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 September 30, 2001

                                       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

The number of shares of Common Stock, $.15 par value, outstanding as of November
9, 2001, was 4,254,543.

<PAGE>

                             MEDTOX SCIENTIFIC, INC.

                                      INDEX

                                                                         Page

Part I    Financial Information:

          Item 1:  Financial Statements (Unaudited)

                   Consolidated Statements of Operations - Three and
                   Nine Months Ended September 30, 2001 and 2000 .....        3

                   Consolidated Balance Sheets - September 30, 2001
                   and December 31, 2000 .................................... 4

                   Consolidated Statements of Cash Flows - Nine
                   Months Ended September 30, 2001 and 2000 ..........        5

                   Notes to Consolidated Financial Statements............     6


          Item 2:

                   Management's Discussion and Analysis of
                   Financial Condition and Results of Operations ........    12

          Item 3:

                   Quantitative and Qualitative Disclosure
                   About Market Risk ........................................21

Part II   Other Information ..............................................   22
                   Signatures ...........................................    23


<PAGE>


Item 1:  FINANCIAL STATEMENTS (UNAUDITED)

                             MEDTOX SCIENTIFIC, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Dollars in thousands except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                               Three Months Ended               Nine Months Ended
                                                 September 30,                  September 30,
                                              2001              2000          2001          2000
                                          --------------  ---------------  -----------   -----------
<S>                                    <C>             <C>              <C>           <C>
REVENUES:
   Laboratory services                    $   9,446       $     9,206      $  28,741     $ 26,951
   Product sales                              3,135             2,367          8,007        5,614
                                          --------------- ---------------  -----------   -----------
                                             12,581            11,573         36,748       32,565

COST OF REVENUES:
  Cost of services                            6,711             6,164         19,681       17,798
  Cost of sales                                 876               687          2,879        2,059
                                            ------------- ---------------  -----------   ------------
                                              7,587             6,851         22,560       19,857
                                            ------------- ---------------  -----------   ------------

GROSS PROFIT                                  4,994             4,722         14,188       12,708

OPERATING EXPENSES:
   Selling, general and administrative        3,587             3,735         10,178        9,882
   Research and development                     323               265            956          820
                                            -------------- --------------  -----------   ------------
                                              3,910             4,000         11,134       10,702
                                            -------------- --------------  -----------   ------------

INCOME FROM OPERATIONS                        1,084               722          3,054        2,006

OTHER INCOME (EXPENSE):
   Interest expense, net                       (263)             (245)          (791)        (751)
   Other expense, net                           (31)               -             (75)          -
                                            -------------- --------------  ------------   -----------
                                               (294)             (245)          (866)        (751)
                                            -------------- --------------  ------------   -----------

NET INCOME                                      790               477          2,188        1,255
                                            ============== ==============  ============   ===========

BASIC EARNINGS PER COMMON
   SHARE (1)                                $   0.20       $     0.13      $    0.56      $  0.38
                                            ============== ==============  ============   ===========

DILUTED EARNINGS PER COMMON
   SHARE (1)                                $   0.18       $    0.12       $    0.53      $  0.36
                                            ============== =============   ============   ===========
</TABLE>

(1) Earnings per share amounts have been adjusted for the ten percent stock
dividend authorized by the Company's Board of Directors on September 26, 2001,
payable on November 9, 2001.

<PAGE>


                             MEDTOX SCIENTIFIC, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                     September 30,    December 31,
                                                                         2001             2000
                                                                  ----------------    ------------
<S>                                                            <C>                  <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                      $       -           $       213
   Accounts receivable:
     Trade,  less allowance for doubtful
     accounts ($929 in 2001 and $1,131 in
     2000)                                                             10,256               7,873
     Other                                                                196                 264
                                                                  -------------       ------------
             Total accounts receivable                                 10,452               8,137
   Inventories                                                          3,431               3,052
   Prepaid expenses and other                                             980                 830
                                                                  -------------       ------------
             Total current assets                                      14,863              12,232
EQUIPMENT AND IMPROVEMENTS, Net                                        11,931               5,211
GOODWILL, net of accumulated amortization of $4,928 in
  2001 and $4,438 in 2000                                              11,674              12,291
OTHER ASSETS, net of accumulated amortization of $27 in
  2001 and $7 in 2000                                                     707                 290
                                                                  -------------       ------------
TOTAL ASSETS                                                      $    39,175         $    30,024
                                                                  =============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Checks written in excess of bank balances                      $        57         $         -
   Line of credit                                                       3,165               3,724
   Accounts payable                                                     2,311               2,819
   Accrued expenses                                                     3,693               3,213
   Accrued restructuring costs                                              -                 160
   Current portion of long-term debt                                    2,241               1,579
   Current portion of capital leases                                      191                 221
                                                                  ------------       -------------
             Total current liabilities                                 11,658              11,716
LONG-TERM DEBT                                                          8,256               2,480
LONG-TERM PORTION OF CAPITAL LEASES                                       351                 418

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 in 2001 and 7,400,000 in 2000; issued
    and outstanding shares, 3,955,238 in 2001 and 3,858,966
    in 2000                                                               539                 526
   Additional paid-in capital                                          66,771              65,422
   Deferred stock-based compensation                                     (522)               (472)
   Accumulated deficit                                                (47,702)            (49,890)
   Treasury stock                                                        (176)               (176)
                                                                  -------------      --------------
             Total stockholders' equity                                18,910              15,410
                                                                  -------------      --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $    39,175        $     30,024
                                                                  =============      ==============
</TABLE>

<PAGE>


                                                  MEDTOX SCIENTIFIC, INC.
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (In thousands)
                                                        (Unaudited)
<TABLE>
<CAPTION>

                                                                           Nine Months Ended
                                                                             September 30,
                                                                        2001            2000
                                                                   -------------     -----------
<S>                                                              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                      $    2,188         $    1,255
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
      Depreciation and amortization                                     1,800              1,729
      Provision for losses on accounts receivable                         229                 93
      Gain on sale of equipment                                                              (35)
      Deferred compensation                                               139                 33
      Changes in operating assets and liabilities:
         Accounts receivable                                           (2,544)            (3,125)
         Inventories                                                     (379)            (1,287)
         Prepaid expenses and other current assets                       (150)               224
         Other assets                                                    (187)               (52)
         Accounts payable and accrued expenses                            (26)            (1,383)
         Accrued restructuring costs                                     (160)              (309)
                                                                   -------------    --------------
                Net cash provided by (used in) operating
                  activities                                              910             (2,857)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                               (7,795)            (3,100)
    Proceeds from sale of equipment                                                           35
    Payment for acquisition of business                                                      (75)
                                                                  -------------    ---------------
        Net cash used in investing activities                          (7,795)            (3,140)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase in checks written in excess of bank balances                  57                368
    Net proceeds from sale of common stock                                294              4,949
    Net proceeds from legal settlement                                    628
    Net payments on revolving credit facility                            (559)            (1,068)
    Proceeds from long-term debt                                        7,400              3,653
    Principal payments on long-term debt                                 (976)            (2,288)
    Principal payments on capital leases                                 (172)              (193)
                                                                  ------------    ----------------
              Net cash provided by financing activities                  6,672             5,421
                                                                  -------------   ----------------
DECREASE IN CASH AND CASH EQUIVALENTS                                    (213)              (576)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                          213                576
                                                                  -------------   ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                        $         -     $            -
                                                                  =============   ================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Non cash activities:
          Additions to capital leases                             $        75     $          301
           Acquisitions:
                 Fair value of assets acquired                                               252
                 Cash paid                                                                   (75)
                 Common stock issued                                                        (177)
                                                                                  ----------------
                                                                                  $            -
                                                                                  ================


    Cash paid for:
          Interest                                                        824                694
</TABLE>

<PAGE>


                             MEDTOX SCIENTIFIC, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                               September 30, 2001

NOTE A - BASIS OF PRESENTATION

The  accompanying   unaudited   consolidated   financial  statements  of  MEDTOX
Scientific, Inc. (the "Company") have been prepared in accordance with generally
accepted  accounting  principles 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 nine-month period ended September 30, 2001
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, 2000.

Reclassifications:   Certain  reclassifications  have  been  made  to  the  2000
financial statements to conform with the 2001 presentations.

New Accounting Standard:  In July 2001, the Financial Accounting Standards Board
issued Statement on Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other  Intangible  Assets." This statement  applies to intangibles  and goodwill
acquired  after June 30, 2001,  as well as goodwill and  intangibles  previously
acquired. Under this statement, goodwill as well as other intangibles determined
to have an infinite life will no longer be amortized; however, these assets will
be reviewed  for  impairment  on a periodic  basis.  SFAS No. 142 also  includes
provisions for the  reclassification of certain existing recognized  intangibles
as goodwill,  reclassification of certain intangibles out of previously reported
goodwill and the  identification  of  reporting  units for purposes of assessing
potential  future  impairments  of goodwill.  SFAS No. 142 is effective  for the
Company on January 1, 2002.  The Company is currently  assessing but has not yet
determined  the impact of SFAS No. 142 on its financial  position and results of
operations.  As of  September  30, 2001 the Company had net  goodwill  and other
intangible assets of approximately $11.7 million and $0.5 million, respectively.
Amortization  expense  recorded during the three and nine months ended September
30, 2001 and September 30, 2000 was  approximately  $0.2 million,  $0.7 million,
$0.2 million, and $0.7 million, respectively.

NOTE B - DEBT

In January 1998, the Company entered into a Credit Security Agreement (the Wells
Fargo Credit  Agreement) with Wells Fargo Business Credit,  Inc. The Wells Fargo
Credit  Agreement,  as amended,  consists  of (i) a term loan of $3.185  million
bearing interest at prime + 1.25%;  (ii) a revolving line of credit,  payable on
demand,  of not more than $6.0 million or 85% of the  Company's  eligible  trade
accounts receivable bearing interest at prime + 1%; and (iii) a capex note of up
to $3.5 million for the purchase of capital  equipment bearing interest at prime
+ 1.25% and (iv)  availability of letters of credit in amounts not to exceed the
lesser of  $300,000  (less  outstanding  letters of  credit)  or the  unborrowed
portion of the revolving line of credit (less outstanding letters of credit).
<PAGE>

NOTE C - SEGMENTS

The Company has two reportable segments: Lab Services and Product Sales. The Lab
Services segment consists of MEDTOX Laboratories, Inc. Services provided include
forensic  toxicology,   clinical  toxicology,  heavy  metals  analyses,  courier
delivery, and medical surveillance. The Product Sales segment consists of MEDTOX
Diagnostics,  Inc.  Products  manufactured  include  easy to  use,  inexpensive,
on-site drug tests such as PROFILE(R)-II,  EZ-SCREEN(R), and VERDICT(R)-II.  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 net income as a
segment's measure of profit or loss.

Segment Information
(In thousands)
<TABLE>
<CAPTION>

                                                  Three Months Ended                 Nine Months Ended
                                                     September 30,                     September 30,
                                                  2001             2000             2001          2000
                                               -------------   ----------     -----------      ----------
<S>                                         <C>              <C>              <C>           <C>
Laboratory Services:
   Revenues                                   $  9,446          $  9,206        $  28,741      $   26,951
   Interest expense, net                           252               226              755             694
   Depreciation and amortization                   558               566            1,703           1,671
   Segment income (loss)                           288              (56)            1,135             648
   Segment assets                               34,660            27,937           34,660          27,937
   Expenditures for segment assets                 118             1,045            7,541           2,780

Product Sales:
   Revenues                                      3,135             2,367            8,007           5,614
   Interest expense, net                            11                19               36              57
   Depreciation and amortization                    35                22               97              58
   Segment income                                  502               533            1,053             607
   Segment assets                                4,515             3,830            4,515           3,830
   Expenditures for segment assets                  93                13              254             320

Total:
   Revenues                                     12,581            11,573           36,748          32,565
   Interest expense, net                           263               245              791             751
   Depreciation and amortization                   593               588            1,800           1,729
   Segment income                                  790               477            2,188           1,255
   Segment assets                               39,175            31,767           39,175          31,767
   Expenditures for segment assets                 211             1,058            7,795           3,100
</TABLE>

<PAGE>

NOTE D - INVENTORIES

Inventories consisted of the following:
(In thousands)
                             September 30,     December 31,
                                 2001             2000
                             --------------  --------------


Raw materials                $    1,112      $      910
Work in process                     507             322
Finished goods                      349             373
Supplies                          1,463           1,447
                             --------------- --------------
                             $    3,431      $    3,052
                             =============== ==============

NOTE E - PURCHASE OF BUILDING

The administrative offices and laboratory operations for the Laboratory Services
segment of the Company's  business are located primarily in a 53,576 square foot
facility in St. Paul,  Minnesota.  On March 16, 2001 the Company  purchased  the
entire  three  building  complex  with a total of  129,039  square  feet,  which
included the 53,576  square feet  formerly  leased by the  Company's  Laboratory
Services segment.  The purchasing entity was New Brighton Business Center LLC, a
wholly owned limited liability company,  established by the Company for the sole
purpose of purchasing the entire three building complex.  The selling entity was
PHL-OPCO, LP a Delaware limited partnership,  which was an unrelated third party
who had operated the facility as its landlord  until the sale of the property to
the Company.  The purchase price,  exclusive of expenses and closing costs,  was
$6.35 million and was financed by a mortgage loan from  Principal Life Insurance
Company of Des Moines, Iowa in the amount of $6.2 million. The mortgage loan has
a term of ten years and is being repaid based on a 20-year amortization schedule
with a balloon  payment at the end of the ten year term.  The  interest  rate is
fixed at an annual rate of 7.23% for the first five years at which time the rate
will be  renegotiated  by the parties.  The facility  includes other  commercial
tenants who have  individual  leases that range from 4 years to less then 1 year
in duration. The current annual rent paid by such third party tenants, excluding
their pro-rata share of operating expenses, is approximately $431,000 per year.

The following components of the Company's rental activities were reported net in
other income (expense) in the Consolidated Statement of Operations:
(In thousands)
                                      Three Months Ended   Nine Months Ended
                                       September 30, 2001  September 30, 2001
                                       ------------------- ------------------

Gross rental income                        $    407           $      877
Operating and administrative expenses          (270)                (566)
                                           ------------       -----------
Net rental income before intercompany
   elimination                                  137                  311
Elimination of intercompany rental
   income                                      (166)                (388)
                                           ------------      ------------
Net rental loss                            $    (29)        $        (77)
                                           ============      ============

<PAGE>

NOTE F - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
common share: (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                       Three Months Ended                Nine Months Ended
                                                         September 30,                     September 30,
                                                     2001             2000              2001            2000
                                                -----------      -------------     ------------    ------------
<S>                                           <C>             <C>                <C>             <C>
Net income (A)                                  $         790    $         477     $      2,188    $      1,255
                                                =============    =============     ============    ============
Weighted average number of basic
    common shares outstanding (B)                   3,937,868        3,560,894        3,899,810       3,321,873
Dilutive effect of stock options and
    warrants computed based on the
    treasury stock method using average
    market price                                      351,800          256,801          231,169         211,499
                                                -------------    -------------     ------------    ------------
Weighted average number of diluted
    common shares outstanding (C)                   4,289,668        3,817,695        4,130,979       3,533,372
                                                =============    =============     ============    ============
Basic earnings per common share (A/B)           $        0.20    $        0.13     $       0.56    $       0.38
                                                =============    =============     ============    ============
Diluted earnings per common share (A/C)         $        0.18    $        0.12     $       0.53    $       0.36
                                                =============    =============     ============    ============
</TABLE>

Options and warrants to purchase 14,795, 766,739, 679,754, and 679,754 shares of
common stock were  outstanding  during the three and nine months ended September
30, 2001 and 2000,  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.

Share and per share amounts for all periods  presented  above have been adjusted
for  the ten  percent  stock  dividend  authorized  by the  Company's  Board  of
Directors on September 26, 2001, payable on November 9, 2001.

NOTE G - CONTINGENCIES

In March 2000,  the Company was served with a copy of a complaint  filed against
the Company in the Circuit Court of Cook County, Illinois, by the Plaintiff, The
Methodist  Medical  Center of Illinois.  The Plaintiff  alleged that the Company
interfered with various contractual relationships of the Plaintiff in connection
with the  referral  of certain  customers  to the  Company  by other  defendants
previously  sued by the  Plaintiff in the same  action.  The Company had filed a
cross  claim  against  the  other  defendants  in the  litigation  based on such
defendants' contractual obligation to indemnify the Company against any damages,
costs or expenses (including attorney fees) incurred by the Company, arising out
of any claim of contractual  interference  by the Company in connection with the
referral of the  customers to the Company by such  defendants.  The parties have
reached an agreement to settle the case, whereby the Company paid $75,000 with a
full release of all claims and a dismissal  order entered in October  2001.  The
Company will voluntarily  dismiss its indemnity claims against the co-defendants
for  reimbursement  of  the  $75,000  paid,  with  the  right  of  refiling  the
indemnification claim existing for one year. The Company will continue to pursue
its right of indemnification for the $75,000 during the next year.
<PAGE>

In January 1997,  the Company filed suit in Federal  District Court in Minnesota
against  Morgan  Capital  LLC,  David  Bistricer  and  Alex  Bistricer  alleging
violation  of  Section  16(b) of the  Securities  and  Exchange  Act of 1934 and
seeking recovery of more than $500,000 in short-swing profits. Messrs. David and
Alex Bistricer are former directors of the Company.  On August 4, 1997, the U.S.
District  Court  dismissed the Company's  complaint and on October 29, 1997, the
Company  filed an appeal of that  decision to the United States Court of Appeals
for the Eighth  Circuit.  On July 21,  1998,  the Eighth  Circuit  reversed  the
District Court dismissal and remanded the case to the District Court. On June 3,
1999 the U.S.  District  Court found that Morgan  Capital had  violated  Section
16(b) and ordered  Morgan  Capital to pay the Company  damages of $551,000  plus
interest.  On or about September 30, 2000 the parties entered into a Stipulation
and Mutual  Release  dismissing  with  prejudice  all  claims and  counterclaims
between the parties  regarding the transaction  other then the Company's Section
16(b) claim against the former stockholder,  Morgan Capital. The parties entered
into this Stipulation along with an Escrow Agreement requiring Morgan Capital to
deposit into escrow  79,750  shares of publicly  registered  common stock of the
Company as collateral to secure  payment by Morgan Capital of the judgment to be
entered in favor of the Company in the amount of $675,000 plus any post-judgment
interest.  The Federal  District  Court  entered  such  judgment in favor of the
Company on October 17, 2000.  Morgan Capital  subsequently  appealed the Federal
District Court's  decision to the Eighth Circuit Court of Appeals.  On August 3,
2001 the  Eighth  Circuit  Court  of  Appeals  ruled  in  favor of the  Company,
affirming the District  Court decision  awarding the Company  $675,000 plus post
judgment  interest.  Pursuant to the Escrow  Agreement,  Morgan Capital paid the
Company  $715,000 in cash to satisfy the judgment.  On November 1, 2001,  Morgan
Capital filed a petition for a writ of  certiorari to the United States  Supreme
Court,  seeking  review of the  judgment  against  it. The  Company is unable to
predict whether the Supreme Court will grant such review.

On October 26, 2000,  Harry McCoy was replaced as Chairman and  President of the
Company but  continued to receive  payments as an employee  under an  employment
agreement  with the Company.  In May 2001,  Mr. McCoy  commenced  employment  at
Hamilton Thorne  Biosciences,  Inc. as its President.  The Company and Mr. McCoy
disputed the effect of the  termination of his employment  with the Company.  In
September  2001, the Company  entered into an agreement with Mr. McCoy resolving
these issues.  The parties agreed to a mutual release of claims.  McCoy resigned
his  position  on the  Board of  Directors  and  agreed  to serve as an  ongoing
consultant to the Company. In exchange, the Company agreed to provide McCoy with
a lump sum  payment  of  $250,000,  and an  additional  amount  of  $250,000  in
restricted   common   stock.   In  exchange  for  McCoy's   ongoing   consulting
relationship,  he will receive  $35,000  annually over the next five years.  The
Company also advanced McCoy $102,500 in cash, subject to a five-year  promissory
note,  representing  the amount  necessary for McCoy to exercise his  previously
held options to 44,000 shares of the Company's common stock.


NOTE H - SUBSEQUENT EVENTS

On September 26, 2001, the Company's Board of Directors authorized a ten percent
stock dividend on the Company's common stock,  which will be paid on November 9,
2001 to stockholders of record on October 26, 2001.
<PAGE>

In October and November 2001, the Company received  approximately  $1.05 million
from private  placement of  subordinated  debt. The notes require payment of the
principal  amounts on  September  30,  2004.  Interest  at 10% per annum is paid
semi-annually on June 30 and December 31. In connection with the issuance of the
subordinated  notes,  the Company issued warrants to purchase a number of shares
of  common  stock  equal to 50% of the face  amount  of the  subordinated  notes
divided by an exercise price of $9.675 per share.

On  October  24,  2001,  the  Company  completed  the  acquisition  of  Leadtech
Corporation,  (Leadtech), a private company operating as an independent clinical
laboratory devoted primarily to the examination of blood lead  concentrations in
pediatric patients. For the year ended December 31, 2000, Leadtech had unaudited
net  revenue  of  approximately  $1.8  million  and  unaudited  earnings  before
interest, taxes, depreciation and amortization, adjusted for certain shareholder
distributions,  of $1.0  million.  Operations  at the  Leadtech  facility in New
Jersey will cease within 90 days from the acquisition date, and all testing will
be  performed in the MEDTOX  laboratory  facility in St.  Paul,  Minnesota.  The
purchase  price of $6.2 million  consisted of $2.5 million in cash, the issuance
of $2.5  million  of the  Company's  common  stock  and $1.2  million  of seller
financing  payable over 24 months.  The initial cash payment of $2.5 million was
funded primarily from proceeds  received from private  placement of subordinated
debt in October 2001, net proceeds from the legal settlement with Morgan Capital
LLC, and operating cash flows.

<PAGE>



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        our inability to obtain appropriate licenses from third parties,
         protect our trade secrets, operate without infringing upon the
         proprietary rights of others, or prevent others from infringing on our
         proprietary rights

o        our inability to obtain sufficient financing to continue to expand o
         perations

o        changes in demand for products and services by our customers

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

o        adverse results in litigation matters

o        our inability to attract and retain experienced and qualified
         personnel

o        failure to maintain our days sales outstanding levels

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  to  succeed  the  operations  of  a  predecessor
California   corporation.   MEDTOX   Scientific,   Inc.  and  its   wholly-owned
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 manufacturing and distribution of diagnostic  devices is carried
on by MEDTOX Diagnostics,  Inc. from its facility in Burlington,  North Carolina
and the business of forensic and  clinical  laboratory  services is conducted by
MEDTOX Laboratories, Inc. at its facility in St. Paul, Minnesota.

The Company has two reportable segments:  "Laboratory Services" conducted by the
Company's  wholly owned  subsidiary,  MEDTOX  Laboratories,  Inc. and  "Products
Sales" conducted by the Company's wholly owned  subsidiary  MEDTOX  Diagnostics,
Inc. Laboratory Services include forensic toxicology,  clinical toxicology,  and
heavy metal analyses as well as logistics,  data, and overall program management
services. Product Sales include sales of a variety of on-site screening products
and contract  manufacturing.  For the three and nine months ended  September 30,
2001,  Laboratory Services revenue accounted for 75% and 78%,  respectively,  of
the Company's revenues,  compared with 80% and 83% for the same periods in 2000.
Revenue from Product Sales  accounted  for 25% and 22% of the total  revenues of
the  Company  for  the  three  and  nine  months  ended   September   30,  2001,
respectively, compared with 20% and 17% for the same periods in 2000.


Results of Operations

The Company achieved record revenues and net income for the three and nine-month
periods  ended  September  30,  2001.  Revenues  for the third  quarter  of 2001
increased  9%  over  the  third  quarter  of  2000,   driven  by  sales  of  the
PROFILE(R)-II Test System and the expanding VERDICT(R)-II product line. Selling,

<PAGE>

general, and administrative expenses in the third quarter of 2001 decreased as a
percentage of sales to 28.5% from 32.3% in the same quarter in 2000,  reflecting
continued  efforts taken to reduce  operating  costs.  The following  table sets
forth the  percentages of total revenues  represented by certain items reflected
in the Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>

                                                  Three Months Ended                     Nine Months Ended
                                                       September 30,                       September 30,
                                                  2001              2000              2001             2000
-------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>                 <C>            <C>
   Revenues                                      100.0%            100.0%            100.0%            100.0%
   Cost of revenues                               60.3              59.2              61.4              61.0
   Operating expenses:
     Selling, general, and administrative         28.5              32.3              27.7              30.3
     Research and development                      2.6               2.3               2.6               2.5
                                               ----------       -----------        ----------       ----------
                                                  31.1              34.6              30.3              32.8
   Other expense                                   2.3               2.1               2.3               2.3
                                               ----------       -----------        ----------       ----------
   Net income                                      6.3%              4.1%              6.0%              3.9%
                                               ==========       ===========        ==========       ==========
</TABLE>


Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000

Revenues

Revenues  increased 9% to $12.6 million for the three months ended September 30,
2001, driven by a $0.8 million,  or 32% increase in Product Sales revenues and a
$0.2 million, or 3% increase in Laboratory Services revenues.

The Product Sales segment  achieved  higher  revenues due to increased  sales of
substance  abuse testing  products,  partially  offset by a slight  reduction in
sales of contract manufacturing  services and agricultural  diagnostic products.
Product sales from substance  abuse testing  products,  which  incorporates  the
EZ-SCREEN(R),  PROFILE(R)-II  and  VERDICT(R)-II  on-site  test  kits and  other
ancillary  products  for the  detection  of abused  substances,  increased  $0.8
million to $2.8 million in the third quarter of 2001. This growth  reflected the
sales and  marketing  efforts  for the  Company's  second-generation  test kits,
PROFILE(R)-II and VERDICT(R)-II. The VERDICT(R)-II was developed for the prison,
probation, parole and rehabilitation markets. The VERDICT(R)-II product line now
consists  of 18  different  configurations  to detect  from one to five drugs of
abuse.  In September  2001, the Company  entered into new  agreements  with four
additional  states for the sale of its VERDICT(R)-II  devices,  with shipping of
the product  beginning  in October  2001.  The Company  continues to develop new
products for the detection of abused  substances,  including  the  PROFILE(R)-ER
device.  The  PROFILE(R)-ER  device is an on-site,  nine  drugs-of-abuse  panel,
targeted  at  hospital   laboratories  for  emergency   response   screening  in
drugs-of-abuse   overdose   situations.   The   Company   currently   sells  the
PROFILE(R)-ER  device through its direct sales force and has signed an agreement
with a  leading  supplier  of  medical,  surgical  and  laboratory  supplies  to
distribute the PROFILE(R)-ER  product line into the hospital market. The Company
is also in discussions with other major buying groups and distributors that have
expressed  interest  in the  PROFILE(R)-ER  device.  In  addition  to the recent
development of the PROFILE(R)-ER  device, the Company currently  anticipates the
introduction of a significant  enhancement to the existing  PROFILE(R)-II device
in the fourth quarter of 2001.
<PAGE>

Product sales from  agricultural  diagnostic  products  decreased 59% to $34,000
primarily  as a result  of  decreased  purchases  by the USDA for the  Company's
products. The USDA's needs for the Company's products vary from year-to-year and
sales to the USDA are  expected  to  fluctuate  accordingly.  Sales of  contract
manufacturing services,  microbiological and associated products decreased 5% to
$324,000  due to  decreased  revenues  from both  historical  customers  and new
customers.

The slight  growth in  Laboratory  Services  revenues was  primarily due to a 2%
increase in the number of  laboratory  tests  performed.  Sample volume from the
Company's  occupational health,  wellness and esoteric testing clients increased
34%  compared  to  the  third  quarter  of  2000.  The  Company's  research  and
development  group  continues  to  improve  and add to the over 900  proprietary
bio-analytical  assays that have been developed.  In the past,  these tests have
largely been marketed to  hospitals,  clinics and other  laboratories.  However,
more  recently,  the  Company  has  increased  its  efforts  to apply  the assay
development  skills to the bio-analytical  needs of the  pharmaceutical  market.
Despite the overall favorable sales trend within the Laboratory operations,  the
slowing  economy and the impact of the tragic events  occurring on September 11,
2001 caused  testing  volume from  existing  occupational  health and  corporate
clients  to be  below  expectations.  However,  this  impact  has  been  largely
mitigated  by  the   Company's   continued   success  in  acquiring  new  client
relationships.  The Company  believes that the current lower testing volume from
existing  clients will continue to be offset by successful  sales efforts to new
clients.

Gross profit

Consolidated  gross margin was 39.7% for the three months  ended  September  30,
2001  compared  to 40.8% for the same  period in 2000,  reflecting  a decline in
Laboratory  Services gross margin,  partially offset by a slight  improvement in
Product Sales gross margin.

Laboratory  Services gross margin was 29.0% for the three months ended September
30, 2001,  down from 33.0% for the three months ended  September  30, 2000.  The
decline  in the gross  margin  was  primarily  attributable  to higher  specimen
collection costs and increased employee health insurance costs.

Gross  margin from Product  Sales of 72.0% for the three months ended  September
30, 2001 was up slightly from gross margin of 71.0% for the same period of 2000.

Selling, general and administrative expenses

Selling,  general and  administrative  expenses were $3.6  million,  or 28.5% of
revenues for the three months ended September 30, 2001, compared to $3.7 million
or 32.3% of revenues in the same period of 2000.  The decrease in the percentage
of revenues and in absolute  dollars  primarily  reflects the continued  efforts
taken to reduce overall operating costs.

Selling,  general and administrative  expenses were also positively  impacted by
the  settlement  in September  2001 of the dispute with Mr. McCoy  regarding the
effect of the  termination  of his employment  with the Company.  At the time of
settlement,  the Company  had an accrual of  approximately  $450,000  for future
payments of  compensation  pursuant to Mr.  McCoy's  employment  contract.  As a

<PAGE>

result of the agreement  between the Company and Mr. McCoy (as discussed in Note
G of Notes to Consolidated Financial Statements),  the Company agreed to provide
Mr.  McCoy  with a lump sum  payment  of  $250,000.  The  remaining  accrual  of
approximately $200,000 was reversed.

Other expense

Other expense consisted primarily of interest expense, which remained relatively
stable. Other expense in the three months ended September 30, 2001 also included
a loss of $29,000 from the Company's rental activities.

Net income

In the three months ended September 30, 2001, the Company recorded net income of
$0.8  million  compared  to $0.5  million  in the  same  period  of  2000.  This
improvement was driven by a 9% increase in consolidated revenues and a reduction
in selling, general, and administrative expenses.

Laboratory  Services  net income was $0.3  million  for the three  months  ended
September 30, 2001 compared to a loss of $56,000 during the same period of 2000.
This improvement was primarily driven by the reduction in selling,  general, and
administrative  expenses,  reflecting efforts taken to reduce operating costs as
well as the $200,000 accrual reversal related to the settlement with Mr. McCoy.

Product  Sales net income of $0.5 million for the three  months ended  September
30, 2001 remained consistent with net income in the same period of 2000.


Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000

Revenues

Revenues  increased 13% to $36.7 million for the nine months ended September 30,
2001, driven by a $2.4 million,  or 43% increase in Product Sales revenues and a
$1.8 million, or 7% increase in Laboratory Services revenues.

The Product Sales segment  achieved  higher  revenues due to increased  sales of
substance  abuse testing  products,  partially  offset by a slight  reduction in
sales of contract manufacturing  services and agricultural  diagnostic products.
Product sales from substance  abuse testing  products,  which  incorporates  the
EZ-SCREEN(R),  PROFILE(R)-II  and  VERDICT(R)-II  on-site  test  kits and  other
ancillary  products  for the  detection  of abused  substances,  increased  $2.7
million to $6.9 million in the first nine months of 2001. This growth  reflected
the sales and marketing efforts for the Company's  second-generation  test kits,
PROFILE(R)-II and VERDICT(R)-II. The VERDICT(R)-II was developed for the prison,
probation, parole and rehabilitation markets. The VERDICT(R)-II product line now
consists  of 18  different  configurations  to detect  from one to five drugs of
abuse.  In September  2001, the Company  entered into new  agreements  with four
additional  states for the sale of its VERDICT(R)-II  devices,  with shipping of
the product  beginning  in October  2001.  The Company  continues to develop new

<PAGE>

products for the detection of abused  substances,  including  the  PROFILE(R)-ER
device.  The  PROFILE(R)-ER  device is an on-site,  nine  drugs-of-abuse  panel,
targeted  at  hospital   laboratories  for  emergency   response   screening  in
drugs-of-abuse   overdose   situations.   The   Company   currently   sells  the
PROFILE(R)-ER  device through its direct sales force and has signed an agreement
with a  leading  supplier  of  medical,  surgical  and  laboratory  supplies  to
distribute the PROFILE(R)-ER  product line into the hospital market. The Company
is also in discussions with other major buying groups and distributors that have
expressed  interest  in the  PROFILE(R)-ER  device.  In  addition  to the recent
development of the PROFILE(R)-ER  device, the Company currently  anticipates the
introduction of a significant  enhancement to the existing  PROFILE(R)-II device
in the fourth quarter of 2001.

Product  sales  from  agricultural  diagnostic  products  decreased  27% to $0.3
million  primarily  as a  result  of  decreased  purchases  by the  USDA for the
Company's  products.  The  USDA's  needs for the  Company's  products  vary from
year-to-year and sales to the USDA are expected to fluctuate accordingly.  Sales
of contract  manufacturing  services,  microbiological  and associated  products
decreased  16% to $0.8 million due to decreased  revenues  from both  historical
customers and new customers.

The slight  growth in  Laboratory  Services  revenues was primarily due to a 10%
increase in the number of  laboratory  tests  performed.  Sample volume from the
Company's  occupational health,  wellness and esoteric testing clients increased
38%  compared  to the first nine  months of 2000.  The  Company's  research  and
development  group  continues  to  improve  and add to the over 900  proprietary
bio-analytical  assays that have been developed.  In the past,  these tests have
largely been marketed to  hospitals,  clinics and other  laboratories.  However,
more  recently,  the  Company  has  increased  its  efforts  to apply  the assay
development  skills to the bio-analytical  needs of the  pharmaceutical  market.
Despite the overall favorable sales trend within the Laboratory operations,  the
slowing  economy and the impact of the tragic events  occurring on September 11,
2001 caused  testing  volume from  existing  occupational  health and  corporate
clients  to be  below  expectations.  However,  this  impact  has  been  largely
mitigated  by  the   Company's   continued   success  in  acquiring  new  client
relationships.  The Company  believes that the current lower testing volume from
existing  clients will continue to be offset by successful  sales efforts to new
clients.

Gross profit

Consolidated gross margin was 38.6% for the nine months ended September 30, 2001
compared  to 39.0%  for the  same  period  in  2000,  reflecting  a  decline  in
Laboratory  Services gross margin,  partially offset by a slight  improvement in
Product Sales gross margin.

Laboratory  Services gross margin was 31.5% for the nine months ended  September
30, 2001,  down from 34.0% for the same period in 2000. The decline in the gross
margin  was  primarily  attributable  to higher  specimen  collection  costs and
increased employee health insurance costs.

Gross margin from Product Sales of 64.0% for the nine months ended September 30,
2001 was up slightly from gross margin of 63.3% for the same period of 2000.
<PAGE>

Selling, general and administrative expenses

Selling,  general and  administrative  expenses were $10.2 million,  or 27.7% of
revenues for the first nine months of 2001, compared to $9.9 million or 30.3% of
revenues in the same period of 2000.  The decrease in the percentage of revenues
primarily  reflects  efforts taken to reorganize the  laboratory  operations and
reduce overall operating costs.

Selling,  general and administrative  expenses were also positively  impacted by
the  settlement  in September  2001 of the dispute with Mr. McCoy  regarding the
effect of the  termination  of his employment  with the Company.  At the time of
settlement,  the Company  had an accrual of  approximately  $450,000  for future
payments of  compensation  pursuant to Mr.  McCoy's  employment  contract.  As a
result of the agreement  between the Company and Mr. McCoy (as discussed in Note
G of Notes to Consolidated Financial Statements),  the Company agreed to provide
Mr.  McCoy  with a lump sum  payment  of  $250,000.  The  remaining  accrual  of
approximately $200,000 was reversed.

The  increase  in  the   absolute   dollar   amount  of  selling,   general  and
administrative  expenses was  attributable  to the higher  revenue  level in the
first nine months of 2001.

Other expense

Other expense consisted primarily of interest expense, which remained relatively
stable.  Other expense in the nine months ended September 30, 2001 also included
a loss of $77,000 from the Company's rental activities.

Net income

In the nine months ended September 30, 2001, the Company  recorded net income of
$2.2  million  compared  to $1.3  million  in the  same  period  of  2000.  This
improvement  was  driven  by a  13%  increase  in  consolidated  revenues  and a
reduction in selling,  general,  and administrative  expenses as a percentage of
revenues.

Laboratory  Services  net  income was $1.1  million  for the nine  months  ended
September 30, 2001 compared to $0.6 million during the same period of 2000. This
improvement  was  primarily  driven by the  reduction in selling,  general,  and
administrative  expenses,  reflecting efforts taken to reduce operating costs as
well as the $200,000 accrual reversal related to the settlement with Mr. McCoy.

Product  Sales net  income of $1.1  million  in the  first  nine  months of 2001
compared  to $0.6  million  in the same  period of 2000.  This  improvement  was
primarily attributable to the growth in sales and an improved gross margin.

Liquidity and Capital Resources

The working capital  requirements  of the Company have been funded  primarily by
cash received from bank financing and the sale of equity securities.

Net cash provided by operating activities was $0.9 million for the nine months
ended September 30, 2001 compared to net cash used in operating activities of

<PAGE>

$2.9  million  in the same  period of 2000.  The  increase  in cash used of $3.8
million was primarily due to an  improvement in net income of $0.9 million and a
reduction  in  inventory  and  accounts  receivable  trends.   Inventory  levels
increased  $0.4 million from December 31, 2000 to September 30, 2001 compared to
an increase of $1.3 million from  December 31, 1999 to September  30, 2000.  The
increase in  inventory  levels in the prior year period was  attributable  to an
increase in forecasted sales for the fourth quarter of 2000. Accounts receivable
increased  $2.5 million from December 31, 2000 to September 30, 2001 compared to
an increase of $3.1  million  from  December  31, 1999 to  September  30,  2000,
reflecting  increased  collection efforts in the current year in response to the
slowing economy.  The change in cash provided by operations was also affected by
a reduction in accounts payable in the prior year period.

Net cash used in investing activities,  consisting of capital expenditures,  was
$7.8 million for the nine months ended  September 30, 2001, up from $3.1 million
in the same period of 2000.  In March of 2001,  the Company  purchased the three
building,  129,039  square  foot  complex  in St.  Paul,  Minnesota,  where  the
Company's  laboratory  segment  formerly leased 53,576 square feet. The purchase
price,  exclusive  of expenses  and  closing  costs,  was $6.35  million and was
financed by a mortgage loan from Principal Life Insurance Company of Des Moines,
Iowa in the amount of $6.2  million.  The mortgage  loan has a term of ten years
and is being  repaid  based on a 20-year  amortization  schedule  with a balloon
payment at the end of the ten-year term. The interest rate is fixed at an annual
rate of  7.23%  for the  first  five  years  at  which  time  the  rate  will be
renegotiated by the parties.  The facility includes other commercial tenants who
have individual  leases that range from 4 years to less then 1 year in duration.
The  current  annual  rent paid by such third  party  tenants,  excluding  their
pro-rata share of operating  expenses,  is approximately  $431,000 per year. See
Note E of Notes to Consolidated Financial Statements.

Net cash  provided by  financing  activities  of $6.7  million in the first nine
months of 2001 was  principally  associated  with  proceeds  received  under the
mortgage  loan  discussed  above  and the  Company's  credit  agreement  for the
purchase of capital  equipment.  In  addition,  in September  2001,  the Company
received net proceeds of $0.6 million as  settlement  in the  Company's  lawsuit
against Morgan Capital LLC under Section 16(b) of the Securities Exchange Act of
1934.  Net cash  provided by financing  activities  of $5.4 million in the first
nine months of 2000 primarily  represented  net proceeds of  approximately  $4.9
million from the Company's  private equity placement during the third quarter of
2000.

In January 1998, the Company entered into a Credit Security Agreement (the Wells
Fargo Credit  Agreement) with Wells Fargo Business Credit,  Inc. The Wells Fargo
Credit  Agreement,  as amended,  consists  of (i) a term loan of $3.185  million
bearing interest at prime + 1.25%;  (ii) a revolving line of credit,  payable on
demand,  of not more than $6.0 million or 85% of the  Company's  eligible  trade
accounts receivable bearing interest at prime + 1%; and (iii) a capex note of up
to $3.5 million for the purchase of capital  equipment bearing interest at prime
+ 1.25% and (iv)  availability of letters of credit in amounts not to exceed the
lesser of  $300,000  (less  outstanding  letters of  credit)  or the  unborrowed
portion of the revolving line of credit (less outstanding letters of credit).

The  Company is relying on  expected  positive  cash flow from  operations,  the
revolving line of credit,  and the capex note to fund its future working capital
and asset  purchases.  The amount of credit on the  revolving  line of credit is
based primarily on the receivables of the Company and, as such,  varies with the

<PAGE>

accounts receivable, and to a lesser degree, the inventory of the Company. As of
September 30, 2001, the Company had total borrowing  capacity of $6.0 million on
its  line  of  credit,  of  which  $3.2  million  was  borrowed,  leaving  a net
availability of $2.8 million as of September 30, 2001.

In addition to the Company's present financing sources,  in October and November
2001, the Company received approximately $1.05 million from private placement of
subordinated  debt.  The notes  require  payment  of the  principal  amounts  on
September 30, 2004.  Interest at 10% per annum is paid  semi-annually on June 30
and December 31. In connection with the issuance of the subordinated  notes, the
Company issued  warrants to purchase a number of shares of common stock equal to
50% of the face amount of the subordinated notes divided by an exercise price of
$9.675 per share.

In the short term, the Company believes that the aforementioned  capital will be
sufficient to fund the Company's  planned  operations  through 2001. While there
can be no assurance  that the  available  capital will be sufficient to fund the
future  operations of the Company beyond 2001, 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.

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
not been  material  to date 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.


<PAGE>


Item 3            QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
                  MARKET RISK.

Market  risk is the risk that the  Company  will  incur  losses  due to  adverse
changes in interest rates or currency  exchange rates and prices.  The Company's
primary market risk exposures are to changes in interest rates.  During 2000 and
through  September  30,  2001,  the  Company did not have sales  denominated  in
foreign  currencies  nor  did  it  have  any  subsidiaries  located  in  foreign
countries.  As such, the Company is not exposed to market risk  associated  with
currency exchange rates and prices.

The Company had $575,000 of subordinated  notes  outstanding as of September 30,
2001 and December  31,  2000,  at a fixed  interest  rate of 12% per annum.  The
Company  also had  capital  leases at  various  fixed  rates.  In  addition,  at
September  30,  2001,  the Company had a $6.1 million  mortgage  loan payable to
Principal Life  Insurance  Company at a fixed annual rate of 7.23% for the first
five years at which time the rate will be  renegotiated  by the  parties.  These
financial  instruments  are subject to interest  rate risk and will  increase or
decrease in value if market interest rates change.

The Company had approximately  $6.6 million and $7.0 million  outstanding on its
line of credit and long-term debt issued under the Wells Fargo Credit  Agreement
as of September 30, 2001 and December 31, 2000, respectively. The debt under the
Wells Fargo Credit Agreement is held at variable interest rates. The Company has
cash flow exposure on its committed and uncommitted line of credit and long-term
debt due to its variable prime rate pricing.  At September 30, 2001 and December
31,  2000,  a 1% change in the prime  rate  would  not  materially  increase  or
decrease interest expense or cash flows.


<PAGE>


PART II  OTHER INFORMATION

ITEM 1   LEGAL PROCEEDINGS.   See Part I, Note G

ITEM 2   CHANGES IN SECURITIES.  Inapplicable

ITEM 3   DEFAULTS ON SENIOR SECURITIES.  Inapplicable

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.

The Annual Meeting of the stockholders of the Company was held on September 26,
2001. The following items were approved by a vote of the stockholders.

     1.  The  following  individuals  were  elected  to  serve  on the  Board of
Directors of the Company for three year terms or until their successors are duly
elected and qualified: James W. Hansen and Brian P. Johnson.

     2. By a vote of 2,942,987 in favor and 290,214 against, the stockholders of
the  Company   approved  the  amendment  to  Article  FOURTH  of  the  Company's
Certificate  of  Incorporation  to increase its number of  authorized  shares of
Common Stock from 7,400,000 to 14,400,000  shares.  57,097 shares were abstained
or did not vote.

During the quarter ended September 30, 2001, no other matters were submitted to
a vote of securities holders.

ITEM 5   OTHER INFORMATION.  Inapplicable

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K.

         a.       Exhibits:

               4.4 Form of 10%  Subordinated  Notes issued by the  Registrant in
          October and November 2001 to raise an aggregate amount of $1.5 million
          in subordinate debt, all with a maturity of September 30, 2001.

               4.5  Form of  Warrant  accompanying  the 10%  Subordinated  Notes
          issued in October and November 2001.

b.       Reports on Form 8-K:

          On August 14, 2001, the Company  announced that on August 3, 2001, the
          United  States Court of Appeals for the Eighth  Circuit ruled in favor
          of MEDTOX in the Company's  lawsuit  against  Morgan Capital LLC under
          Section 16 (b) of the Securities Exchange Act of 1934.


<PAGE>



                                   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,   November 14, 2001
---------------------   Chairman of the Board of Directors
Richard J. Braun        (Principal Executive Officer)

/s/ Kari L. Golembeck   Controller (Principal Accounting      November 14, 2001
---------------------   Officer)
Kari L. Golembeck