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, 1997

                                       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 November
1, 1997 was 56,154,301.

<PAGE>


                             MEDTOX SCIENTIFIC, INC.

                                      INDEX

                                                                           Page

Part I    Financial Information:

        Item 1:

        Consolidated Balance Sheets - September 30, 1997 (Unaudited)
        and December 31, 1996 ............................................... 3

        Consolidated Statements of Operations - Three Months
        Ended September 30, 1997 and 1996 and Nine
        Months Ended September 30, 1997 and 1996 (Unaudited)................. 5

        Consolidated Statements of Cash Flows - Nine Months
        Ended September 30, 1997 and 1996 (Unaudited) ....................... 6

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

        Item 2:

        Management's Discussion and Analysis of
        Financial Condition and Results of Operations ...................... 11

Part II Other Information .................................................. 18
         Signatures ........................................................ 19

<PAGE>

PART I. FINANCIAL INFORMATION



<TABLE>

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

<CAPTION>

                                                          September 30           December 31
                                                              1997                  1996
                                                         --------------------------------------
                                                           (Unaudited)
<S>                                                      <C>                    <C>
Assets
Current assets
   Cash and cash equivalents                              $           34         $          82
   Accounts receivable:
         Trade, less allowance for doubtful
           accounts ($397-1997; $358-1996)                         5,745                 4,476
         Other                                                        95                    77
                                                         --------------------------------------
                                                                   5,840                 4,553
   Inventories:
         Raw materials                                               502                   488
         Work in process                                             135                   146
         Finished goods                                              638                   656
                                                         --------------------------------------
                                                                   1,275                 1,290

   Prepaid expenses and other                                        517                   140
                                                         --------------------------------------


         Total current assets                                      7,666                 6,065



Equipment and improvements:
    Furniture and equipment                                       10,201                 9,200
    Leasehold improvements                                         1,233                   929
                                                         --------------------------------------
                                                                  11,434                10,129
    Less accumulated depreciation
         and amortization                                         (8,694)               (7,951)
                                                         --------------------------------------

                                                                   2,740                 2,178
Goodwill, net of accumulated amortization of
    $711 in 1997 and $1,184 in 1996                               15,125                15,836

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


Total assets                                              $       25,531         $      24,079
                                                         ======================================



See notes to consolidated financial statements.

</TABLE>
                                                       
<PAGE>

<TABLE>

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

<CAPTION>

                                                           September 30          December 31
                                                               1997                  1996
                                                         ---------------------------------------
                                                           (Unaudited)
<S>                                                      <C>                     <C>
Liabilities and stockholders' equity
Current liabilities
   Line of credit                                         $        3,403         $       1,437
   Accounts payable                                                3,386                 2,387
   Accrued expenses                                                1,537                 2,074
   Current portion of restructuring accrual                          770                   899
   Current portion of long-term debt                               1,786                 2,790
   Current portion of capital lease obligations                      106                    26
   Other current liabilities                                           -                    14
                                                         ---------------------------------------

         Total current liabilities                                10,988                 9,627


Long-term portion of restructuring accrual                           505                   904
Capital lease obligations                                            313                     -

Stockholders' equity Preferred Stock, $1.00 par value:
         Authorized - 1,000,000 shares;
         Issued and outstanding -
         4 shares in 1997 and 238 in 1996                              -                     -
   Common Stock, $ .15 par value:
         Authorized - 60,000,000 shares;
         Issued and outstanding -
         55,543,300 shares in 1997 and
         25,555,796 shares in 1996                                 8,331                 3,834
   Additional paid-in capital                                     51,910                56,366
   Accumulated deficit                                           (46,340)              (46,476)
                                                         ---------------------------------------

                                                                  13,901                13,724

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

        Total stockholders' equity                                13,725                13,548

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

Total liabilities and stockholders' equity                $       25,531        $       24,079
                                                         =======================================


See notes to consolidated financial statements.

</TABLE>
                                                      
<PAGE>

<TABLE>

                                              MEDTOX SCIENTIFIC, Inc.
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>

                                                 Three Months Ended              Nine Months Ended
                                                    September 30,                  September 30,
                                                1997            1996            1997           1996
                                           ---------------------------------------------------------------
                                             (Unaudited)     (Unaudited)        (Unaudited)     (Unaudited)
                                                    (in thousands except for per share amounts)

                                                                                                 Restated
<S>                                        <C>              <C>                <C>             <C>
Revenues

   Laboratory service revenues              $     6,510      $    6,072          $    19,432     $   17,555
   Product sales                                    770             722                2,137          2,410
                                           ---------------------------------------------------------------
                                                  7,280           6,794               21,569         19,965

Cost of services                                  4,161           3,895               12,166         11,112
Cost of sales                                       427             552                1,311          1,779
                                           ---------------------------------------------------------------
                                                  4,588           4,447               13,477         12,891

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

          Gross profit                            2,692           2,347                8,092          7,074

Operating expenses
   Selling, general and administrative            2,292           3,317                6,872          8,347
   Research and development                         230             334                  641          1,044
   Restructuring costs                                -           1,108                   -           1,966
                                           ---------------------------------------------------------------
                                                  2,522           4,759                7,513         11,357

Other income (expenses)
   Interest and financing costs, net               (168)            (78)                (444)          (281)
   Royalties and fees                                 -               5                    -             90
                                           ---------------------------------------------------------------
                                                   (168)            (73)                (444)          (191)

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

Net income (loss)                                     2          (2,485)                 135         (4,474)

Less preferred stock deemed dividend                  -               -                    -          6,783

Net income (loss) applicable to common
                                           ===============================================================
  shareholders                              $         2      $   (2,485)          $      135   $    (11,257)
                                           ===============================================================

Net income (loss) per share
 applicable to common stockholders          $      0.00      $    (0.10)          $     0.00   $      (0.56)
                                           ===============================================================

Weighted average number of
  common shares outstanding                  55,524,219       25,485,225           48,423,741    19,953,009
                                           ===============================================================


See notes to consolidated financial statements.

                                                                         
</TABLE>

<PAGE>

<TABLE>



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

                                                                                 Nine Months Ended
                                                                                   September 30
                                                                               1997            1996
                                                                          --------------------------------
                                                                            (Unaudited)     (Unaudited)
<S>                                                                       <C>             <C>
Operating activities
Net income (loss)                                                          $     135       $    (4,474)
   Adjustments to reconcile net income (loss) to net cash
    used in operating activities:
      Depreciation and amortization                                            1,454             1,703
      Write off of goodwill and other assets                                      -                221
      Gain on sale or retirement of equipment                                     -                (16)
      Provision for losses on accounts receivable                                 39               102
      Provision for obsolete inventory                                           (97)               -
      Restructuring costs                                                          -             1,966
      Changes in operating assets and liabilities, net of acquisition:
         Accounts receivable                                                  (1,326)           (1,077)
         Inventories                                                             112                57
         Prepaid expenses and other                                             (377)              255
         Accounts payable, accrued expenses and other                            448               102
         Restructuring accruals                                                 (528)             (992)
                                                                          --------------------------------
Net cash used in operating activities                                           (140)           (2,153)

Investing activities
    Purchases of equipment and improvements                                     (870)           (1,065)
    Cash used for MEDTOX acquisition                                              -            (19,324)
                                                                          --------------------------------
Net cash used in investing activities                                           (870)          (20,389)

Financing activities
    Proceeds from sale of equipment                                               -                 24
    Net proceeds from sale of preferred stock                                     -             19,129
    Net proceeds (costs)  from sale of common stock                               42               690
    Net proceeds from line of credit, term loans and notes payable             1,966             4,671
    Principal payments on capital lease obligations                              (43)              -
    Principal payments on term loans and notes payable                        (1,003)           (1,905)
                                                                          --------------------------------
Net cash provided by financing activities                                        962            22,609

Increase (decrease) in cash and cash equivalents                                 (48)               67
Cash and cash equivalents at beginning of period                                  82               258
                                                                          --------------------------------

Cash and cash equivalents at end of period                                 $      34     $         325
                                                                          ================================

Supplemental noncash activities
    During 1997, the Company entered into capital lease obligations of $435,000 to purchase equipment.
    In January 1996, the Company acquired Medtox Laboratories, Inc.  The purchase price was $24 million,
       which  included $19 million cash and the issuance of $5 million in common
    stock (2,517,306  shares).  During 1997, the Company converted 234 shares of
    preferred stock into 22,001,232 shares of common stock.


</TABLE>
                                                                        
<PAGE>


                             MEDTOX SCIENTIFIC, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 1997

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 nine month period ended  September 30, 1997 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, 1996.

Loss Per Share:  Loss per share amounts are based on the weighted average number
of shares of common stock outstanding.

Reclassifications:   Certain  reclassifications  have  been  made  to  the  1996
financial statements to conform with the 1997 presentation.


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.
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.
<PAGE>

The  consolidated  results of operations for the nine months ended September 30,
1996  include  the  results of the MEDTOX  operations  from  January 26, 1996 to
September 30, 1996.

NOTE C -- ACQUISITION OF BIOMAN PRODUCTS, INC. ("BIOMAN")

On June 1, 1995,  the Company  acquired  Bioman,  an  environmental  diagnostics
company.  The purchase price was $140,000,  which included cash and the issuance
of 21,489 shares of common stock.  The  acquisition  was accounted for under the
purchase  method of  accounting  wherein  the  Company  recognized  $117,000  of
goodwill,  which was being amortized over a period of 20 years. The consolidated
results of operations for the nine months ended  September 30, 1996 included the
results of the Bioman operations. In September 1996, the Company sold the former
Bioman  operations to a company headed by certain of the former employees of the
Company and Bioman.

NOTE D -- DEBT

To help finance the  acquisition of MEDTOX,  the Company  entered into revolving
and term loan  facilities  with  Heller  Financial,  Inc.  ("Heller").  The debt
financing  was for a total  of  $11,000,000  and  consisted  of two  term  loans
totaling  $4,000,000  and up to  $7,000,000  in the form of a revolving  line of
credit based primarily on the  receivables of the Company.  The amount of credit
available to the Company  varies with the accounts  receivable and the inventory
of the Company.  Effective May 1, 1997,  the Company and Heller entered into the
First  Amendment  to  Loan  and  Security  Agreement  and  Limited  Waiver  (the
"Amendment  Agreement")  whereby  Heller  agreed to waive the then  existing non
compliance  with certain  covenants.  As part of the  Amendment  Agreement,  the
Company and Heller agreed to revise the loan  covenants and loan interest  rates
commencing  May 1,  1997.  The  interest  rate  on the  remaining  term  loan of
$2,000,000 is 2.5% above the prime rate. The revolving line of credit carries an
interest rate equal to 2.0% above the prime rate.

As of  September  30,  1997,  the Company  was not in  compliance  with  certain
covenants  in its  Amendment  Agreement  with  Heller.  Heller has  notified the
Company  that it does not  currently  intend to  exercise  any of its  rights or
remedies regarding non compliance available to Heller under the Loan Agreement.

NOTE E -- RESTATEMENT OF 1996 FINANCIAL STATEMENTS

In March 1997,  the  Securities  and  Exchange  Commission  Staff (the  "Staff")
announced its position on accounting  for preferred  stock which is  convertible
into common  stock at a discount  from the market rate at the date of  issuance.
The Staff's  position is that a preferred  stock dividend should be recorded for
the  difference  between the  conversion  price and the quoted  market  price of
common stock at the date of issuance. To comply with this position,  the Company
restated its 1996 loss  applicable  to common  stockholders  for the nine months

<PAGE>

ended September 30, 1996 to reflect a deemed  dividend of $6,783,000  related to
the January 1996 sales of the Series A Preferred Stock. The restatement resulted
in an increase  in the  previously  reported  net loss per share  applicable  to
common stockholders to $.56 from the previously reported amount of $.22.

NOTE F -- 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  declatory
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 intends to
vigorously  pursue its  defense of the claims and to  vigorously  prosecute  its
counterclaims.

The Company believes that the probable  resolution of the above contingency will
not  materially  affect the  financial  position or results of operations of the
Company.

On January  31,  1997,  the  Company  filed suit in  Federal  District  Court in
Minnesota  against a  majority  shareholder  and two  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  Defendants'  motion  to  dismiss  the
Company's  complaint,  ruling that the Defendants'  conduct did not constitute a
violation of Section 16(b).  On October 29, 1997, the Company filed an appeal of
that decision to the United States Court of Appeals for the Eighth Circuit. That
appeal is currently pending.

<PAGE>

               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  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. In 1995, the Company acquired the former  operations of Bioman through its
DIAGNOSTIX,  Inc.  subsidiary.  On January 30, 1996 the  Company  completed  the
acquisition  of MEDTOX.  The results of  operations  for the nine  months  ended
September  30, 1996  include  the  operations  of MEDTOX  from  January 26, 1996
through the end of the period.  Since  inception,  the Company has  financed its
working capital requirements primarily from the sale of equity securities.

Three Months Ended  September 30, 1997 Compared to Three Months Ended  September
30, 1996

         Total  revenues  for the three  months  ended  September  30, 1997 were
$7,280,000  as compared to $6,794,000  for the three months ended  September 30,
1996.  The  increase  was  attributable  to an increase  in  revenues  from both
laboratory  services  and  product  sales.   Laboratory  service  revenues  were
$6,510,000 for the three months ended September 30, 1997, compared to $6,072,000
for the three months ended  September 30, 1996.  This 7% increase was the result
of increased sample volume partially offset by a decreased average selling price
per sample.

         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  $405,000 for the three months  ended  September  30, 1997
compared to sales of $369,000 recorded for the same period in 1996.  This 10%
increase is due to increased sales of the VERDICT test kits.

         Product sales also include sales of agricultural  diagnostic  products.
Sales of these  products were $182,000 for the three months ended  September 30,
1997  compared to sales of $283,000  for the three months  ended  September  30,
1996.  For the three  months ended  September  30, 1996 the Company had sales of
$88,000 which were generated through the former operations of Bioman.  Excluding
these revenues,  sales of agricultural diagnostic products were $195,000 for the
three months ended  September 30, 1996. As such, the sales of these products for
the three months ended  September 30, 1997 were, on a pro forma basis,  7% lower

<PAGE>

than the comparable  period in 1996. 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 $183,000 for the three months ended September 30,
1997  compared  to $70,000  for the same  period in 1996.  This  increase is the
result of increased  revenues from  contract  manufacturing  services.  In July,
1997, the Company  entered into a three year Supply  Agreement  with  Boehringer
Mannheim  Corporation  ("BMC"),  whereby the Company will supply to BMC controls
for certain products of BMC.

           The gross  margin from the  revenues  generated  from the  laboratory
services was 36% for the three months ended  September  30, 1997 compared to the
same period in 1996, when the gross margin was also 36%.

         Gross margins from the sales of both manufactured products and products
purchased  for resale for the three  months  ended  September  30, 1997 were 45%
compared  to 24% of  sales of these  products  during  the  three  months  ended
September  30,  1996.  This  increase  in gross  margin  from  product  sales is
primarily the result of increased sales of contract  manufacturing  services, as
well as reduced costs as a result of certain restructuring steps taken in 1996.

         Selling, general and administration expenses for the three months ended
September 30, 1997 were $2,292,000,  compared to $3,317,000 for the three months
ended September 30, 1996. The $1,025,000 reduction in these expenses in 1997 was
primarily the result of the  consolidation of certain  administrative  functions
into the MEDTOX facility,  decreased amortization expense, and an overall effort
to monitor and control costs.

         Research  and  development  expenses  incurred  during the three months
ended  September  30, 1997 were  $230,000  as compared to $334,000  for the same
period in 1996. The reduction of $104,000 in research and  development  expenses
is primarily  the result of a reduction of personnel and a refocus of efforts in
the research and  development  function  associated  with the Company's  on-site
products.

         During the three months  ended  September  30,  1996,  the Company took
certain  actions  in order to  improve  the  operating  results  of the  Company
including  reducing the work force at its Burlington,  North Carolina  location.
Primarily as a result of this action the Company recorded a charge of $1,108,000
during the three months ended September 30, 1996,  including $602,000 related to
severance payments. The Company had no such charge during the three months ended
September 30, 1997.

         For the three months ended September 30, 1997, the Company incurred net
interest and financing costs of $168,000,  compared to costs of $78,000 incurred

<PAGE>

during the three months ended  September 30, 1996.  This increase was the result
of increased borrowings against the line of credit during the three months ended
September 30, 1997 as compared to September 30, 1996.

     For the three months ended  September 30, 1997, the Company had no revenues
from royalties and fees, compared to $5,000 for the three months ended September
30, 1996.

     As a result of the above,  net income for the three months ended  September
30, 1997 was $2,000, compared to the net loss of $2,485,000 for the three months
ended September 30, 1996.

Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996

     Total  revenues  for  the  nine  months  ended   September  30,  1997  were
$21,569,000 as compared to $19,965,000  for the nine months ended  September 30,
1996. The increase was  attributable to the increase in revenues from laboratory
services. Laboratory service revenues were $19,432,000 for the nine months ended
September  30,  1997 as  compared  to  $17,555,000  for the  nine  months  ended
September 30, 1996.  This increase of 11% was primarily the result of the timing
of the acquisition of MEDTOX whereby the Company  realized  revenues from MEDTOX
for approximately  eight months during the nine months ended September 30, 1996,
as compared to the complete nine month period ended  September 30, 1997. Had the
acquisition of MEDTOX been effective January 1, 1996, the Company would have had
revenues of $18,755,000  from  laboratory  services during the nine months ended
September  30, 1996,  as compared to the  $19,432,000  realized from the sale of
laboratory  services during the nine months ended September 30, 1997, this would
represent a pro forma increase of $677,000 or 4%.

         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  $1,239,000  for the nine months ended  September 30, 1997
compared  to sales of  $1,134,000  recorded  for the same  period in 1996.  This
increase of 9% was primarily  the result of sales of the  EZ-SCREEN  PROFILE(TM)
test kits which were  introduced in May, 1996, as well as increased sales of the
VERDICT one-step test kits.

         Product sales also include sales of agricultural  diagnostic  products.
Sales of these  products  were  $510,000 for the nine months ended  September 30
1997,  compared to sales of $970,000  for the nine months  ended  September  30,
1996.  For the nine months ended  September  30, 1996,  the Company had sales of
$367,000 which were generated through the former operations of Bioman. Excluding
these revenues,  sales of agricultural diagnostic products were $603,000 for the
nine months ended  September 30, 1996. As such,  the sales of these products for
the nine months ended  September 30, 1997 were, on a pro forma basis,  15% lower

<PAGE>

than during the  comparable  period in 1996. 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 $388,000 for the nine months ended  September 30,
1997 compared to $231,000 for the same period in 1996.  This increase was due to
increased revenues from contract manufacturing services.

         Revenues generated from the shipment of products to the U.S. Department
of Defense  were  $75,000 for the nine months  ended  September  30,  1996.  The
Company had no such sales during the nine months ended  September 30, 1997.  The
contract the Company had with the  Department  of Defense has  expired.  At this
time,  the Company does not know if the U.S.  Department  of Defense  intends to
purchase any more of the kits the Company has developed.

           The gross  margin from the  revenues  generated  from the  laboratory
services was 37% for the nine months ended  September  30, 1997 as compared to a
gross  margin of 37% for the same period in 1996.  During the nine months  ended
September 30, 1997,  the Company was able to offset  declining  average  selling
prices by reducing costs through the  consolidation of laboratory  operations in
1996 as well as continued improvements in efficiency of laboratory operations.

         Gross margins from the sales of both manufactured products and products
purchased  for resale for the nine  months  ended  September  30,  1997 were 39%
compared  to 26% of  sales of  these  products  during  the  nine  months  ended
September  30,  1996.  This  increase  in gross  margin  from  product  sales is
primarily the result of the increased sales of the EZ-SCREEN PROFILE product and
contract manufacturing services, as well as reduced costs as a result of certain
restructuring steps taken in 1996.

         Selling,  general and administration expenses for the nine months ended
September 30, 1997 were  $6,872,000,  compared to $8,347,000 for the nine months
ended September 30, 1996. The $1,475,000 reduction in these expenses in 1997 was
primarily the result of the  consolidation of certain  administrative  functions
into the MEDTOX facility,  decreased amortization expense, and an overall effort
to monitor and control costs.

         Research and development expenses incurred during the nine months ended
September 30, 1997 were  $641,000 as compared to $1,044,000  for the same period
in 1996.  The  reduction  of $403,000 in research  and  development  expenses is
primarily the result of a reduction of personnel and a refocus of efforts in the
research  and  development   function  associated  with  the  Company's  on-site
products.

<PAGE>

         During the nine months ended September 30, 1996, the Company determined
that it would be beneficial to  consolidate  the  laboratory  operations of PDLA
into  the  laboratory  operations  at  MEDTOX  as well as to down  size  certain
administrative  positions  at  both  PDLA  and  MEDTOX  in  order  to  eliminate
duplicative functions. The Company also determined that to improve the operating
results of the Company,  it would be necessary to sell the former  operations of
Bioman,  close its farm  facility  and reduce its work force at its  Burlington,
North Carolina location.  As a result of these restructuring  steps, the Company
recorded  charges of $1,966,000  during the nine months ended  September 30,
1996 to cover certain costs of the restructurings, including $702,000 related to
certain  severance  payments.  The Company  had no such  charge  during the nine
months ended September 30, 1997.

         For the nine months ended September 30, 1997, the Company  incurred net
interest and financing costs of $444,000, compared to costs of $281,000 incurred
during the nine months ended September 30, 1996. This increase was the result of
the funds borrowed by the Company to complete the financing for the  acquisition
of MEDTOX.

         For the nine  months  ended  September  30,  1997,  the  Company had no
revenues from royalties and fees,  compared to $90,000 for the nine months ended
September 30, 1996.  This decrease was primarily due to the absence of royalties
from American Medical  Laboratories,  Inc. ("AML") as the agreement with AML has
expired.

     As a  result  of the  above,  the net  income  for the  nine  months  ended
September 30, 1997 was $135,000,  compared to the net loss of $4,474,000 for the
nine months ended September 30, 1996.

     In March 1997, the Securities and Exchange  Commission  Staff (the "Staff")
announced its position on accounting  for preferred  stock which is  convertible
into common stock at a discount from the market rate at the date of issuance. To
comply with this  position,  the Company  restated  its loss for the nine months
ended September 30, 1996  applicable to common  stockholders to reflect a deemed
dividend  of  $6,783,000  related  to the  January  1996  sales of the  Series A
Preferred  Stock.  The  restatement  resulted in an  increase in the  previously
reported  net  loss  applicable  to  common   stockholders  from  $4,474,000  to
$11,257,000  for the nine months ended  September  30, 1996.  The Company had no
such charge for the nine months ended September 30, 1997.

         Management  believes the acquisition of MEDTOX and the restructuring of
the laboratory  operations will continue to improve the operating results of the
Company.  Management  expects net sales to grow through both the addition of new
accounts,  as well as the  introduction of new laboratory  testing  services and
on-site products.

<PAGE>

Material Changes in Financial Condition

         As of September 30, 1997,  accounts receivable were $5,840,000 compared
to $4,553,000 at December 31, 1996.  The increase of $1,287,000 is primarily the
result of higher sales in the quarter  ended  September  30, 1997 as compared to
the quarter ended December 31, 1996.

     Prepaid  expenses and other assets were  $517,000 at September  30, 1997 as
compared to $140,000 at December 31, 1996. The increase of $377,000 is primarily
the result of the renewal of annual maintenance  contracts,  annual licenses and
fees, an increase in prepaid supplies,  and prepayments made for the purchase of
certain laboratory equipment.

         The balance of equipment  and  improvements  at September  30, 1997 was
$11,434,000  as compared to a balance of  $10,129,000  at December 31, 1996. The
increase of  $1,305,000  was the result of purchases  of  equipment  and capital
improvements  for the laboratory  operation to improve  efficiencies  and reduce
operating costs.

     As of September 30, 1997,  accounts payable totaled $3,386,000  compared to
$2,387,000 at December 31, 1996. The increase of $999,000,  or 42%, is primarily
the result of increased  purchases of kits, forms and other supplies as a result
of increased  business for the laboratory  testing services,  as well as certain
capital expenditures.

         Accrued  expenses were $1,537,000 at September 30, 1997, as compared to
$2,074,000  at December  31, 1996.  The  decrease of  $537,000,  or 26%, was the
result of  payments  made  during  the first  nine  months of 1997 for  expenses
accrued at December 31, 1996.

         At  September  30,  1997,  the  Company  had a total  balance of leases
payable of $419,000  compared to a balance of $26,000 at December 31, 1996.  The
increase in the balance of the leases  payable was the result of the purchase of
certain equipment to improve operating efficiencies in the laboratory.

          September 30, 1997,  the Company had a total balance of  restructuring
accruals of $1,275,000 compared to a balance of $1,803,000 at December 31, 1996.
The decrease in the balance of the restructuring  accruals of $528,000,  or 29%,
was the result of payments made during the nine months ended September 30, 1997.

         At September 30, 1997, the Company had a total loan balance owed to its
financial  lender of $5,181,000,  compared to a total balance of $4,227,000 owed
at December 31, 1996.  The net increase of $954,000,  or 23%, was  primarily the
result of  increased  borrowings  by the Company  from its line of credit to pay
certain  accrued  expenses  and  restructuring  accruals as well as purchases of
certain assets to improve operating efficiencies.

<PAGE>

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 September 30, 1997, the Company had
cash and cash  equivalents  of  $34,000.  The  Company is  currently  marginally
profitable  and,  as such,  is relying on a  continued  positive  cash flow from
operations  and its  line of  credit  to fund  its  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
accounts  receivable,  and to a lesser degree the inventory of the Company.  The
revolving  line of credit carries an interest rate equal to 2.0% above the prime
rate. As of September 30, 1997, the Company had total availability of $3,667,000
on  the  line  of  credit  of  which  $3,253,000  was  borrowed,  leaving  a net
availability  of $414,000  as of  September  30,  1997.  In the short term,  the
Company believes that the aforementioned  capital will be sufficient to fund the
Company's planned  operations  through 1997,  although there can be no assurance
that the available  capital will be sufficient to fund the future  operations of
the  Company  beyond  1997.  The Company  believes  that  consistent  profitable
earnings,  as well as 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  that will be realized  from the  acquisition  of MEDTOX will enable the
Company to generate  positive cash flow. The Company  continues to follow a plan
which includes (i) continuing to  aggressively  monitor and control costs,  (ii)
increasing revenue from sales of the Company's products,  services, and research
and  development  contracts,  as well as (iii)  continue to  selectively  pursue
synergistic  acquisitions to increase the Company's  critical mass. 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
continue to be profitable.

<PAGE>


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

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K

         There was no Report on Form 8-K during the three  months ended
         September 30, 1997.

<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:    November 13, 1997


                                            MEDTOX SCIENTIFIC, INC.

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

                                            By:   /s/    Peter J. Heath
                                                  Peter J. Heath, Vice President
                                                  of Finance and Chief Financial
                                                  Officer