<PAGE>   1
================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-Q


(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 FROM ______________ TO ______________


                         COMMISSION FILE NUMBER 0-19371
                          PHARMCHEM LABORATORIES, INC.
             (Exact name of registrant as specified in its charter)

                 CALIFORNIA                                  77-0187280
       (State or other jurisdiction                         (IRS Employer
     of incorporation or organization)                  Identification Number)

          1505-A O'BRIEN DRIVE
         MENLO PARK, CALIFORNIA                               94025
(Address of principal executive offices)                    (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 328-6200


        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 report(s), and (2) has been subject to such
filing requirements for the past 90 days.  Yes   X      No
                                               -----       -----

        As of October 31, 1997, the registrant had outstanding 5,747,707 shares
of Common Stock, no par value.



================================================================================


<PAGE>   2



                          PHARMCHEM LABORATORIES, INC.

                          QUARTERLY REPORT ON FORM 10-Q

                                      INDEX


<TABLE>
<CAPTION>
                                                                                     PAGE
<S>        <C>                                                                       <C>
PART I.    FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements ...............................3

           Condensed Consolidated Interim Balance Sheets at
           September 30, 1997 (unaudited) and December 31, 1996 (audited).............4

           Condensed Consolidated Interim Statements of Operations
           (unaudited) for the Three and Nine Months ended
           September 30, 1997 and 1996................................................5

           Condensed Consolidated Interim Statements of
           Cash Flows (unaudited) for the Nine Months ended
           September 30, 1997 and 1996  ..............................................6

           Notes to Condensed Consolidated Interim Financial Statements (Unaudited)...7

Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations .................................................8

PART II.   OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K  ........................................12


SIGNATURE  ..........................................................................13
</TABLE>





                                       2
<PAGE>   3


PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

        The condensed consolidated interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. It is suggested that the condensed consolidated interim financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto for the year ended December 31, 1996 included in the Company's
Annual Report on Form 10-K.

        These financial statements have been prepared in all material respects
in conformity with the standards of accounting measurements set forth in
Accounting Principles Board Opinion No. 28, "Interim Financial Reporting," and
the rules and regulations as specified in the Securities and Exchange Act of
1934 and reflect all adjustments, consisting only of normal recurring
adjustments which, in the opinion of management, are necessary to summarize
fairly the Company's consolidated financial position, the results of its
operations and its cash flows for the periods presented. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year.








                                       3
<PAGE>   4


                          PHARMCHEM LABORATORIES, INC.
                  CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS


<TABLE>
<CAPTION>
                                                             September 30,    December 31,
                                                                 1997             1996
                                                             -------------    ------------
                                                              (Unaudited)      (Audited)
                            ASSETS                                   (In thousands)
<S>                                                            <C>              <C>
CURRENT ASSETS
        Cash and cash equivalents                              $    490         $    240
        Accounts receivable, net                                  8,022            8,168
        Inventory                                                 1,420            1,014
        Other current assets                                        797            1,122
                                                               --------         --------
                TOTAL CURRENT ASSETS                             10,729           10,544
                                                               --------         --------

PROPERTY AND EQUIPMENT, net                                       7,212            6,578
OTHER ASSETS                                                      1,000              986
GOODWILL, net                                                     3,222            3,360
                                                               ========         ========
TOTAL ASSETS                                                   $ 22,163         $ 21,468
                                                               ========         ========

             LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
        Current portion of long-term debt                      $  4,636         $  2,335
        Accounts payable                                          3,071            3,238
        Accrued compensation                                        597              998
        Accrued collectors and other liabilities                  2,780            2,266
                                                               --------         --------
                TOTAL CURRENT LIABILITIES                        11,084            8,837
                                                               --------         --------

LONG TERM DEBT, net of current portion                              844            1,205
DEFERRED CREDITS                                                    148              139
SHAREHOLDERS' EQUITY
        Common stock, no par value, 10,000 shares
          authorized, 5,748 and 5,695 shares issued and
          outstanding at September 30, 1997 and
          December 31, 1996, respectively                        19,021           18,915
        Accumulated deficit                                      (8,934)          (7,628)
                                                               --------         --------
                TOTAL SHAREHOLDERS' EQUITY                       10,087           11,287
                                                               ========         ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $ 22,163         $ 21,468
                                                               ========         ========
</TABLE>





The accompanying notes are an integral part of these condensed consolidated
interim financial statements.



                                       4
<PAGE>   5


                          PHARMCHEM LABORATORIES, INC.
             CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                            Three Months Ended             Nine Months Ended
                                                               September 30,                 September 30,
                                                          -----------------------       -----------------------
                                                            1997           1996           1997           1996
                                                          --------       --------       --------       --------
                                                                 (In thousands, except per share amounts)
<S>                                                       <C>            <C>            <C>            <C>
NET SALES                                                 $ 10,037       $ 10,631       $ 29,098       $ 31,269

COST OF SALES                                                8,402          8,006         23,572         23,872
                                                          --------       --------       --------       --------

GROSS PROFIT                                                 1,635          2,625          5,526          7,397

OPERATING EXPENSES
        Selling, general and administrative                  2,142          2,030          6,234          5,709
        Research and development                                10            284            177          1,198
        Amortization of goodwill                                47             54            139            146
                                                          --------       --------       --------       --------
               Total operating expenses                      2,199          2,368          6,550          7,053
                                                          --------       --------       --------       --------

INCOME (LOSS) FROM OPERATIONS                                 (564)           257         (1,024)           344

Interest expense                                               105            105            289            350
Other (income) expense, net                                     (7)            (3)            (6)           (65)
                                                          --------       --------       --------       --------
               Total other expenses                             98            102            283            285
                                                          --------       --------       --------       --------

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES               (662)           155         (1,307)            59

PROVISION FOR INCOME TAXES                                      --             --             --             --
                                                          --------       --------       --------       --------

NET INCOME (LOSS)                                         $   (662)      $    155       $ (1,307)      $     59
                                                          ========       ========       ========       ========

NET INCOME (LOSS) PER SHARE                               $  (0.12)      $   0.03       $  (0.23)      $   0.01
                                                          ========       ========       ========       ========

Weighted average number of common shares outstanding         5,726          5,763          5,729          5,769
                                                          ========       ========       ========       ========
</TABLE>





The accompanying notes are an integral part of these condensed consolidated
interim financial statements.




                                       5
<PAGE>   6


                                 PHARMCHEM LABORATORIES, INC.
                   CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
                                         (Unaudited)


<TABLE>
<CAPTION>
                                                                           Nine Months Ended
                                                                             September 30,
                                                                         ---------------------
                                                                           1997         1996
                                                                         --------      -------
                                                                          (In thousands)
<S>                                                                      <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net loss                                                         $ (1,307)     $    59
        Adjustments to reconcile net loss to net cash provided
          by operating activities:
                Depreciation and amortization                               1,431        1,365
                Loss (gain) on disposition of property and equipment            2          (50)
        Changes in operating assets and liabilities:
                Accounts receivable, net                                      146          388
                Inventory                                                    (406)         614
                Other current assets                                          325         (173)
                Accounts payable and other accrued liabilities                (63)         400
                Deferred credits                                                9           --
                                                                         --------      -------
                        Net cash provided by operating activities             137        2,603
                                                                         --------      -------

CASH FLOWS FROM INVESTING ACTIVITIES:
              Purchases of property and equipment                          (1,932)      (2,439)
              Proceeds from sale of property and equipment                     --          230
              Payments for marketing rights                                    --         (716)
              Increase in other assets                                        (10)          --
                                                                         --------      -------
                        Net cash used in investing activities              (1,942)      (2,925)
                                                                         --------      -------

CASH FLOWS FROM FINANCING ACTIVITIES:
              Proceeds from revolving line of credit and
                long-term debt                                             12,572        7,712

              Principal payments on revolving line of credit and
                long-term debt                                            (10,623)      (7,781)
              Proceeds from exercise of stock options                         106           32
                                                                         --------      -------
                        Net cash provided by (used in) financing
                          activities                                        2,055          (37)
                                                                         --------      -------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          250         (359)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                              240          647
                                                                         --------      -------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                               $    490      $   288
                                                                         ========      =======
</TABLE>





The accompanying notes are an integral part of these condensed consolidated
interim financial statements.




                                       6
<PAGE>   7


                          PHARMCHEM LABORATORIES, INC.
          NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                   (Unaudited)


1.      Net Income (Loss) per Share

        Net income per share data has been computed using the weighted average
number of common shares outstanding and dilutive common equivalent shares, which
represent shares issuable upon the exercise of outstanding options, during the
period (using the treasury method). For periods with a net loss, the common
equivalent shares were excluded from the calculation of the loss per share
because the effect of including such shares in the computation would be
anti-dilutive.

        The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." SFAS No.
128 requires the presentation of basic earnings per share ("EPS") and, for
companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997 and
requires restatement of all prior-period EPS data presented. The Company expects
basic and diluted EPS will not be materially different from primary EPS as
presented in the accompanying condensed consolidated financial statements.


2.      Debt

        PharmChem maintains a revolver and term loan credit agreement ("Credit
Agreement") with a bank. On October 21, 1997, PharmChem amended the Credit
Agreement to extend the maturity date of the revolver to December 5, 1997,
increase borrowings under the revolver to 85% of qualified account receivables
and set interest to the bank reference rate plus 2.0% (10.25% at September 30,
1997). Further, the Company obtained waivers for noncompliance with several
financial covenants at September 30, 1997. PharmChem previously amended its
revolver and term loan credit agreement with a bank with respect to certain
financial covenants in February and March 1997.

        The Company reached a tentative agreement to secure a new revolving
credit line to replace its existing facility. The new agreement will provide an
increased line of credit and, subject to certain conditions, is expected to
close in late November.




                                       7
<PAGE>   8


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

FORWARD LOOKING STATEMENTS

        "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act
of 1933, which are subject to the "safe harbor" created by these Sections. The
Company's actual future results could differ materially from those projected in
the forward-looking statements. Some factors which could cause future actual
results to differ materially from the Company's recent results and those
projected in the forward-looking statements are described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. The Company
assumes no obligation to update the forward-looking statements or such factors.

RESULTS OF OPERATIONS

        The following table sets forth for the periods indicated certain
financial data (dollars in thousands):

<TABLE>
<CAPTION>
                                       Three Months Ended September 30,             Nine Months Ended September 30,
                                  ------------------------------------------   ------------------------------------------
                                    1997        1996        1997       1996      1997        1996        1997       1996
                                  --------     -------      -----      -----   --------     -------      -----      -----
                                                         (As a % of net sales)                         (As a % of net sales)
<S>                               <C>          <C>          <C>        <C>     <C>          <C>          <C>        <C>
NET SALES:
  Public and private employers    $  4,324     $ 5,033       43.1%      47.3%  $ 12,686     $14,538       43.6%      46.5%
  Criminal justice agencies          3,645       4,315       36.3       40.6     11,108      12,459       38.2       39.8
  Drug rehabilitation programs         340         413        3.4        3.9      1,089       1,465        3.7        4.7
  Domestic product sales               681          48        6.8        0.5      1,099         209        3.8        0.7
  Medscreen                          1,047         822       10.4        7.7      3,116       2,598       10.7        8.3
                                  --------     -------      -----      -----   --------     -------      -----      -----
      Total net sales               10,037      10,631      100.0      100.0     29,098      31,269      100.0      100.0

COST OF SALES                        8,402       8,006       83.7       75.3     23,572      23,872       81.0       76.3
                                  --------     -------      -----      -----   --------     -------      -----      -----

GROSS PROFIT                         1,635       2,625       16.3       24.7      5,526       7,397       19.0       23.7
                                  --------     -------      -----      -----   --------     -------      -----      -----

OPERATING EXPENSES:
  Selling, general and
    administrative                   2,142       2,030       21.3       19.1      6,234       5,709       21.4       18.3
  Research and development              10         284        0.1        2.7        177       1,198        0.6        3.8
  Amortization of goodwill              47          54        0.5        0.5        139         146        0.5        0.5
                                  --------     -------      -----      -----   --------     -------      -----      -----
      Total operating expenses       2,199       2,368       21.9       22.3      6,550       7,053       22.5       22.6
                                  --------     -------      -----      -----   --------     -------      -----      -----

INCOME (LOSS) FROM OPERATIONS         (564)        257       (5.6)       2.4     (1,024)        344       (3.5)       1.1
                                  --------     -------      -----      -----   --------     -------      -----      -----

OTHER EXPENSE, net                      98         102        1.0        1.0        283         285        1.0        0.9
                                  --------     -------      -----      -----   --------     -------      -----      -----

NET INCOME (LOSS)                 $   (662)    $   155       (6.6)%      1.4%  $ (1,307)    $    59       (4.5)%      0.2%
                                  ========     =======      =====      =====   ========     =======      =====      =====
</TABLE>



                                       8
<PAGE>   9


        Net sales for the three months ended September 30, 1997 decreased
$594,000 (5.6%) to $10,037,000 in 1997 from $10,631,000 in 1996. Medscreen, the
Company's U.K. operation, reported an increase of $225,000 (27.4%), which was
more than offset by a decrease in domestic urinalysis revenues of $1,452,000
(14.9%) principally from criminal justice agencies. The Company's domestic
specimen volume decreased 141,000 (17.8%) units from comparable 1996 levels.
This decrease in volume is principally attributed to prior year's sales to the
U.S. Army and lower criminal justice revenues. Average domestic specimen pricing
increased approximately 4.2%. Product sales of PharmScreen(TM) and PharmChek(R)
increased $633,000 over the prior year.

        Net sales for the nine months ended September 30, 1997 decreased
$2,171,000 (6.9%) to $29,098,000 in 1997 from $31,269,000 in 1996. Medscreen
reported an increase of $518,000 (19.9%), which was more than offset by a
decrease in domestic urinalysis revenues of $3,579,000 (12.6%) principally from
criminal justice agencies and the U.S. Army. The Company's domestic specimen
volume decreased 16.9% from comparable 1996 levels. The volume reduction
reflects the August 1996 loss of the U.S. Army contract and continued lower
urinalysis revenues from criminal justice agencies. Average domestic specimen
pricing increased approximately 5.0%. Product sales of PharmScreenTM and
PharmChek(R) increased $890,000 over the prior year, reflecting the successful
August 1996 launch of PharmScreen(TM).

        Cost of sales for the three months ended September 30, 1997 increased
$396,000 (4.9%) to $8,402,000 in 1997 from $8,006,000 in 1996. Cost of sales as
a percentage of net sales increased to 83.7% in 1997 from 75.3% in 1996. Gross
profit as a percentage of net sales decreased to 16.3% in 1997 from 24.7% in
1996.

        Cost of sales for the nine months ended September 30, 1997 decreased
$300,000 (1.3%) to $23,572,000 in 1997 from $23,872,000 in 1996, and cost of
sales as a percentage of net sales increased to 81.0% in 1997 from 76.3% in
1996. Gross profit as a percentage of net sales decreased to 19.0% in 1997 from
23.7% in 1996. The deterioration in the gross profit margin in 1997 reflects the
continued underabsorption of fixed costs resulting from lower domestic specimen
volume.

        Selling, general and administrative (SG&A) expenses for the three months
ended September 30, 1997 increased $112,000 (5.5%) to $2,142,000 in 1997 from
$2,030,000 in 1996. SG&A expenses as a percentage of net sales increased to
21.3% in 1997 from 19.1% in 1996.

        SG&A expenses for the nine months ended September 30, 1997 increased
$525,000 (9.2%) to $6,234,000 in 1997 from $5,709,000 in 1996. SG&A expenses as
a percentage of net sales increased to 21.4% in 1997 from 18.3% in 1996. These
increases reflect the Company's continued investment in the sales, marketing,
information systems and administrative infrastructure.

        Research and Development (R&D) costs for the three months ended
September 30, 1997 decreased $272,000 (96.5%) to $10,000 in 1997 from $282,000
in 1996. R&D costs as a percentage of net sales decreased to 0.1% in 1997 from
2.7% in 1996.



                                       9
<PAGE>   10


        R&D costs for the nine months ended September 30, 1997 decreased
$1,021,000 (85.2%) to $177,000 in 1997 from $1,198,000 in 1996. R&D costs as a
percentage of net sales decreased to 0.6% in 1997 from 3.8% in 1996. These
expenses include the cost associated with the development and commercialization
of new laboratory methods and other drug testing systems. The decreases from the
prior year are due primarily to significant expenditures in the prior year for
PharmChek(R).

        Loss from operations for the three months ended September 30, 1997 was
$564,000 compared to income of $257,000 in 1996. Loss from operations for the
nine months ended September 30, 1997 was $1,024,000 compared to income from
operations of $344,000 in 1996.

        Net loss for the three months ended September 30, 1997 was $662,000 or
$0.12 per share in 1997 compared to net income of $155,000 or $0.03 per share in
1996. Net loss for the nine months ended September 30, 1997 was $1,307,000 or
$0.23 per share in 1997 compared to net income of $59,000 or $0.01 per share in
1996.

LIQUIDITY AND CAPITAL RESOURCES

        The Company's operations during the nine months ended September 30, 1997
and 1996 provided cash of approximately $137,000 and $2,603,000, respectively.
The deterioration in cash flow from operations between 1997 and 1996 principally
reflects the increased net loss and higher inventory levels. As of September 30,
1997, the Company had $490,000 in cash and cash equivalents. During 1997, the
Company used approximately $1,932,000 in cash to acquire property and equipment,
principally for information systems.

        The Company maintains a Credit Agreement with a bank. All borrowings are
secured by a lien on all assets of the Company. The Credit Agreement provides
for borrowings under the revolver limited to 75% of qualified account
receivables through September 1997. As of September 30, 1997, approximately
$3,988,000 and $111,000 were outstanding under the $5,000,000 revolver and term
loan, respectively. Year-to-date net borrowings on the revolver and long-term
debt were approximately $1,949,000 as of September 30, 1997. The Credit
Agreement contains certain financial covenants which, among others, require the
Company to maintain certain levels of net worth, cash flow and profitability,
and restricts the payment of dividends. In February and May 1997, PharmChem
amended its Credit Agreement with respect to certain financial covenants.

        On October 21, 1997, PharmChem amended its Credit Agreement to extend
the maturity date of the revolver to December 5, 1997, increase borrowings under
the revolver to 85% of qualified account receivables and set interest to the
bank reference rate plus 2.0% (10.25% at September 30, 1997). Further, the
Company obtained waivers for noncompliance with several financial covenants at
September 30, 1997.

        The Company reached a tentative agreement to secure a new revolving
credit line to replace its existing facility. The new agreement will provide an
increased line of credit and, subject to certain conditions, is expected to
close in late November.



                                       10
<PAGE>   11

        The Company anticipates that existing cash balances, amounts available
under existing and future credit agreements and funds to be generated from
future operations will be sufficient to fund operations and forecasted capital
expenditures through 1997.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

        The Financial Accounting Standards Board (FASB) recently issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share."
SFAS No. 128 requires the presentation of basic earnings per share (EPS) and,
for companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997 and
requires restatement of all prior-period EPS data presented. The Company expects
basic and diluted EPS will not be materially different from primary EPS as
presented in the accompanying condensed consolidated financial statements.

        In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of a Business Enterprise." SFAS No. 131 establishes standards for disclosures
about segments of an enterprise and is effective for annual periods beginning
after December 15, 1997. The Company expects to include the SFAS No. 131
disclosures in its consolidated financial statements for the year ended December
31, 1998.





                                       11
<PAGE>   12


PART II.  OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

        (a)    Exhibits:

               10.35    1997 Equity Incentive Plan.

               10.36    Form of Stock Option Agreement (Nonstatutory Stock
                        Option) in connection with the 1997 Equity Incentive
                        Plan.

               10.37    Stock Option Agreement (Incentive Stock Option) in
                        connection with the 1997 Equity Incentive Plan.

        (b)    Exhibit 27 - Financial Data Schedule

        (c)    Reports on Form 8-K:

               None.








                                       12
<PAGE>   13


SIGNATURE

        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.

                                    PharmChem Laboratories, Inc.
                                    (Registrant)


Date:  November 12, 1997            By: /s/ David A. Lattanzio
                                        ----------------------------------------
                                    David A. Lattanzio
                                    Chief Financial Officer and Vice President,
                                    Finance and Administration
                                    (Principal Financial and Accounting Officer)







                                       13

<PAGE>   14

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number              Description
------              -----------
 <S>                <C>
 10.35              1997 Equity Incentive Plan.

 10.36              Form of Stock Option Agreement (Nonstatutory Stock
                    Option) in connection with the 1997 Equity Incentive Plan.

 10.37              Stock Option Agreement (Incentive Stock Option) in
                    connection with the 1997 Equity Incentive Plan.

 Exhibit 27 -       Financial Data Schedule

</TABLE>