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 June 30, 1998

                                       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:           (612) 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 July 28,
1998 was 57,956,527.

<PAGE>


                             MEDTOX SCIENTIFIC, INC.

                                      INDEX

                                                                         Page

Part I    Financial Information:

          Item 1:

               Consolidated Balance Sheets - June 30, 1998 (Unaudited)
               and December 31, 1997 ..................................... 3

               Consolidated Statements of Operations - Three Months
               Ended June 30, 1998 and 1997 and Six
               Months Ended June 30, 1998 and 1997 (Unaudited) ........... 5

               Consolidated Statements of Cash Flows - Six Months
               Ended June 30, 1998 and 1997 (Unaudited) .................. 6

               Notes to Consolidated Financial Statements ................ 7

          Item 2:

               Management's Discussion and Analysis of
               Financial Condition and Results of Operations ............ 10

Part II   Other Information ............................................. 15
               Signatures ............................................... 16


<PAGE>


PART I. FINANCIAL INFORMATION

<TABLE>




                             MEDTOX SCIENTIFIC, INC.
                           CONSOLIDATED BALANCE SHEETS
                   (In thousands, except for number of shares)

<CAPTION>

                                            June 30             December 31
                                             1998                  1997
                                          ----------------------------------
                                           (Unaudited)
<S>                                       <C>                   <C>

Assets
Current assets
  Cash and cash equivalents                $     56            $     58
  Accounts receivable:
    Trade, less allowance for doubtful
      accounts (1998--$241; 1997--$514)       6,544               5,443
    Other                                        88                 110
                                          ----------------------------------
                                              6,632               5,553
  Inventories:
    Raw materials                               506                 414
    Work in process                             145                 134
    Finished goods                              535                 594
                                          ----------------------------------
                                              1,186               1,142

  Prepaid expenses and other                    493                 415
                                          ----------------------------------


    Total current assets                      8,367               7,168



Equipment and improvements:
  Furniture and equipment                    11,177              10,669
  Leasehold improvements                      1,265               1,243
                                          ----------------------------------
                                             12,442              11,912

  Less accumulated depreciation
    and amortization                         (9,350)             (8,946)
                                          ----------------------------------
                                              3,092               2,966

Goodwill, net of accumulated amortization of
  $2,683 in 1998 and $2,273 in 1997          14,408              14,747

                                          ----------------------------------


Total assets                               $ 25,867            $ 24,881
                                          ==================================



See notes to consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>


                             MEDTOX SCIENTIFIC, INC.
                     CONSOLIDATED BALANCE SHEETS (Continued)
                   (In thousands, except for number of shares)

<CAPTION>

                                             June 30             December 31
                                              1998                  1997
                                           -----------------------------------
                                           (Unaudited)
<S>                                        <C>                 <C>    

Liabilities and stockholders' equity
Current liabilities
 Line of credit                            $   3,720           $   3,572
 Accounts payable                              3,480               3,768
 Accrued expenses                              1,131               1,326
 Current portion of restructuring accrual        414                 521
 Current portion of long-term debt             1,214               1,451
 Current portion of capital lease obligations    115                 112
                                           -----------------------------------

  Total current liabilities                   10,074              10,750


Long-term portion of restructuring accrual       257                 265
Long-term portion of debt obligations          1,328                   -
Capital lease obligations                        265                 295

Stockholders' equity
 Preferred Stock, $1.00 par value:
  Authorized - 1,000,000 shares;
  Issued and outstanding -
  0 shares in 1998 and 4 in 1997                   -                   -
 Common Stock, $ .15 par value:
  Authorized - 60,000,000 shares;
  Issued and outstanding -
  57,949,913 shares in 1998 and
  56,828,173 shares in 1997                    8,692               8,525
 Additional paid-in capital                   51,516              51,673
 Accumulated deficit                         (46,089)            (46,451)
                                           -----------------------------------

                                              14,119              13,747

 Less: Treasury stock                           (176)               (176)
                                           -----------------------------------

   Total stockholders' equity                 13,943              13,571


Total liabilities and stockholders' equity $  25,867           $  24,881
                                           ===================================


See notes to consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>


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

<CAPTION>

                                                         Three Months Ended                      Six Months Ended
                                                    June 30              June 30            June 30              June 30
                                                     1998                  1997               1998                 1997
                                                 --------------------------------------  ------------------------------------
                                                  (Unaudited)          (Unaudited)        (Unaudited)          (Unaudited)
<S>                                              <C>                  <C>                <C>                  <C>       

Revenues
   Laboratory service revenues                   $   7,307            $   6,779          $   13,854           $   12,922
   Product sales                                       599                  707               1,131                1,367
                                                 --------------------------------------  ------------------------------------
                                                     7,906                7,486              14,985               14,289

   Cost of services                                  4,792                4,297               9,080                8,282
   Cost of sales                                       413                  445                 765                  884
                                                 --------------------------------------   ------------------------------------
                                                     5,205                4,742               9,845                9,166

                                                 --------------------------------------   ------------------------------------

          Gross profit                               2,701                2,744               5,140                5,123

Operating expenses
   Selling, general and administrative               1,953                2,277               3,867                4,303
   Research and development                            288                  205                 595                  411
                                                 --------------------------------------   ------------------------------------
                                                     2,241                2,482               4,462                4,714
Other expenses
   Interest and finance costs, net                     177                  160                 317                  276
                                                 --------------------------------------   ------------------------------------

Net income                                       $     283            $     102           $     361           $      133
                                                 ======================================   ====================================


Basic net earnings per common share              $    0.00            $    0.00           $    0.01           $     0.00
                                                 ======================================   ====================================


Average number of basic
  common shares outstanding                      57,940,659           50,744,126          57,773,325          46,912,629
                                                 ======================================   ====================================

Diluted net earnings per common share            $    0.00            $    0.00           $    0.01           $     0.00
                                                 ======================================   ====================================

Average number of diluted
  common shares outstanding                      57,940,659           50,744,126          57,773,325          46,912,629
                                                 ======================================   ====================================


See notes to consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>


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

<CAPTION>
                                                                       Six Months Ended
                                                                 June 30              June 30
                                                                   1998                 1997
                                                            ------------------------------------
                                                              (Unaudited)          (Unaudited)
<S>                                                          <C>                   <C>                

Operating activities
Net income                                                   $      361            $      133
   Adjustments to reconcile net income to net cash
    used in operating activities:
      Depreciation and amortization                               1,027                   964
      Provision for losses on accounts receivable                     -                     4
      Provision for obsolete inventory                                -                   (97)
      Changes in operating assets and liabilities,
         net of acquisition:
         Accounts receivable                                     (1,080)                 (848)
         Inventories                                                (44)                   14
         Prepaid expenses and other                                 (78)                 (264)
         Accounts payable, accrued expenses and other              (481)                 (247)
         Restructuring accruals                                    (107)                 (417)
                                                            ------------------------------------
Net cash used in operating activities                              (402)                 (758)

Investing activities
    Purchases of equipment and improvements                        (677)                 (528)
                                                            ------------------------------------
Net cash used in investing activities                              (677)                 (528)

Financing activities
    Net proceeds from sale of common stock                           12                    32
    Net proceeds from line of credit, term loans
       and notes payable                                          6,290                 1,878
    Principal payments on capital lease obligations                 (94)                  (18)
    Principal payments on term loans and notes payable           (5,131)                 (669)
                                                            ------------------------------------
Net cash provided by financing activities                         1,077                 1,223
                                                            ------------------------------------

Increase in cash and cash equivalents                                (2)                  (63)
Cash and cash equivalents at beginning of period                     58                    82
                                                            ------------------------------------

Cash and cash equivalents at end of period                   $       56           $        19
                                                            ====================================

Supplemental noncash activities
    During 1998, the Company entered into capital lease obligations of $58,300 to purchase equipment.
    During 1997, the Company entered into capital lease obligations of $320,000 to purchase equipment.
    During 1997, the Company converted 234 shares of preferred stock into 22,001,232 shares of common stock.

See notes to consolidated financial statements.
</TABLE>

<PAGE>



                             MEDTOX SCIENTIFIC, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1998

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
of normal recurring  accruals)  considered  necessary for a fair presentation of
financial  condition and results of  operations  have been  included.  Operating
results  for the six  month  period  ended  June 30,  1998  are not  necessarily
indicative of the results that may be attained for the entire year.  For further
information, refer to the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K, (as amended),  for the year ended December
31, 1997.

Earnings Per Share:  In 1997, the Financial  Accounting  Standards  Board issued
Statement No. 128,  "Earnings Per Share." Statement 128 replaced the calculation
of primary and fully diluted  earnings per share.  Unlike  primary  earnings per
share,  basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants and  convertible  securities.  All  earnings per share  amounts for all
periods  have been  presented,  where  appropriate,  and  restated to conform to
Statement 128 requirements.

Options and warrants to purchase  5,382,412 shares of common stock at a range of
$.4375 to $8.19 were  outstanding  at June 30, 1998 but were not included in the
computation of the diluted earnings per share because the options' and warrants'
exercise price was greater than the average market price of the common shares.

Reclassifications:  Certain reclassifications have been made to the 1997 
financial statements to conform with 1998 presentation.

Segment  Disclosures:  In 1997, the Financial  Accounting Standards Board issued
Statement No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information."  This Statement  requires that public business  enterprise  report
financial and descriptive  information about is reportable  operating  segments.
This  Statement  need not be  applied  to interim  financial  statements  in the
initial year of its application,  thus the Company has not determined the effect
of applying this Statement.

NOTE B -- ACQUISITION OF MEDTOX LABORATORIES, INC. ("MEDTOX")

On January 30,  1996,  the Company  acquired  MEDTOX,  a  toxicology  laboratory
located in St.  Paul,  Minnesota.  The  purchase  price was $24  million,  which
included $19 million cash and the issuance of 2,517,306  shares of common stock.

<PAGE>

The  acquisition  was  accounted  for under the  purchase  method of  accounting
wherein the  Company  recognized  approximately  $22  million in  goodwill.  The
goodwill is being amortized over a period of 20 years. Utilizing an undiscounted
cash  flow  analysis,  the  Company  concluded  that the  carrying  value of the
remaining goodwill associated with the MEDTOX acquisition exceeded the estimated
future cash flows.  Accordingly,  the Company recorded a write-off of $6,016,000
at December 31, 1996.

The Company  financed  the  acquisition  by issuing  $20 million of  convertible
preferred  stock and borrowing $4 million  under two $2 million term loans.  The
Company  also  entered  into a revolving  line of credit of up to $7 million for
working capital purposes.

NOTE C -- DEBT

On January 14, 1998,  the Company  entered into a Credit and Security  Agreement
(the "Credit  Agreement") with Norwest Business Credit  ("Norwest").  The Credit
Agreement consists of (i) a term loan of $2,125,000 which matures on January 15,
2001,  (ii) a term loan of $700,000  which matures on January 15, 1999,  (iii) a
revolving line of credit based upon the balance of the Company's  trade accounts
receivable,  and (iv) a note of up to  $1,200,000  for the  purchase  of capital
equipment for 1998.  The term loan of $2,125,000  carries an interest rate equal
to  1.25%  above  the  publicly  announced  rate of  interest  by  Norwest  Bank
Minnesota,  N.A.  (the "Base Rate",  8.5% at June 30, 1998) as does the note for
capital expenditures. The $700,000 term loan has an interest rate equal to 3.00%
above the Base Rate.  The revolving line of credit has an interest rate of 1.00%
above the Base Rate. The Company utilized $4.5 million of the proceeds  received
from Norwest to pay off the outstanding loan balances owed to its former lender.

As of June 30, 1998, the Company was not in compliance with certain covenants in
its Credit  Agreement  with  Norwest.  The Company  and  Norwest  are  currently
renegotiating  the terms of the Credit  Agreement  to address any loan  covenant
violations.

NOTE D -- CONTINGENCIES

The Company is a defendant to claims of patent  infringement  asserted on August
20, 1996. It is alleged the Company infringes two patents allegedly owned by the
plaintiff  relating to  forensically  acceptable  determinations  of gestational
fetal exposure to drugs and other chemical agents.  The Company has answered the
complaint  denying any  infringement  and has  counterclaimed  for a declaratory
judgment that the patents are invalid, unenforceable, and not infringed. It also
has   counterclaimed  for  unfair  competition  under  federal  and  state  law,
requesting money damages as well as injunctive  relief.  The Company,  while not
abandoning its legal recourse,  has recently entered into settlement discussions
with the plaintiff.  The Company  believes that the probable  resolution of this
matter  will  not  materially  affect  the  financial  position  or  results  of
operations of the Company.

<PAGE>

On January  31,  1997,  the  Company  filed suit in  Federal  District  Court in
Minnesota against a majority shareholder and two former outside directors of the
Company alleging violation of Section 16b of the Securities Exchange Act of 1934
and seeking recovery of more than $500,000 in short-swing  profits. On August 4,
1997,  the U.S.  District  Court granted the  Defendants'  motion to dismiss the
Company's  complaint,  ruling  the  Defendants'  conduct  did not  constitute  a
violation of Section 16b. 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 24, 1998, the Eighth  Circuit  United States Court of Appeals  reversed the
lower court's dismissal of the Company's  complaint and remanded the case to the
District  Court for  further  proceedings.  The  Company  intends  to pursue the
litigation.

               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.  These  risks  and
uncertainties include price competition, the decisions of customers, the actions
of  competitors,  the effects of government  regulation,  possible delays in the
introduction of new products,  customer acceptance of products and services, the
possible effects of the MEDTOX  acquisition and its related financings and other
factors which are described herein and/or in documents incorporated by reference
herein.

         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.

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Introduction

         The Company commenced operations as Environmental Diagnostics,  Inc. in
June 1983 and until 1986 was a development  stage  company.  The Company  became
engaged in the manufacture and sale of Conventional  Biodiagnostic Products as a
result of its acquisition of Granite  Technological  Enterprises,  Inc. in 1986.
The Company began the manufacture and sale of its EZ-SCREEN(R)  diagnostic tests
in 1985 and introduced its patented one-step assays, VERDICT(R) and RECON(R), in
1993.  Also  in  1993,  the  Company  formed  DIAGNOSTIX,  Inc.  to  market  its
agricultural  diagnostic  products.  The Company entered the laboratory  testing
market when it completed the acquisition of Princeton Diagnostic Laboratories of
America,  Inc.,  (PDLA) in 1994.  On January 30, 1996 the Company  completed the
acquisition  of  MEDTOX.  In  1997,  the  Company  changed  its  name to  MEDTOX
Scientific,  Inc. Since inception,  the Company has financed its working capital
requirements primarily from the sale of equity.

Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997

         Total revenues for the three months ended June 30, 1998 were $7,906,000
as compared to $7,486,000  for the three months ended June 30, 1997.  Laboratory
service  revenues were  $7,307,000  for the three months ended March 31, 1998 as
compared to $6,779,000  for the three months ended June 30, 1997.  This increase
of 8% in laboratory  service revenues was primarily the result of an increase in
laboratory  samples of 16% which was the result of  increased  sales volume from
current  clients  as well as new  clients.  This  increase  in unit  volume  was
partially  off-set by lower per unit prices.  In addition,  the Company realized
revenues  during the quarter  ended June 30,  1998 from  courier  services,  for
medical institutions, which it began providing in late 1997.

     Product  sales include the sales  generated  from  substance  abuse testing
products,  which  incorporates  the  EZ-SCREEN and VERDICT on site test kits and
other  ancillary  products for the  detection of abused  substances.  Sales from
these  products  were $294,000 for the three months ended June 30, 1998 compared
to sales of $397,000  recorded for the same period in 1997. The Company believes
that the decrease in sales of 26% is primarily due to increased competition from
products  perceived as more user friendly than the Company's  current  products.
The Company believes that the introduction of its new generation of on-site test
kits later  this year will  enable the  Company to compete  successfully  in the
on-site  drug  screening  market and offer  comprehensive  drug testing kits and
services. The first of these next generation test kits, PROFILE(R)-II, received
pre-market clearance from the U.S. Food & Drug Administration on July 31, 1998.

<PAGE>

         Product sales also include sales of agricultural  diagnostic  products.
Sales of these  products  were  $66,000 for the three months ended June 30, 1998
compared to sales of $185,000  for the three  months  ended June 30,  1997.  The
Company  believes  that the  primary  reason for the  decrease of 65% was due to
timing differences in orders from the USDA for the Company's products.

         Sales  of  contract   manufacturing   services,   microbiological   and
associated  product sales were $239,000 for the three months ended June 30, 1998
compared to $125,000 for the same period in 1997. The increase of 91% was due to
increased  revenue  from  contract  manufacturing  services  from  both
historical customers and revenues from customers added in late 1997.

           The gross  margin from the  revenues  generated  from the  laboratory
services was 34% for the three months ended June 30, 1998 a decrease as compared
to the same  period  in 1997,  when the  gross  margin  was 37% from  laboratory
services.  The decrease in the gross margin was  primarily  due to a decrease in
the average sale price per laboratory sample for the three months ended June 30,
1998 as compared to the same period in 1997.

         Gross margins from the sales of both manufactured products and products
purchased  for resale for the three months ended June 30, 1998 were 31% compared
to 37% of sales of these  products  during the three months ended June 30, 1997.
The  decrease in the gross margin from  product  sales was due to lower  overall
sales of products during the quarter ended June 30, 1998 as compared to the same
quarter in 1997.

         Selling, general and administration expenses for the three months ended
June 30, 1998 were $1,953,000, compared to $2,277,000 for the three months ended
June 30,  1997.  The decrease of  $324,000,  or 14%, is primarily  the result of
reduced sales and  marketing  expenses due to a  restructuring  of the sales and
marketing group in 1997.

         Research  and  development  expenses  incurred  during the three months
ended June 30, 1998 were $288,000 as compared to $205,000 for the same period in
1997.  The  increase of $83,000 or 40% in research and  development  expenses is
primarily  the  result of  increased  expenses  for the  development  of the new
generation  of  on-site  test  kits.  The first of  which,  Profile(R)  II,  was
submitted to the FDA for 510(k) premarket clearance in June of this year.

         For the three  months  ended June 30,  1998,  the Company  incurred net
interest and financing costs of $177,000, compared to costs of $160,000 incurred
during the three months ended June 30, 1997. This increase was the result of the
funds borrowed by the Company to finance certain equipment purchases and provide
working capital.

         As a result of the above,  the net income for the three  months  ended
June 30, 1998 was  $283,000,  compared to net income of $102,000 for the three
months ended June 30, 1997.

<PAGE>

         The Company realized earnings before interest,  taxes, depreciation and
amortization,  (EBITDA) of $1,015,000  for the three months ended June 30, 1998.
This was an increase of $253,000 or 33% above the  Company's  EBIDTA of $762,000
for the three months ended June 30, 1997.

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

         Total revenues for the six months ended June 30, 1998 were  $14,985,000
as compared to $14,289,000  for the six months ended June 30, 1997. The increase
was  attributable  to  the  increase  in  revenues  from  laboratory   services.
Laboratory  service  revenues were $13,854,000 for the six months ended June 30,
1998 as compared to  $12,922,000  for the six months ended June 30,  1997.  This
increase of 7% in  laboratory  service  revenues was  primarily the result of an
increase in  laboratory  samples of 16% which was the result of increased  sales
volume from current clients as well as new clients. This increase in unit volume
was  partially  off-set  by lower per unit  prices.  In  addition,  the  Company
realized  revenues  during  the six  months  ended  June 30,  1998 from  courier
services, for medical institutions, which it began providing in late 1997.

         Product sales include the sales  generated from substance abuse testing
products,  which  incorporates  the  EZ-SCREEN and VERDICT on site test kits and
other  ancillary  products for the  detection of abused  substances.  Sales from
these  products were $608,000 for the six months ended June 30, 1998 compared to
sales of $834,000  recorded  for the same period in 1997.  The Company  believes
that the decrease in sales of 27% is primarily due to increased competition from
products  perceived as more user friendly than the Company's  current  products.
The Company believes that the introduction of its new generation of on-site test
kits later  this year will  enable the  Company to compete  successfully  in the
on-site  drug  screening  market and offer  comprehensive  drug testing kits and
services. The first of these next generation test kits, PROFILE(R)-II, received
pre-market clearance from the U.S. Food & Drug Administration on July 31, 1998.

         Product sales also include sales of agricultural  diagnostic  products.
Sales of these  products  were  $150,000  for the six months ended June 30 1998,
compared  to sales of  $328,000  for the six  months  ended June 30,  1997.  The
primary  reason for the decrease was due to decreased  purchases by the USDA for
the  Company's  products.  The  Company  believes  that  this is the  result  of
decreased testing by the USDA for the tests that utilize the Company's products.

         Sales  of  contract   manufacturing   services,   microbiological   and
associated  product  sales were  $373,000 for the six months ended June 30, 1998
compared to $205,000 for the same period in 1997.  This  increase was  primarily
due to  increased  revenues  from  contract  manufacturing  services  from  both
historical customers and revenues from customers added in late 1997.

<PAGE>

         The  gross  margin  from the  revenues  generated  from the  laboratory
services  was 34% for the six months  ended June 30, 1998 as compared to a gross
margin of 36% for the same period in 1997.  The decrease in the gross margin was
primarily due to a decrease in the average  realized  sale price per  laboratory
sample for the six months  ended June 30, 1998 as compared to the same period in
1997.

         Gross margins from the sales of both manufactured products and products
purchased for resale for the six months ended June 30, 1998 were 32% compared to
35% of sales of these  products  during the six months ended June 30, 1997.  The
decrease in the gross margin from product  sales was due to lower  overall sales
of  products  during the six months  ended June 30, 1998 as compared to the same
period in 1997.

         Selling,  general and administration  expenses for the six months ended
June 30, 1998 were  $3,867,000  compared to $4,303,000  for the six months ended
June 30,  1997.  The  $436,000 or 11%  reduction  in these  expenses in 1998 was
primarily  the  result  of  reduced  sales  and  marketing  expenses  due  to  a
restructuring of the sales and marketing group in 1997.

         Research and development  expenses incurred during the six months ended
June 30, 1998 were $595,000 as compared to $411,000 for the same period in 1997.
The  increase  of  $184,000  or 45% in  research  and  development  expenses  is
primarily  the result of increased  expenses for the  development  of additional
laboratory based tests as well as increased  expenses for the development of the
new generation of on-site test kits.

         For the six months  ended  June 30,  1998,  the  Company  incurred  net
interest costs of $317,000,  compared to costs of $276,000  incurred  during the
six  months  ended  June 30,  1997.  This  increase  was the result of the funds
borrowed  by the  Company to finance  certain  equipment  purchases  and provide
working capital.

         As a result of the above, the net income for the six months ended June
30, 1998 was $361,000, compared to net income of $133,000 for the six months 
ended June 30, 1997.

         The Company realized earnings before interest,  taxes, depreciation and
amortization,  (EBITDA) of  $1,726,000  for the six months  ended June 30, 1998.
This was an increase of $343,000 or 25% above the Company's EBIDTA of $1,383,000
for the same period in 1997.

         Management  believes the acquisition of MEDTOX and the restructuring of
the laboratory operations has and will continue to improve the operating results
of the Company,  although there can be no assurance of the continued  success of
reducing costs and improving efficiencies.  Management expects net sales to grow
through both the addition of new accounts and the introduction of new laboratory
testing  services  and on-site  products,  particularly  the new  Profile(R)  II
on-site product for the detection of multiple  substances of abuse. In addition,

<PAGE>

the Company  believes  that the  laboratory  business is subject to  seasonality
consistent with hiring  practices of its clients.  This  seasonality  results in
higher sales in the second quarter with lower sales in July and December.

Material Changes in Financial Condition

         As of June 30, 1998, cash and cash equivalents were $56,000 compared to
$58,000 at December 31, 1997.

         As of June 30, 1998,  accounts  receivable were $6,632,000  compared to
$5,553,000  at  December  31,  1997.  The  increase  of  $1,079,000,  or 19%, is
primarily  the result of higher  sales in the  quarter  ended  June 30,  1998 as
compared to the quarter ended December 31, 1997.

         Prepaid  expenses  and other  assets were  $493,000 at June 30, 1998 as
compared to $415,000 at December 31, 1997.  The increase of $78,000,  or 19%, is
primarily the result of an increase in certain annual expenses,  which are being
amortized throughout the year.

         At June 30,  1998,  the  Company had a total  balance of  restructuring
accruals of $671,000  compared  to a balance of $786,000 at December  31,  1997.
This  decrease of 15% is the result of certain  payments made during the quarter
ended June 30, 1998.

         At June 30,  1998,  the  Company had a total loan  balance  owed to its
financial  lender of $6,254,000,  compared to a total balance of $5,016,000 owed
at December 31, 1997. The net increase of $1,238,000,  or 25%, was the result of
increased  borrowings by the Company to provide  working  capital and to pay for
purchases of certain assets to improve operating efficiencies.

Liquidity and Capital Resources

         Since its inception,  the working  capital  requirements of the Company
have been funded  primarily  by cash  received  from equity  investments  in the
Company and, more recently,  debt  financing.  At June 30, 1998, the Company had
cash and cash  equivalents of $56,000.  In the short term, the Company  believes
that the aforementioned capital will be sufficient to fund the Company's planned
operations  through 1998,  although there can be no assurance that the available
capital will be sufficient to fund the future  operations of the Company  beyond
1998.  The Company  believes that  consistent  profitable  earnings,  as well as
continued  access  to  capital,  will  be the  primary  basis  for  funding  the
operations of the Company for the long term.

         The Company  believes that the  acquisition  of MEDTOX,  the subsequent
consolidation  of the  laboratory  operations  from PDLA into MEDTOX,  and other
synergy  realized  from the  acquisition  of MEDTOX has  enabled  the Company to
generate  positive  cash flow.  The Company  continues  to follow a plan,  which
includes  (i)  continuing  to  aggressively  monitor and control  costs and (ii)
increasing revenue from sales of the Company's services and products.  There can

<PAGE>

however be no assurance that costs can be controlled, revenues can be increased,
additional  financing  obtained,  or  that  the  Company  will  continue  to  be
profitable.

ITEM 2   CHANGES IN SECURITIES.  Inapplicable

ITEM 3   DEFAULTS ON SENIOR SECURITIES.  Inapplicable

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.  None

ITEM 5   OTHER INFORMATION.  Inapplicable

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K.

               (a) Report on Form 8-K dated June 3, 1998,  reporting a change
               in  the  Company's   independent   accountants.   The  Company
               terminated  its  relationship  with  Ernst  &  Young  LLP  and
               appointed Deloitte & Touche LLP as its independent auditors.


<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.


Date:     July 31, 1998


                                       MEDTOX SCIENTIFIC, INC.

                                       By:  /s/ Harry G. McCoy
                                       Harry G. McCoy, Chairman and President

                                       By:  /s/ Richard J. Braun
                                       Richard J. Braun, Chief Executive Officer
                                       and Treasurer