                                                             |                |                  
|Current portion of long-term debt                                            |                |                  
|Current portion of capital leases                                            |                |                  
|                                                                             |                |                  
|Total current liabilities                                                    |                |                  
|LONG-TERM DEBT, net of current portion                                       |                |                  
|LONG-TERM PORTION OF CAPITAL LEASES, net of current portion                  |                |                  
|                                                                             |                |                  
|STOCKHOLDERS' EQUITY:                                                        |                |                  
|Preferred stock, $1.00 par value; authorized shares, 50,000; none issued and |                |                  
|outstanding                                                                  |                |                  
|Common stock, $0.15 par value; authorized shares, 14,400,000; issued and     |                |                  
|outstanding shares, 7,542,407 in 2005 and 7,534,842 in 2004                  |                |                  
|Additional paid-in capital                                                   |                |                  
|Deferred stock-based compensation                                            |                |                  
|Accumulated deficit                                                          |                |                  
|Treasury stock                                                               |                |                  
|                                                                             |                |                  
|Total stockholders' equity                                                   |                |                  
|                                                                             |                |                  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   |                |                  
|                                                                             |                |                  

|See Notes to Consolidated
Financial Statements (Unaudited).


4
|---------------------------------------------------------------

|MEDTOX SCIENTIFIC, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands)
(Unaudited)
|------------------------------------------------------------------------------------------

|                                                            | Three Months Ended
|----------------------------------------------------------- | ------------------
|
|CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:                |                   
|Net income                                                  |                   
|Adjustments to reconcile net income to net cash provided by |                   
|operating activities:                                       |                   
|Depreciation and amortization                               |                   
|Provision for losses on accounts receivable                 |                   
|Loss on sale of equipment                                   |                   
|Deferred compensation                                       |                   
|Deferred income taxes                                       |                   
|Changes in operating assets and liabilities:                |                   
|Accounts receivable                                         |                   
|Inventories                                                 |                   
|Prepaid expenses and other current assets                   |                   
|Other assets                                                |                   
|Accounts payable and accrued expenses                       |                   
|                                                            |                   
|Net cash provided by operating activities                   |                   
|                                                            |                   
|CASH FLOWS USED IN INVESTING ACTIVITIES:                    |                   
|Capital expenditures                                        |                   
|Purchase of customer list                                   |                   
|Proceeds from sale of equipment                             |                   
|                                                            |                   
|Net cash used in investing activities                       |                   
|                                                            |                   
|CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:      |                   
|Net proceeds from sale of common stock                      |                   
|Net proceeds on revolving credit facility                   |                   
|Proceeds from long-term debt                                |                   
|Principal payments on long-term debt                        |                   
|Principal payments on capital leases                        |                   
|Payment of taxes from traded shares                         |                   
|                                                            |                   
|Net cash provided by (used in) financing activities         |                   
|                                                            |                   
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            |                   
|                                                            |                   
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD            |                   
|                                                            |                   
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                  |                   
|                                                            |                   
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          |                   
|Cash paid for:                                              |                   
|Interest                                                    |                   
|Taxes                                                       |                   

|See Notes to Consolidated
Financial Statements (Unaudited).


5
|---------------------------------------------------------------

|MEDTOX SCIENTIFIC, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
March 31, 2005


     1.    
          BASIS OF PRESENTATION


The accompanying
unaudited consolidated financial statements of MEDTOX Scientific, Inc. (the Company) have
been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of financial condition and results of operations have
been included. Operating results for the three-month period ended March 31, 2005 are not
necessarily indicative of the results that may be attained for the entire year. These
consolidated financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2004.


Stock-Based
Compensation  Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, requires companies to measure
employee stock compensation plans and non-employee stock-based compensation based on the
fair value method of accounting. However, for stock compensation granted to employees,
SFAS No. 123 allows the continued use of Accounting Principles Board Opinion (APBO) No.
25, Accounting for Stock Issued to Employees, with pro forma disclosure of net
income and earnings per share determined as if the fair value method had been applied in
measuring compensation cost. The Company has elected the continued use of APBO No. 25.


Had the Company
determined compensation expense for its stock options under SFAS No. 123, (as amended by
SFAS No. 148), the Companys net income and earnings per share would have been
changed to the pro forma amounts indicated below:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(In thousands, except per share data) |  | Three Months Ended
|------------------------------------- |  | ------------------
|                                      |  | March 31,
2005    
|Net income                            |  |                   
|Less:  Total stock-based compensation |  |                   
|expense, net of related tax effect    |  |                   
|                                      |  |                   
|                                      |  |                   
|                                      |  |                   
|                                      |  |                   
|Basic earnings per share              |  |                   
|                                      |  |                   
|                                      |  |                   
|Diluted earnings per share            |  |                   
|                                      |  |                   

|6
|-

|New Accounting
Standards: In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123(R), Share-Based Payment that will require compensation costs
related to share-based payment transactions to be recognized in the Companys
statement of operations. With limited exceptions, the amount of compensation cost will be
measured based on the grant-date fair value of the equity or liability instruments issued.
In addition, liability awards will be re-measured each reporting period. Compensation cost
will be recognized over the period that an employee provides service in exchange for the
award. SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees. SFAS No. 123(R) will be effective for the Company on January 1, 2006.
The Company is currently in the process of evaluating the impact of the adoption of SFAS
No. 123(R).


In November 2004, the
FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter
4. SFAS No. 151 requires that abnormal amounts of idle capacity and spoilage costs
should be excluded from the cost of inventory and expensed when incurred. SFAS No. 151
will be effective for the Company on July 1, 2005. The Company does not expect the
adoption of this statement will have a material impact on its results of operations or
financial position.


2.    SEGMENTS


The Company has two
reportable segments: Laboratory Services and Product Sales. The Laboratory Services
segment consists of MEDTOX Laboratories, Inc. and New Brighton Business Center, LLC.
Services provided include forensic toxicology (primarily workplace drugs-of-abuse testing)
and Specialty Laboratory Services, which include clinical toxicology, clinical testing for
the pharmaceutical industry, pediatric lead testing, heavy metals analyses and courier
delivery, and medical surveillance. The Product Sales segment, which includes POC (point
of collection) disposable diagnostics devices, consists of MEDTOX Diagnostics, Inc.
Products manufactured include easy to use, inexpensive, on-site drug tests such as
PROFILE®-II, PROFILE®-II A, PROFILE-II ER®,
and VERDICT®-II, in addition to a variety of agricultural testing products.
MEDTOX Diagnostics, Inc. also provides contract manufacturing services in its Food and
Drug Administration/Good Manufacturing Practices (FDA/GMP) facility.


The Companys
reportable segments are strategic business units that offer different products and
services. They are managed separately, as each business requires different products,
services and marketing strategies.


In evaluating
financial performance, management focuses on income from operations as a segments
measure of profit or loss.


7
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(In thousands)                          | Three Months Ended
|--------------------------------------- | ------------------
|                                        | March 31,
2005    
|Laboratory Services:                    |                   
|                                        |                   
|Revenues                                |                   
|Depreciation and amortization           |                   
|Income from operations                  |                   
|Segment assets                          |                   
|Capital expenditures for segment assets |                   
|                                        |                   
|Product Sales:                          |                   
|                                        |                   
|Revenues                                |                   
|Depreciation and amortization           |                   
|Income from operations                  |                   
|Segment assets                          |                   
|Capital expenditures for segment assets |                   
|                                        |                   
|Corporate (unallocated):                |                   
|                                        |                   
|Other expense                           |                   
|Deferred tax assets, net                |                   
|                                        |                   
|Company:                                |                   
|                                        |                   
|Revenues                                |                   
|Depreciation and amortization           |                   
|Income from operations                  |                   
|Other expense                           |                   
|Income before income tax expense        |                   
|Total assets                            |                   
|Capital expenditures for assets         |                   

|The following is a
summary of revenues from external customers for each group of services provided within the
Laboratory Services segment:
|------------------------------------------------------------------------------------------------------------------------------------------

|(In thousands)                      | Three Months Ended
|----------------------------------- | ------------------
|                                    | March 31,
2005    
|Workplace drugs-of-abuse testing    |                   
|Other Specialty Laboratory Services |                   
|                                    |                   
|                                    |                   
|                                    |                   

|8
|-

|The following is a
summary of revenues from external customers for each group of products and services
provided within the Product Sales segment:
|-------------------------------------------------------------------------------------------------------------------------------------------------

|(In thousands)                  | Three Months Ended
|------------------------------- | ------------------
|                                | March 31,
2005    
|POC on site testing products    |                   
|Contract manufacturing services |                   
|Other diagnostic products       |                   
|                                |                   
|                                |                   
|                                |                   

|3.    INVENTORIES


Inventories consisted
of the following:
|-----------------------------------------------------------

|(In thousands)                         | March 31,
2005 | December 31,
2004
|-------------------------------------- | -------------- | -----------------
|Raw materials                          |                |                  
|Work in process                        |                |                  
|Finished goods                         |                |                  
|Supplies, including off-site inventory |                |                  
|                                       |                |                  
|                                       |                |                  
|                                       |                |                  

|4.    
          EARNINGS PER SHARE


The following table
sets forth the computation of basic and diluted earnings per common share:
|------------------------------------------------------------------------------------------------------------------------------------

|(In thousands, except share and per share data)                  | Three Months Ended
|---------------------------------------------------------------- | ------------------
|                                                                 | March 31,
2005    
|Net income (A)                                                   |                   
|                                                                 |                   
|Weighted average number of basic common shares outstanding (B)   |                   
|Dilutive effect of stock options and warrants computed based on  |                   
|the treasury stock method using average market price             |                   
|                                                                 |                   
|Weighted average number of diluted common shares outstanding (C) |                   
|                                                                 |                   
|Basic earnings per common share (A/B)                            |                   
|                                                                 |                   
|Diluted earnings per common share (A/C)                          |                   
|                                                                 |                   

|9
|-

|Options and warrants
to purchase 918 and 1,441,368 shares of common stock were outstanding during the first
three months of 2005 and 2004, respectively, but were not included in the computation of
diluted earnings per share as their exercise prices were greater than the average market
price of the common shares.


     5.    
          INCOME TAXES


At December 31, 2004,
the Company had federal and state net operating loss carryforwards (NOLs) of approximately
$26.1 million and $28.2 million, respectively, which are available to offset future
taxable income.  The Companys federal and state NOLs expire in varying amounts
each year from 2005 through 2023 in accordance with applicable federal and state tax
regulations and the timing of when the NOLs were incurred.  For financial reporting
purposes, a valuation allowance has been recorded to offset deferred tax assets that, more
likely than not, will not be realized based on the Companys projected future taxable
income, the timing of expiring NOLs, and the Companys tax planning strategies. 
Section 382 of the Internal Revenue Code restricts the annual utilization of certain NOLs
incurred prior to a change in ownership.  However, such limitation is not expected to
impair the realization of these NOLs.  In the future, subsequent revisions to the
estimated net realizable value of these deferred tax assets could cause the provision for
income taxes to vary significantly from period to period, although the Companys cash
payments would remain unaffected until the benefit of the NOLs is completely utilized or
expires unused.


     6.    
          CONTINGENCIES


Leases The Company leases offices and facilities and office equipment under certain operating
leases, which expire on various dates through March 2016. Under the terms of the facility
leases, a pro rata share of operating expenses and real estate taxes are charged as
additional rent.


Legal 
The Company is party to various legal proceedings arising in the normal course of business
activities, none of which, in the opinion of management, are expected to have a material
adverse impact on the Companys consolidated financial position or results of
operations.


10
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2:    
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.


CAUTIONARY STATEMENT
IDENTIFYING IMPORTANT FACTORS 
THAT COULD CAUSE THE COMPANYS ACTUAL RESULTS TO DIFFER
FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS


In connection with
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, readers of this document and any document incorporated by reference herein, are
advised that this document and documents incorporated by reference into this document
contain both statements of historical facts and forward looking statements. Forward
looking statements are subject to certain risks and uncertainties, which could cause
actual results to differ materially from those indicated by the forward looking
statements. Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earnings or loss per share, capital expenditures,
dividends, capital structure and other financial items, (ii) statements of the plans and
objectives of the Company or its management or Board of Directors, including the
introduction of new products, or estimates or predictions of actions by customers,
suppliers, competitors or regulatory authorities, (iii) statements of future economic
performance, and (iv) statements of assumptions underlying other statements and statements
about the Company or its business.


This document and any
documents incorporated by reference herein also identify important factors which could
cause actual results to differ materially from those indicated by the forward looking
statements. The factors that could affect our actual results include the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | increased
competition, including price competition
| | - | --------------------------------------------------

| | o | general
economic and business conditions, both nationally and internationally
| | - | -----------------------------------------------------------------------------

| | o | changes
in business strategy or development plans
| | - | -------------------------------------------------

| | o | technological,
evolving industry standards, or other problems that could delay the sale of our products
| | - | -------------------------------------------------------------------------------------------------------

| | o | risks
and uncertainties with respect to our patents and proprietary rights including:
| | - | -------------------------------------------------------------------------------------

| |  | o | lack
of meaningful protection from claims of any patents issued to the Company
| |  | - | ------------------------------------------------------------------------------

| |  | o | other
companies challenging our patents
| |  | - | ---------------------------------------

| |  | o | patents
issued to other companies that may harm our ability to do business
| |  | - | --------------------------------------------------------------------------

| |  | o | other
companies designing around technologies we have developed
| |  | - | ---------------------------------------------------------------

| |  | o | our
inability to obtain appropriate licenses from third parties
| |  | - | ---------------------------------------------------------------

| |  | o | our
inability to protect our trade secrets
| |  | - | ------------------------------------------

| |  | o | risk
of infringement upon the proprietary rights of others
| |  | - | ----------------------------------------------------------

| |  | o | our
inability to prevent others from infringing on our proprietary rights
| |  | - | -------------------------------------------------------------------------

| | o | our
inability to obtain sufficient financing to continue to expand operations
| | - | -----------------------------------------------------------------------------

| | o | changes
in demand for products and services by our customers
| | - | ------------------------------------------------------------

|11
|--

| | o | our
failure to obtain and retain new customers and alliance partners,  or a reduction in
tests ordered or specimens  submitted          by existing customers
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | adverse
results in litigation matters
| | - | -------------------------------------

| | o | our
ability to attract and retain experienced and qualified personnel
| | - | ---------------------------------------------------------------------

| | o | losses
due to bad debt
| | - | ----------------------

|The cautionary
statements made pursuant to the Private Litigation Securities Reform Act of 1995 above and
elsewhere by the Company should not be construed as exhaustive or as any admission
regarding the adequacy of disclosures made by the Company prior to the effective date of
such Act. Forward looking statements are beyond the ability of the Company to control, and
in many cases the Company cannot predict what factors would cause results to differ
materially from those indicated by the forward looking statements.


General


MEDTOX Scientific,
Inc. (formerly EDITEK, Inc.), a Delaware corporation, was organized in September 1986.
MEDTOX Scientific, Inc. and its subsidiaries, MEDTOX Laboratories, Inc., MEDTOX
Diagnostics, Inc., and New Brighton Business Center, LLC are referred to herein as
the Company. The Company is engaged primarily in two distinct, but very much
related businesses. The business of forensic and clinical laboratory services is conducted
by MEDTOX Laboratories, Inc. at its facility in St. Paul, Minnesota, and the business of
manufacturing and distribution of diagnostic devices is executed by MEDTOX Diagnostics,
Inc. from its facility in Burlington, North Carolina.


The Company has two
reportable segments: Laboratory Services conducted by the Companys
wholly owned subsidiaries, MEDTOX Laboratories, Inc. and New Brighton Business Center, LLC
and Products Sales conducted by the Companys wholly owned subsidiary
MEDTOX Diagnostics, Inc. Laboratory Services include forensic toxicology (primarily
workplace drugs-of-abuse testing) and Specialty Laboratory Services, including clinical
toxicology, clinical testing for the pharmaceutical industry (central laboratory services,
bioanalytical and pharmacokinetic testing), and analysis of heavy and trace metals. In
addition, the Laboratory Services segment provides logistical support, data management and
overall program management services. Product Sales include sales of a variety of on-site
screening products and contract manufacturing. For financial information relating to the
Companys segments, see Note 2 of Notes to the Consolidated Financial Statements. For
the three months ended March 31, 2005, Laboratory Services revenue accounted for 75.9% of
the Companys revenues, compared with 75.2% for the same period in 2004. Revenue from
Product Sales accounted for 24.1% of the Companys revenues for the three months
ended March 31, 2005 compared with 24.8% for the same period in 2004.


12
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Critical Accounting
Policies


The Company has
identified the policies outlined below as critical to understanding its business and
results of operations. The listing is not intended to be a comprehensive list of all
accounting policies. In many cases, the accounting treatment of a particular transaction
is specifically dictated by accounting principles generally accepted in the United States
of America, with no need for managements judgment in their application. The impact
and any associated risks related to these policies on the Companys business
operations is discussed throughout Managements Discussion and Analysis of Financial
Condition and Results of Operations where such policies affect reported and expected
financial results. For a detailed discussion on the application of these and other
accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements in
Item 15 on Form 10-K for the year ended December 31, 2004. Note that the preparation of
this Form 10-Q requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and liabilities
at the date of our financial statements, and the reported amounts of revenue and expenses
during the reporting period. There can be no assurance that actual results will not differ
from those estimates.


The Companys
critical accounting policies are as follows:


Accounts Receivable:
The Company performs
ongoing credit evaluations of its customers and adjusts credit limits based upon payment
history and the customers current credit worthiness, as determined by
managements review of their current credit information. The Company continuously
monitors collections and payments from its customers and maintains a provision for
estimated credit losses based upon the Companys historical experience and any
specific customer collection issues that have been identified. While such credit losses
have generally been within the Companys historical expectations and the provisions
established, the Company cannot guarantee that it will continue to experience the same
credit loss rates that have occurred in the past. The Companys consolidated trade
accounts receivable balance as of March 31, 2005 was $9.6 million, net of allowance for
doubtful accounts of $0.5 million.


Some of the
Companys laboratory services revenues for certain types of tests are billed to
third-party payors including insurance companies, state Medicaid and Medicare agencies.
These payors pay for such services at established amounts, which are typically lower than
gross amounts billed by the Company. However, the tests are sometimes billed directly to
patients or other parties and paid at the gross amount billed for these tests. In
addition, billings for the tests are occasionally re-billed to alternative payors in
situations where incorrect billing information was submitted to the Company by the
customer. The Company estimates a discount on the billings for these tests, and recognizes
revenue and related accounts receivable at a net amount, after discount, in order to state
revenue and accounts receivable at the amount expected to be paid. While the Company
believes that estimated discounts and the related net revenue and net accounts receivable
from these testing services are materially correct, there can be differences in amounts
ultimately paid compared to estimated amounts. These differences are recorded upon payment
and may affect previously recorded amounts. The Company considers historical discounts
when estimating future discounts on a monthly basis.


Off-Site Supplies
Inventory:
Off-site supplies
represent collection kits and forms located at collections sites throughout the United
States used by Laboratory Services customers to submit specimens for testing
services. At March 31, 2005, off-site inventory was $0.8 million. The process for valuing
off-site inventory involves significant assumptions regarding the average time that a
collection site uses the inventory, as well as the amount of inventory expected to be
scrapped.


13
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Goodwill and Other
Intangible Assets:
In accordance with
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, goodwill and indefinite-lived intangible assets are no longer
amortized, but are instead reviewed for impairment at least annually and between annual
test dates in certain circumstances. The Company performs its annual impairment test for
goodwill and other intangible assets in the fourth quarter of each year. In assessing the
recoverability of goodwill and other intangible assets, projections regarding estimated
future cash flows and other factors are made to determine the fair value of the respective
assets. If these estimates or related projections change in the future, the Company may be
required to record impairment charges for these assets in future periods. During the three
months ended March 31, 2005, no circumstances occurred that required an impairment charge.


Accounting for Income
Taxes:
As part of the
process of preparing the consolidated financial statements, the Company is required to
estimate income taxes in each of the jurisdictions in which it operates. This process
involves estimating actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities. The Company must then
assess the likelihood that deferred tax assets will be recovered from future taxable
income and tax planning strategies, and to the extent management believes that recovery is
not likely, the Company must establish a valuation allowance. To the extent the Company
increases or decreases the valuation allowance in a period, the Company must include an
expense or benefit within the tax provision in the consolidated statement of operations.


Significant
management judgment is required in determining the provision for income taxes, deferred
tax assets and liabilities, and any valuation allowance recorded against net deferred tax
assets. The Companys deferred tax assets primarily consist of certain net operating
losses (NOLs) carried forward. At March 31, 2005, the Company had a valuation allowance on
deferred tax assets of $0.9 million, which represents the portion of its NOL carryforwards
that will more likely than not expire unused in 2005 and future years. The valuation
allowance is based on managements estimate of future taxable income, the period over
which NOLs will be recoverable, and tax planning strategies. In the future, subsequent
revisions to the estimated net realizable value of these deferred tax assets could cause
the provision for income taxes to vary significantly from period to period, although the
Companys cash payments would remain unaffected until the benefit of the NOLs is
completely utilized or expires unused.


Results of Operations


Total revenues for
the first quarter of 2005 increased 8% over the first quarter of 2004, driven primarily by
strong sample volume from both new and existing workplace and occupational health clients.
Gross margin declined in both segments. Selling, general and administrative expenses as a
percentage of sales were down in the first quarter of 2005, reflecting the increase in
revenue on relatively flat quarter over quarter expenses. Research and development
expenses increased during the quarter, reflecting increased development activity
associated with new diagnostic products. The following table sets forth the percentages of
total revenues represented by certain items reflected in the Companys Consolidated
Statements of Operations:


14
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | Three Months Ended
|------------------------------------ | ------------------
|                                     | March 31,
2005    
|Revenues                             |                   
|Cost of revenues                     |                   
|                                     |                   
|Gross margin                         |                   
|Operating expenses                   |                   
|Selling, general, and administrative |                   
|Research and development             |                   
|                                     |                   
|                                     |                   
|Income from operations               |                   
|Other expense                        |                   
|                                     |                   
|Income before income tax expense     |                   
|Income tax expense                   |                   
|                                     |                   
|Net income                           |                   
|                                     |                   

|Three Months Ended March
31, 2005 Compared to Three Months Ended March 31, 2004


Revenues


Revenues increased 8%
to $14.7 million for the three months ended March 31, 2005, driven by a $0.9 million, or
9% increase in Laboratory Services revenues and a $0.2 million, or 5% increase in Product
Sales revenues.


Laboratory Services
revenues were positively impacted by a 13% increase in workplace drugs-of- abuse sample
volume from both new and existing workplace and occupational health clients. Although
sample volume from workplace drugs-of-abuse clients was negatively impacted by weak
January performance, as the quarter progressed, volume and revenues improved, ending with
a strong March performance. Since the beginning of the year, the Company has also made
significant progress with the development of its eChain®system for
enhanced electronic results reporting and sample and donor tracking. In addition, during
the quarter, the Company entered into contracts for collection and testing services with
two of the largest national third-party administrators. Revenues from the Companys
Specialty Laboratory Services increased 1% in the quarter.


In the Product Sales
segment, sales of POC on site testing products, which incorporates the
PROFILE®-II, PROFILE-II ER®, PROFILE®-II A
and VERDICT®-II on-site test kits and other ancillary products for the
detection of abused substances, increased 7% to $3.0 million in the first quarter of 2005.
This growth reflected strong sales of PROFILE®-II products, which grew 15%
from the prior year period. However, sales within the VERDICT®-II product line to
government clients for probation, parole and rehabilitation were down 4% from the prior
year period, but showed improvement from the previous two quarters.


Sales of contract
manufacturing services, microbiological and associated products increased 14% to $0.5
million in the quarter and were positively impacted by the timing of orders from existing
clients. Product sales from agricultural diagnostic products were down $74,000, or 81%,
due to decreased purchases by the U.S. Department of Agriculture (USDA). The USDAs
needs for the Companys products vary from year-to-year and sales to the USDA are
expected to fluctuate accordingly.


15
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Gross Profit


Consolidated gross
margin decreased to 40.6% of revenues for the three months ended March 31, 2005, compared
to 42.3% of revenues for the same period in 2004, reflecting declines in both Laboratory
Services and Product Sales gross margins.


Laboratory Services
gross margin was 35.2% for the three months ended March 31, 2005, down from 36.1% for the
same period in 2004. The slight margin decrease was primarily attributable to the higher
fixed cost component of operating the laboratory, including increased direct labor and
higher supply costs. Maintaining or improving gross margin is very dependent on increased
revenue levels. Revenue levels in the first quarter, which are historically lower than
second and third quarters, were lower than the Company anticipated. The quarter started
with a weak performance in January and improved throughout, ending with a strong March
performance; however, the improvement did not completely offset the weak start. The
Company also continued the implementation of LEAN within its Specialty Laboratory
Services. The Companys LEAN initiatives are designed to improve quality and
productivity, cut costs and increase throughput.


Gross margin from
Product Sales declined to 57.5% for the three months ended March 31, 2005, from 61.0% in
the comparable period of 2004, largely due to the impact of costs associated with the
transition to a new and improved product format for the Companys PROFILE®-II
product line. The new product began shipping in late March. The Company also continued the
implementation of LEAN in its manufacturing processes of its diagnostics operation.


Selling, General and
Administrative Expenses


Selling, general and
administrative expenses were $4.3 million in both the first quarter of 2005 and 2004,
improving to 29.6% of revenues, in the first quarter of 2005, compared to 31.4% of
revenues in the first quarter of 2004. The lower rate reflects the increase in revenue on
relatively flat quarter over quarter expenses. In addition, the improvement reflects the
impact of the Companys LEAN initiatives. While the Companys cost structure has
been favorably impacted by the improved efficiencies generated from LEAN initiatives, the
Company continues to make investments to enhance the overall infrastructure and to pursue
its overall business strategy.


Research and Development
Expenses


Research and
development expenses increased $0.2 million, or 46%, to $0.6 million in the first quarter
of 2005 primarily due to spending for significant development projects at the
Companys Product Sales segment. During the quarter, the Company completed
enhancements to PROFILE®-II, PROFILE®-II A, and PROFILE-II
ER® products that shorten run times, darken line intensity, improving
readability and extending the positive result hold time; filed a 510(k) application with
the FDA for Sure-Screen®, which is a point-of-collection test intended to
provide significantly lower detection levels for eight commonly abused drugs, initially
targeted at the probation, parole and rehabilitation markets; and made substantial
progress on development of an electronic reader (MEDTOXScan) to be utilized with the
Companys devices in the hospital laboratory and emergency room market.


16
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other Expense


Other income and
expense consists primarily of interest expense and the net expenses associated with the
Companys building rental activities. These expenses decreased 16% to $0.3 million in
the first quarter of 2005. The decrease was primarily due to lower interest expense,
reflecting a reduction in average debt levels.


Income Taxes


The Company recorded
a tax provision for the three months ended March 31, 2005 and March 31, 2004 based upon an
effective tax rate of 38%. At March 31, 2005, the Company has a valuation allowance on
deferred tax assets of $0.9 million, which represents the portion of its net operating
loss (NOL) carryforwards that will more likely than not expire unused in 2005 and future
years. Should operating results for the remainder of 2005 and future years fail to meet
expectations, the valuation allowance against the Companys NOL carryforwards and the
related deferred tax asset may require adjustment in future periods.


Liquidity and Capital
Resources


The working capital
requirements of the Company have been funded primarily by various combinations of
profitable operations, cash received from debt financing, and the sale of equity
securities. Cash and cash equivalents at March 31, 2005 were $0.6 million, compared to
$0.3 million at December 31, 2004.


Net cash provided by
operating activities was $0.5 million for the three months ended March 31, 2005 compared
to $1.2 million for the same period of 2004. The decrease was primarily due to an increase
of $0.6 million in accounts payable and accrued expenses in the prior year period.


Net cash used in
investing activities, consisting primarily of capital expenditures, was $0.8 million for
the three months ended March 31, 2005 compared to $1.5 million in the same period of 2004.
The increased spending in 2004 reflects equipment purchased and costs incurred in
redesigning the laboratory operations to improve operating efficiencies.


Net cash provided by
financing activities was $0.6 million for the three months ended March 31, 2005, compared
to net cash used in financing activities of $0.2 million in the prior year period. The
increase was primarily due to $0.3 million in new financing activity for the purchase of
capital equipment. The Company made payments on long-term debt of $0.4 million and $0.6
million during the three months ended March 31, 2005 and 2004, respectively.


The Company has a
Credit Security Agreement (the Wells Fargo Credit Agreement) with Wells Fargo Business
Credit, Inc. (Wells Fargo). The Wells Fargo Credit Agreement, as amended, consists of (i)
a revolving line of credit, payable on demand, of not more than $8.0 million or 85% of the
Companys eligible trade accounts receivable bearing interest at prime + 1%; and (ii)
a capex note for the purchase of capital equipment. As of January 1, 2005, no borrowing
was available under the capex note. However, during the first quarter of 2005, Wells Fargo
consented to the borrowing of $0.3 million under the capex note for capital expenditures
purchased in 2004. According to the terms of the agreement, the capex note may be amended,
supplemented or restated from time to time and is generally done so on an annual basis.
The Company and Wells Fargo are currently negotiating an amendment to the Wells Fargo
Credit Agreement to allow for further borrowing under the capex note.


17
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Wells Fargo
Credit Agreement requires the Company to comply with certain financial covenants,
including a minimum annual debt service coverage ratio and minimum quarterly pre-tax net
income levels. It also sets a maximum level for capital expenditures, as well as a
limitation on the year-over-year increase in compensation of any director, shareholder or
consultant. At March 31, 2005, the Company was in compliance with the financial covenants
of the Wells Fargo Credit Agreement.


The Company is
relying on expected positive cash flow from operations and its line of credit to fund its
future working capital and asset purchases. The amount available on the revolving line of
credit is based primarily on the receivables of the Company and, as such, varies with
accounts receivable. As of March 31, 2005, the Company had total borrowing capacity of
$7.0 million on its line of credit, of which $5.4 million was borrowed, leaving a net
availability of $1.6 million. Cash at March 31, 2005 was $0.6 million.


In the short term,
the Company believes that the aforementioned capital will be sufficient to fund the
Companys planned operations through 2005. While there can be no assurance that the
available capital will be sufficient to fund the future operations of the Company beyond
2005, the Company believes that future profitable operations, as well as access to
additional capital through debt or equity financings, will be the primary means for
funding the operations of the Company for the long term.


The Company continues
to follow a plan which includes (i) aggressively monitoring and controlling costs, (ii)
increasing revenue from sales of the Companys existing products and services (iii)
developing new products and services, as well as (iv) continuing to selectively pursue
synergistic acquisitions to increase the Companys critical mass. However, there can
be no assurance that costs can be controlled, revenues can be increased, financing may be
obtained, acquisitions successfully consummated, or that the Company will be profitable.


In connection with
the Companys private equity placements in July and August 2000, the Company issued
warrants to acquire common shares at an exercise price of $6.75. At March 31, 2005, the
Company had 1,101,919 warrants outstanding, which expire in July and August 2005. The
Company would receive aggregate proceeds of approximately $7.4 million in the event of the
exercise of all outstanding warrants.


Disclosures about
Contractual Obligations and Commercial Commitments


The following table
aggregates all contractual commitments and commercial obligations that affect the
Companys financial condition and liquidity position as of March 31, 2005:


18
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | Payments Due by Period
|----------------------------- | ----------------------
|(In thousands)                | Total                 
|Long-term debt (1)            |                       
|                              |                       
|Capital lease obligations (1) |                       
|                              |                       
|Operating leases              |                       
|                              |                       
|Total contractual obligations |                       
|                              |                       

|(1)    
          Amounts include interest payments based upon contractual or prevailing interest
          rates.


Off-Balance Sheet
Transactions


The Company does not
maintain any off-balance sheet transactions, arrangements, obligations or other
relationships with unconsolidated entities or others that are reasonably likely to have a
material current or future effect on the Companys financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.


Impact of Inflation and
Changing Prices


The impact of
inflation and changing prices on the Company has been primarily limited to salary,
laboratory and operating supplies and rent increases and has historically not been
material to the Companys operations. In the future, the Company may not be able to
increase the prices of laboratory testing by an amount sufficient to cover the cost of
inflation, although the Company is responding to these concerns by refocusing the
laboratory operations towards higher margin testing (including clinical and pharmaceutical
trials) as well as emphasizing the marketing, sales and operations of the Product Sales
business.


Seasonality


The Company believes
that the laboratory testing business is subject to seasonal fluctuations in pre-employment
screening. These seasonal fluctuations include reduced volume in the summer months,
year-end holiday periods, and other major holidays. In addition, inclement weather may
have a negative impact on volume thereby reducing net revenues and cash flow.


19
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Impact of New Accounting
Standards


In December 2004, the
Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based
Payment that will require compensation costs related to share-based payment
transactions to be recognized in the Companys statement of operations. With limited
exceptions, the amount of compensation cost will be measured based on the grant-date fair
value of the equity or liability instruments issued. In addition, liability awards will be
re-measured each reporting period. Compensation cost will be recognized over the period
that an employee provides service in exchange for the award. SFAS No. 123(R) replaces SFAS
No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) will be
effective for the Company on January 1, 2006. The Company is currently in the process of
evaluating the impact of the adoption of SFAS No. 123(R).


In November 2004, the
FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter
4. SFAS No. 151 requires that abnormal amounts of idle capacity and spoilage costs
should be excluded from the cost of inventory and expensed when incurred. SFAS No. 151
will be effective for the Company on July 1, 2005. The Company does not expect the
adoption of this statement will have a material impact on its results of operations or
financial position.


20
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 3:    QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


There have been no
material changes in our market risk during the quarter ended March 31, 2005. For
additional information refer to Item 7A of our 2004 Annual Report on Form 10-K.




Item 4.    CONTROLS AND
PROCEDURES.


Evaluation of Disclosure
Controls Procedures.


As of the end of the
period covered by this report, the Company conducted an evaluation under the supervision
and with the participation of the companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the
design and operation of the Companys disclosure controls and procedures pursuant to
Rules 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act).
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective to
ensure that information that is required to be disclosed by the Company in reports that it
files under the Exchange Act is recorded, processed, summarized and reported within the
time period specified in the rules of the Securities Exchange Commission.


Changes in Internal
Controls.


There were no changes
in the Companys internal control over financial reporting that occurred during the
period covered by this report that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.


21
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II    OTHER INFORMATION


ITEM 1      LEGAL PROCEEDINGS.  Inapplicable


ITEM 2      UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


Issuer Purchases of
Equity Securities
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Period          | Total Number
of Shares
Purchased (a) | Average
Price Paid
per Share (b) | Total Number of
Shares Purchased as
part of Publicly
Announced Plans or
Programs | Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
|--------------- | ------------------------------------ | -------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------------------------------------
|January  1 - 31 |                                      |                                  |                                                                                  | 11,630                                                                        
|February 1 - 28 |                                      |                                  |                                                                                  | --                                                                            
|March 1 - 31    |                                      |                                  |                                                                                  | 2,059                                                                         
|                |                                      |                                  |                                                                                  |                                                                               
|Total           |                                      |                                  |                                                                                  | 13,689                                                                        
|                |                                      |                                  |                                                                                  |                                                                               

|(a)    
          Represents shares withheld from employees to satisfy tax withholding obligations
          that arose upon the vesting of restricted stock.


     (b)    
          No cash was paid by the Company as shares were withheld from employees and
          surrendered upon the vesting of restricted stock to satisfy tax withholding
          obligations.


ITEM 3      DEFAULTS UPON SENIOR SECURITIES.  Inapplicable


ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  Inapplicable


ITEM 5      OTHER INFORMATION.  Inapplicable


ITEM 6      EXHIBITS.  See Exhibit Index on page following signature page


22
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Signature            | Title                                      | Date       
|-------------------- | ------------------------------------------ | -----------
|/s/ Richard J. Braun | President, Chief Executive Officer, and    | May 2, 2005
|Richard J. Braun     | Chairman of the Board of Directors        
|                     | (Principal Executive Officer)             
|                    
|/s/ Kevin J. Wiersma | Vice President and Chief Financial Officer | May 2, 2005
|Kevin J. Wiersma     | (Principal Financial Officer)             
|                    
|/s/ Angela M. Peck   | Controller                                 | May 2, 2005
|Angela M. Peck       | (Principal Accounting Officer)            

|23
|--

|EXHIBIT INDEX


MEDTOX SCIENTIFIC, INC.


FORM 10-Q FOR QUARTER
ENDED MARCH 31, 2005
|------------------------------------------------------------------------------------

|Exhibit number | Description                                                                                     
|-------------- | ------------------------------------------------------------------------------------------------
|               |                                                                                                 
|31.1           | Section 302 Certification of Chief Executive Officer pursuant to the Sarbanes-Oxley Act of 2002.
|               |                                                                                                 
|31.2           | Section 302 Certification of Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002.
|               |                                                                                                 
|32.1           | Section 906 Certification of Chief Executive Officer pursuant to the Sarbanes-Oxley Act of 2002.
|               |                                                                                                 
|32.2           | Section 906 Certification of Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002.

|24
|--