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, 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:              (651) 636-7466
--------------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X No

The number of shares of Common Stock, $.15 par value, outstanding as of 
November 5, 1998, was 57,971,184.



<PAGE>




                             MEDTOX SCIENTIFIC, INC.

                                      INDEX

                                                                           Page

Part I   Financial Information:

           Item 1:

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

             Unaudited Consolidated Statements of Operations - Three
             Months Ended September 30, 1998 and 1997 and Nine
             Month Ended September 30, 1998 and 1997.................        5

             Unaudited Consolidated Statements of Cash Flows - Nine
             Months Ended September 30, 1998 and 1997....................    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 ...................................          16
               Signatures .........................................         17


<PAGE>

<TABLE>

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

<CAPTION>


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

Assets
Current Assets
  Cash and Cash Equivalents                       $       32    $       58
  Accounts receivable:
    Trade, less allowance for doubtful
      accounts (1998--$216; 1997--$514)                6,465         5,443
    Other                                                101           110
                                                  -------------------------
                                                       6,566         5,553

  Inventories:
    Raw materials                                        543           414
    Work in process                                      139           134
    Finished goods                                       395           594
                                                  -------------------------
                                                       1,077         1,142

  Prepaid expenses and other                             656           415
                                                  -------------------------

       Total current assets                            8,331         7,168   


Equipment and improvements:
   Furniture and equipment                            11,406        10,669
   Leasehold improvements                              1,307         1,243
                                                  -------------------------
                                                      12,713        11,912

   Less accumulated depreciation
     and amortization                                 (9,675)       (8,946)
                                                ---------------------------
                                                       3,038         2,966


Goodwill, net of accumulated amortization of
  $2,888 in 1998 and $2,273 in 1997                   14,132        14,747

Other assets                                              65           -
                                                  -------------------------

Total assets                                     $    25,566   $    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>

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

Liabilities and stockholders' equity
Current liabilities
   Line of credit                               $    3,427     $   3,572
   Accounts Payable                                  3,775         3,768
   Accrued Expenses                                  1,340         1,326
   Current portion of restructuring accrual            283           521
   Current portion of long-term debt                 2,251         1,451
   Current portion of capital leases                   154           112
                                                -------------------------
     Total current liabilities                      11,230        10,750

Long-term portion of restructuring accrual             265           265
Long-term capital lease obligations                    312           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 - 75,000,000 shares;
      Issued and outstanding -
      57,962,124 shares in 1998 and
      56,828,173 shares in 1997                     8,694         8,525
   Additional paid-in capital                      51,522        51,673
   Accumulated deficit                            (46,281)      (46,451)
                                             ----------------------------
                                                   13,935        13,747 
                                        

   Less: Treasury stock                              (176)         (176)
                                             ----------------------------
                                   
    Total stockholders' equity                     13,759        13,571

Total liabilities and stockholders' equity    $    25,566    $   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)
                                  (Unaudited)

<CAPTION>

                                        Three Months Ended       Nine Months Ended
                                           September 30             September 30
                                        1998         1997        1998         1997
                                        ------------------      ------------------

<S>                                 <C>          <C>        <C>         <C>   


Revenues

  Laboratory service revenues         $   6,861    $  6,528   $  20,715   $  19,485
  Product sales                             748         770       1,879       2,137
                                      ---------------------   ----------------------
                                          7,609       7,298      22,594      21,622

Cost of services                          4,787       4,331      13,867      12,648
Cost of sales                               443         427       1,208       1,311
                                       ---------------------   ---------------------
                                          5,230       4,758      15,075      13,959
                 
                                       --------------------   ---------------------

   Gross profit                          2,379        2,540       7,519       7,663

Operating expenses          
  Selling, general and administrative    2,126        2,140       5,993       6,443
  Research and development                 283          230         878         641
                                      ---------------------   ---------------------
                                         2,409        2,370       6,871       7,084

Operating income (loss)                    (30)         170         648         579
                                      ---------------------   ----------------------

Other expenses
  Interest and finance costs, net          162          168         479         444
                                     -----------------------  ---------------------

Net income (loss)                    $    (192)    $      2   $     169         135
                                     -----------------------  ---------------------
                                     -----------------------  ---------------------

Basic net earnings per common share  $   (0.00)    $   0.00   $    0.00  $     0.00
                                     ----------------------   ---------------------
                                     ----------------------   ---------------------
   
Diluted net earnings per common 
 share                               $   (0.00)    $   0.00   $    0.00  $     0.00
                                     ----------------------   ---------------------
                                     ----------------------   ---------------------
        
Weighted average number of common   57,948,835   55,524,219  57,823,256  48,423,741
 and common equivalent, shares      -----------------------  ----------------------
 outstanding (basic & diluted)      -----------------------  ----------------------


See notes to consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>

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

<CAPTION>


                                                                  Nine Months Ended
                                                                    September 30
                                                                  1998        1997
                                                                  ----------------

<S>                                                          <C>         <C>

Operating activities
Net income                                                      $  169     $   135           
  Adjustments to reconcile net income to net cash              
  used in operating activities:
    Depreciation and amortization                                1,564       1,454
    Write off of goodwill and other assets                         -           -
    Gain on sale or retirement of equipment                         (4)        -
    Provision for losses on accounts receivable                    (74)         39
    Provision for obsolete inventory                               -           (97)
    Changes in operating assets and liabilities,
      net of acquisition:
      Accounts receivable                                         (939)     (1,326)
      Inventories                                                   65         112
      Prepaid expenses and other                                  (241)       (377)
      Accounts payable, accrued expenses and other                  21         445
      Restructuring accruals                                      (238)       (528)
                                                              ---------------------
Net cash used in operating activities                              323        (143)


Investing activities
  Purchases of equipment and improvements                         (809)       (870)
                                                              ---------------------
Net cash provided by (used in) investing activities               (809)       (870)
    

Financing activities
   Proceeds from sale of equipment                                  -          -
   Debt finance costs                                             (79)         -
   Net proceeds from sale of preferred stock                        -          -
   Net proceeds from sale of common stock                          19           42
   Net change in line of credit                                  (145)       1,966
   Principal payments on capital lease obligations               (135)         (43)
   Principal payments on term loans and notes payable          (2,396)      (1,000)
   Proceeds from term loans and notes payable                   3,196          -
                                                             ----------------------
Net cash provided by financing activities                         460          965

Increase in cash and cash equivalents                             (26)         (48)
Cash and cash equivalents at beginning of period                   58           82
                                                             ----------------------
Cash and cash equivalents at end of period                    $    32     $     34
                                                             ----------------------
                                                             ----------------------

Supplemental noncash activities
During 1998, the Company entered into capital lease obligations of $194,000 to purchase equipment.
During 1997, the Company entered into capital lease obligations of $435,000 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
                               September 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
only  of  normal  recurring   adjustments)   considered  necessary  for  a  fair
presentation  of  financial  condition  and  results  of  operations  have  been
included.  Operating  results for the nine-month period ended September 30, 1998
are not  necessarily  indicative  of the results  that may be  attained  for the
entire year. These financial  statements  should be read in conjunction with the
financial  statements and notes thereto  included in the Company's Annual Report
on Form 10-K 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  5,082,412 shares of common stock at a range of
$.4375 to $8.19 were  outstanding at September 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. 

Accounting  for  Derivatives:  In June 1998 the Financial  Accounting  Standards
Board released SFAS No. 133 "Accounting  for Derivative  Instruments and Hedging
Activities",  which will be effective for the company beginning January 1, 2000.
SFAS No. 133 establishes  new accounting and reporting  standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for hedging  activities.  The Company has not yet  completed its
analysis of the effect,  if any,  this  standard  will have on future  operating
results.

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

<PAGE>

financial and descriptive  information about its 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 -- 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  of up to  $6,000,000,  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",  8.25% at September 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.  As of  September  30,  1998 the
$2,125,000  term loan carried a balance of  $1,653,000;  the $700,000  term loan
carried a  balance  of  $233,000;  the  revolving  line of  credit  balance  was
$3,427,000;  and the balance on the capital  equipment  note was  $365,000.  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  September  30,  1998,  the Company  was not in  compliance  with  certain
covenants  in  its  Credit  Agreement  with  Norwest.  As a  result,  all of the
companies term debt outstanding has been classified as current.  The Company and
Norwest are currently renegotiating the terms of the Credit Agreement to address
any loan covenant violations and cure the existing default.  Management believes
that an acceptable  resolution will be achieved allowing the company to meet its
liquidity requirements through the next twelve months.

NOTE C -- 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

<PAGE>

cases the Company  cannot  predict  what factors  would cause  results to differ
materially from those indicated by the forward looking statements.

                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. 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  September 30, 1998 Compared to Three Months Ended  September
30, 1997

         Total  revenues  for the three  months  ended  September  30, 1998 were
$7,609,000  as compared to $7,298,000  for the three months ended  September 30,
1997.  Laboratory  service  revenues were  $6,861,000 for the three months ended
September  30,  1998 as  compared  to  $6,528,000  for the  three  months  ended
September  30, 1997.  This  increase of 5% in  laboratory  service  revenues was
primarily the result of an increase in  laboratory  samples of 13% which was the
result of increased  sales  volume from current  clients as well as new clients.
This increase in unit volume was partially offset by lower per unit prices.

         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  $310,000 for the three months  ended  September  30, 1998
compared to sales of $405,000  recorded for the same period in 1997. The Company
believes  that  the  decrease  in  sales of 23% is  primarily  due to  increased
competition  from  products  perceived as more user  friendly than the Company's
traditional  products.  The Company  believes that the  introduction  of its new
generation of on-site test kits 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 and shipping commenced in September 1998.

<PAGE>

         Product sales also include sales of agricultural  diagnostic  products.
Sales of these  products were $226,000 for the three months ended  September 30,
1998  compared to sales of $182,000  for the three months  ended  September  30,
1997.  The Company  believes that the primary reason for the increase of 24% 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 $212,000 for the three months ended September 30,
1998  compared to $183,000 for the same period in 1997.  The increase of 16% 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 30% for the three months  ended  September  30, 1998 a decrease as
compared  to the  same  period  in  1997,  when the  gross  margin  was 34% from
laboratory  services.  The  decrease in the gross  margin was  primarily  due to
increased  costs  related to  implementation  of new tests and a decrease in the
average sale price per  laboratory  sample for the three months ended  September
30,  1998 as  compared  to the same  period in 1997.  The  decrease  in  average
realized  sale  price  was  partially  offset  by  savings  realized  from  cost
reductions.

         Gross margins from the sales of both manufactured products and products
purchased  for resale for the three  months  ended  September  30, 1998 were 41%
compared  to 45% of  sales of these  products  during  the  three  months  ended
September  30, 1997.  The  decrease in the gross  margin from product  sales was
primarily  due  to  increased   manufacturing   costs  related  to  new  product
development.

         Selling, general and administration expenses for the three months ended
September 30, 1998 were $2,126,000,  compared to $2,140,000 for the three months
ended  September  30,  1997.  The decrease of $14,000,  or 1%, 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  September  30, 1998 were  $283,000  as compared to $230,000  for the same
period in 1997.  The  increase  of $53,000 or 23% 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,
received  pre-market  clearance from the U.S. Food & Drug Administration on July
31, 1998 and shipments commenced September 1998.

         For the three months ended September 30, 1998, the Company incurred net
interest and financing costs of $162,000, compared to costs of $168,000 incurred
during the three months ended  September  30, 1997.  This  decrease was due to a

<PAGE>

lower  interest rate from new financing for the funds borrowed by the Company to
finance certain equipment purchases and provide working capital.

     As a result of the above, the net loss for the three months ended September
30, 1998 was  $192,000,  compared  to net income of $2,000 for the three  months
ended September 30, 1997.

Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997

         Total  revenues  for the nine  months  ended  September  30,  1998 were
$22,594,000 as compared to $21,622,000  for the nine months ended  September 30,
1997. The increase was  attributable to the increase in revenues from laboratory
services. Laboratory service revenues were $20,715,000 for the nine months ended
September  30,  1998 as  compared  to  $19,485,000  for the  nine  months  ended
September  30, 1997.  This  increase of 6% in  laboratory  service  revenues was
primarily the result of an increase in  laboratory  samples of 15% which was the
result of increased  sales  volume from current  clients as well as new clients.
This increase in unit volume was partially  offset by lower per unit prices.  In
addition,  the Company realized  revenues during the nine months ended September
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  $918,000  for the nine months  ended  September  30, 1998
compared  to sales of  $1,239,000  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
traditional  products.  The Company  believes that the  introduction  of its new
generation of on-site test kits 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 and shipments commenced in September 1998.

         Product sales also include sales of agricultural  diagnostic  products.
Sales of these  products  were  $376,000 for the nine months ended  September 30
1998,  compared to sales of $510,000  for the nine months  ended  September  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 $585,000 for the nine months ended  September 30,

<PAGE>

1998  compared  to  $388,000  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.

         The  gross  margin  from the  revenues  generated  from the  laboratory
services was 33% for the nine months ended  September  30, 1998 as compared to a
gross  margin of 35% for the same  period  in 1997.  The  decrease  in the gross
margin was primarily due to increased  costs related to new test  implementation
and a decrease in the average  realized sale price per  laboratory  sample.  The
decrease in average realized sale price was partially offset by savings realized
from cost reductions.

         Gross margins from the sales of both manufactured products and products
purchased  for resale for the nine  months  ended  September  30,  1998 were 36%
compared  to 39% of  sales of  these  products  during  the  nine  months  ended
September 30, 1997.  The decrease in the gross margin from product sales was due
to lower  overall sales of products  during the nine months ended  September 30,
1998 as compared to the same period in 1997 and  increased  manufacturing  costs
related to new product development.

         Selling,  general and administration expenses for the nine months ended
September 30, 1998 were  $5,993,000  compared to $6,443,000  for the nine months
ended September 30, 1997. The $450,000 or 7% 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 nine months ended
September  30, 1998 were $878,000 as compared to $641,000 for the same period in
1997.  The increase of $237,000 or 37% 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 nine months ended September 30, 1998, the Company  incurred net
interest costs of $479,000,  compared to costs of $444,000  incurred  during the
nine months ended  September 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  nine  months  ended
September 30, 1998 was $169,000, compared to net income of $135,000 for the nine
months ended September 30, 1997.

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,  the Company  believes  that the  laboratory
business  is subject to  seasonality  consistent  with hiring  practices  of its

<PAGE>

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  September  30,  1998,  cash and cash  equivalents  were  $32,000
compared to $58,000 at December 31, 1997.

         As of September 30, 1998,  accounts receivable were $6,566,000 compared
to  $5,553,000  at December 31, 1997.  The  increase of  $1,013,000,  or 18%, is
primarily the result of higher sales in the quarter ended  September 30, 1998 as
compared to the quarter ended December 31, 1997.

         Prepaid  expenses and other assets were  $656,000 at September 30, 1998
as compared to $415,000 at December 31, 1997. The increase of $241,000,  or 58%,
is primarily  the result of an increase in certain  annual  expenses,  which are
being amortized throughout the year.

         At September 30, 1998, the Company had a total balance of restructuring
accruals of $548,000  compared  to a balance of $786,000 at December  31,  1997.
This  decrease  of 30% is the result of certain  payments  made  during the nine
months ended September 30, 1998.

         At September 30, 1998, the Company had a total loan balance owed to its
financial  lender of $5,678,000,  compared to a total balance of $5,016,000 owed
at December  31, 1997.  The net increase of $662,000,  or 13%, was the result of
increased  borrowings by the Company to provide  working  capital and to pay for
purchases of certain  assets  which will enable  future  volume  increases to be
handled with improved 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 September 30, 1998, the Company
had cash and cash equivalents of $32,000 and available borrowings of $50,200. As
of September 30, 1998, the Company was not in compliance with certain  covenants
in its Credit  Agreement  with Norwest.  As a result,  all of the companies term
debt  outstanding  has been  classified as current.  The Company and Norwest are
currently  renegotiating  the terms of the Credit  Agreement to address any loan
covenant  violations and cure the existing default.  Management believes that an
acceptable  resolution  will be  achieved  allowing  the  company  to  meet  its
liquidity requirements through the next twelve months. 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.

<PAGE>


         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 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.

Impact Of Year 2000

         The "Year 2000" issue arises from the fact that many  computer  systems
rely on a two-digit  date code to identify the year (e.g. 98 to represent  1998)
and thus may not be able to  differentiate  between  the year  2000 and the year
1900. If not corrected,  systems processing date-dependent  information may fail
or create erroneous results,  causing disruptions of operations,  including, but
not limited to, a temporary inability to process  transactions,  report results,
send invoices, or engage in similar normal business activity.

         The Company has  completed  its  assessment  of its  internal  computer
systems and has determined that  modification to some portion of its software is
required so that its computer systems function properly with respect to dates in
the year 2000 and beyond.  The Company presently believes that with modification
to existing  software and  conversion to new software,  the Year 2000 issue will
not pose significant operational problems for its computer systems.

         The  Company  has  initiated  formal  communication  with  all  of  its
significant suppliers to determine the extent to which the company is vulnerable
to those third parties ability to resolve their own Year 2000 issues.  There can
be no guarantee that the systems of other  companies on which the Company relies
will be timely  converted or that a failure to convert or a  conversion  that is
incompatible  with the Company's  system would not have an adverse effect on the
Company's  systems.  Supplier  response is not yet  complete  and the Company is
continuing to work to conclude this area of its Year 2000 assessment.

         The Company  anticipates  completing the Year 2000 project prior to any
adverse  impact  on  its  computer  operating  system,   however,   should  such
modifications and conversions are not made, or completed  timely,  the Year 2000
issue could have a material impact on the operations of the Company. The Company
continues to assess its readiness  relative to Year 2000 issues and will develop
a contingency plan for all items not resolved at the end of the first quarter of
fiscal 1999.

         The cost of the Year  2000  project  is not  expected  to be  material.
Changes  required to  internally  supported  software are minor  compared to the
modifications  performed in the normal  course of business and the Company plans
to use internal  resources and delay other  projects to complete these Year 2000
modifications.  Updates to  externally  supported  software  are  covered  under
existing  service  contracts or are not  anticipated  to have costs  material in
nature.

<PAGE>

         The  assessment of the impact,  cost,  and  completion of the Year 2000
project is based on  management's  best  estimates.  Actual results could differ
materially from those anticipated by factors including,  but not limited to, the
continued availability of certain resources, third party modification plans, and
the ability to locate and correct all relevant computer codes.


ITEM 2   CHANGES IN SECURITIES.  Inapplicable

ITEM 3   DEFAULTS ON SENIOR SECURITIES.  Inapplicable

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

     The Annual Meeting (the "1997 Annual  Meeting") of the  stockholders of the
Company was held on September 11, 1998. The following  individuals  were elected
to serve on the Board of Directors of the Company for the ensuing year and until
their  respective  successors  are duly elected and  qualified:  Harry G. McCoy,
Samuel C. Powell,  Richard J. Braun, James W. Hansen,  Miles E. Efron. Also by a
vote of 43,755,303 in favor and 5,226,682  against,  at the 1997 Annual Meeting,
the  stockholders of the Company approved the amendment to Article FOURTH of the
Company's  Certificate  of  Incorporation  to increase its number of  authorized
common stock from 60,000,000  shares to 75,000,000  shares.  236,801 shares were
abstained or did not vote. During the quarter ended September 30, 1998, no other
matters were submitted to a vote of securities holders.

ITEM 5   OTHER INFORMATION.  Inapplicable

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K.

         Report on Form 8-K dated  September 21, 1998 reporting the  declaration
of a  dividend  distribution  of one  Preferred  Share  Purchase  Right  on each
outstanding share of the Registrant's  common stock,  payable to stockholders of
record on September 30, 1998.


<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 12, 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