10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

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
incorporation 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

Securities registered pursuant to Section 12(b) of the Act:

See “Securities registered pursuant to Section 12(g) of the Act” immediately below.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.15 par value per share. Effective February 16, 2006, the Company’s common stock became listed on NASDAQ; such common stock had previously been listed on the American Stock Exchange. In connection with the change in the listing of the Company’s common stock, the Company registered the common stock under Section 12(g) of the Act but took no action to deregister such securities under Section 12(b).

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer [X ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of June 30, 2005, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was $52,937,000 on the closing price as reported on the American Stock Exchange.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Outstanding at February 28, 2006
Common Stock, $0.15 par value per share	8,147,033 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Definitive Proxy Statement for the 2006 Annual Meeting of Stockholders to be held May 25, 2006 (Proxy Statement)	Part III

MEDTOX SCIENTIFIC, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2005

Table of Contents
ITEM NO.		PAGE
Part I
1.	Business	4
1A.	Risk Factors	14
2.	Properties	18
3.	Legal Proceedings	18
4.	Submission of Matters to a Vote of Security Holders	18
Part II
5.	Market for the Registrant's Common Equity, Related Stockholder
	Matters and Issuer Purchases of Equity Securities	19
6.	Selected Financial Data	20
7.	Management's Discussion and Analysis
	of Financial Condition and Results of Operations	21
7A.	Quantitative and Qualitative Disclosures About Market Risk	35
8.	Financial Statements and Supplementary Data	36
9.	Changes in and Disagreements With Accountants on
	Accounting and Financial Disclosure	36
9A.	Controls and Procedures	36
9B.	Other Information	36
Part III
10.	Directors and Executive Officers of the Registrant	38
11.	Executive Compensation	38
12.	Security Ownership of Certain Beneficial Owners and Management	38
13.	Certain Relationships and Related Transactions	38
14.	Principal Accountant Fees and Services	38
Part IV
15.	Exhibits and Financial Statement Schedule	39
	Signatures	43

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PART I

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 regarding our plans and objectives, including planned introductions 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 our business.

This document and any documents incorporated by reference herein also identify important factors which could cause actual results to differ materially from those indicated by the forward looking statements. The factors that could affect our actual results include the following:

• increased competition, including price competition

• changes in demand for our services and products by our customers

• changes in general economic and business conditions, both nationally and internationally, which can influence the level of job growth and, in turn, the level of pre-employment drug screening activity

• technological or regulatory developments, or evolving industry standards, that could affect or delay the sale of our products

• our ability to attract and retain experienced and qualified personnel

• risks and uncertainties with respect to our patents and proprietary rights, including:

          •           other companies challenging our patents

          •           patents issued to other companies that may harm our ability to do business

          •           other companies designing around technologies we have developed

          •           our inability to obtain appropriate licenses from third parties

          •           our inability to protect our trade secrets

          •           risk of infringement upon the proprietary rights of others

          •           our inability to prevent others from infringing on our proprietary rights

• our inability to obtain sufficient financing to continue to sustain or expand our operations

• adverse results in litigation matters

• other factors, including those set forth in Item 1A of this Annual Report on Form 10-K

Many factors could cause our actual results, performance or achievements to be materially different from those anticipated in our forward looking statements. Any written or oral forward looking statements made by us or on our behalf are subject to these factors. Should one or more of these risks or uncertainties materialize, or should

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assumptions underlying the forward looking statements prove incorrect, actual results, performance or achievements may vary materially from those described in this Annual Report on Form 10-K as intended, planned, anticipated, believed, estimated or expected. The risk factors included in this Annual Report on Form 10-K are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward looking statements. Other unknown or unpredictable factors could also harm our future results. Given these uncertainties, readers are cautioned not to place undue reliance on such forward looking statements.

The forward looking statements included in this Annual Report on Form 10-K are made only as of the date of this Annual Report on Form 10-K. We do not intend, and do not assume any obligations, to update these forward looking statements, except as required by law.

ITEM 1. BUSINESS.

1. General.

MEDTOX Scientific, Inc., a Delaware corporation, was organized in September 1986. MEDTOX Scientific, Inc. and its wholly owned subsidiaries, MEDTOX Laboratories, Inc., MEDTOX Diagnostics, Inc. and New Brighton Business Center, LLC are collectively referred to herein as the “Company”, “MEDTOX”, “we”, “us” or “our.”

We are engaged primarily in two distinct, but related businesses. MEDTOX Laboratories, Inc., based in St. Paul, Minnesota, provides forensic and clinical laboratory services. MEDTOX Diagnostics, Inc. based in Burlington, North Carolina, manufactures and distributes diagnostic devices and other similar products. For the year ended December 31, 2005, MEDTOX Laboratories, Inc. and MEDTOX Diagnostics, Inc. accounted for 77% and 23% of our consolidated revenues, respectively.

2. Principal Services, Products, and Markets.

General. We have two reportable segments: “Laboratory Services,” which consists of the activities conducted by MEDTOX Laboratories, Inc. and New Brighton Business Center, LLC, and “Product Sales,” conducted by MEDTOX Diagnostics, Inc. Laboratory Services include forensic toxicology, clinical toxicology, clinical testing for the pharmaceutical industry (central laboratory services, bioanalytical and pharmacokinetic testing), and analysis of heavy and trace metals. In addition, the Laboratory Services segment provides logistical support, data management and overall program management services. The Product Sales segment includes sales of a variety of on-site screening products and contract manufacturing. For financial information relating to our segments, see Note 2 of notes to the consolidated financial statements included in this Annual Report on Form 10-K.

Laboratory Services

A.Workplace Drugs-of-Abuse Testing. As reflected in the table below, our Laboratory Services segment derives a substantial percentage of its revenues from the provision of laboratory testing services for the identification of drugs-of-abuse.

(In thousands)	2005	2004	2003
Workplace drugs-of-abuse testing revenues	$ 31,838	$ 27,913	$ 24,098
% of Laboratory Services revenues	66%	65%	61%

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Industry analysts have estimated that the industry-wide revenues derived from workplace laboratory-based drugs-of-abuse testing in the United States amount to approximately $400 million. Information available from public sources highlights the motivations behind such testing. For example, the President’s Office of National Drug Control Policy estimated the cost of productivity losses to the U.S. economy due to drugs-of-abuse was over $128 billion in 2002. According to results of a National Institute of Drug Abuse-sponsored survey, drug-using employees are 2.2 times more likely to request early dismissal or time off, 2.5 times more likely to have absences of eight days or more, 3 times more likely to be late for work, 3.6 times more likely to be involved in a workplace accident, and 5 times more likely to file a workers’ compensation claim. We believe the percentage of employers with drug testing programs has remained fairly consistent over the last five years, with drug testing more prevalent among larger employers. A 2004 American Management Association survey reported the percentage of employers with drug testing programs at 62%.

Workplace drugs-of-abuse testing remains predominately laboratory-based. However, we are observing an increased use of on-site drug testing devices. We offer on-site drug testing devices through our Product Sales segment. Our sale of on-site drug testing devices also supports our Laboratory Services business as confirmation testing, logistics, data and program management services are often sold along with on-site testing devices.

Our customers for workplace substance abuse testing include public and private companies, as well as service firms such as drug treatment counseling centers, occupational health clinics, third party administrators and hospitals.

B. Other Specialty Laboratory Services. As reflected in the table below, our Laboratory Services segment also derives revenues from the provision of other services, including: clinical toxicology; clinical testing for the pharmaceutical industry; heavy metal, trace element and solvent analyses; and logistics, data and program management services.

(In thousands)	2005	2004	2003
Other specialty laboratory services revenues	$ 16,744	$ 15,306	$ 15,326
% of Laboratory Services revenues	34%	35%	39%

The services we provide in these specialty niches within the clinical laboratory industry market enable us to leverage our core competencies and expertise.

Clinical Toxicology. We have a fully certified clinical toxicology reference laboratory specializing in esoteric therapeutic drug monitoring and emergency toxicology. Esoteric tests are more sophisticated tests used to obtain information not provided by routine tests and generally involve a higher level of complexity and more substantial human involvement than routine tests. The tests performed in the clinical laboratory are conducted using methodologies such as various immunoassays (a test that uses binding of antibodies to antigens to identify and measure certain substances), gas liquid chromatography, high performance liquid chromatography, gas chromatography/mass spectrometry and tandem mass spectrometry. Chromatography is a technique for separating, identifying and quantifying the individual chemical components of substances based on the physical and chemical characteristics specific to each component. Mass spectrometry is a technique for analyzing the individual chemical components of substances by breaking molecules into multiple electrically charged ions that are then sorted for analysis according to their mass-to-charge ratios.

We perform analytical testing for a wide variety of drug classes including: analgesic, antianxiety, anticholinergic, anticoagulant, anticonvulsant, antidepressant, antidiabetic, antiemetic, antihistamine, antiinflammatory, antimicrobial, antipsychotic, bronchodilator, cardiovascular, stimulant, decongestant, immunosuppressant, local anesthetic, muscle relaxant, narcotic analgesic and sedative medications. Clients for our clinical toxicology services consist of hospitals, clinics and other laboratories.

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Clinical Testing for the Pharmaceutical Industry. We provide general laboratory services, assay (test) development, bio-analytical and pharmacokinetic (a process by which a drug is absorbed, distributed, metabolized and eliminated by the body) testing for Phase I-IV clinical trials. Phase I clinical trials focus primarily on testing the safety of the drug and involve generally only a small number of patients. In Phase II trials, the results of people taking a new treatment are compared with results of people taking standard treatment or a placebo. A Phase II trial typically involves hundreds of patients. A Phase III trial involves several thousands of patients and is designed to further evaluate the efficacy and safety of the drug. Phase IV clinical trials involve further evaluation of the study drug generally after the drug is already approved and in the market place. These tests are performed in our clinical and GLP (Good Laboratory Practices)-bioanalytical laboratories and are conducted using methodologies such as immunoassay, gas chromatography, high performance liquid chromatography, gas chromatography/mass spectrometry and tandem mass spectrometry.

Clients for our clinical testing services include clinical trial sponsors (pharmaceutical and biotech companies), clinical research organizations (CROs), site management organizations (SMOs) that assist clinical trials sponsors, research organizations, and investigators with trial management, patient recruitment and enrollment and site management.

Heavy Metal, Trace Element, and Solvent Analyses. We operate a laboratory in which blood and urine are tested for heavy metals (for example, lead), trace elements and solvents. Our clients for these services are other laboratories, occupational health clinics, companies that are required to comply with OSHA (Occupational Safety and Health Administration) guidelines for monitoring occupational exposure to hazardous materials, and pediatricians who test children for exposure to lead. Current Centers for Medicare and Medicaid Services policy requires a screening blood lead test for all Medicaid-eligible children at 12 and 24 months of age. In addition, children over the age of 24 months, up to 72 months of age, should receive a screening lead test if there is no record of a previous test.

Logistics, Data, and Program Management Services. We also provide services in the areas of logistics management, data management and program management. These services support our underlying business of laboratory analysis and provide added value to our clients. Value-added services include courier services for medical specimen transportation, management programs for laboratory-based and on-site drug testing, coordination of specimen collection sites, and data collection/reporting services including the use of our WEBTOX^® internet-based reporting system. In the data management area, we have a new service, eChain^®, the first multi-purpose electronic chain-of-custody system in the market. We have initiated deployment of eChain^® and we expect it to be in use in more than 1,000 specimen collection sites in 2006.

Product Sales

A.            Substance Abuse Testing Products. The table below reflects information regarding the revenues derived by our Product Sales segment during the last three years from the sale of point-of-collection testing (POCT) products for drugs-of-abuse, the primary component of Product Sales segment revenues.

(In thousands)	2005	2004	2003
POCT product revenues	$ 12,402	$ 11,246	$ 10,295
% of Product Sales revenues	86%	83%	85%

The primary markets for our point-of-collection screening products for drugs-of-abuse are workplace drugs-of-abuse testing, testing in support of hospital emergency departments, the criminal justice system and rehabilitation centers. In the workplace drugs-of-abuse market, we continue to observe some shift

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from laboratory-based testing to point-of-collection testing for clients in industries where the availability of test results in minutes provides added value. We manufacture and distribute our PROFILE^®-II, PROFILE^®-II A and PROFILE^®-III point-of-collection screening products into this market. These products are often sold in conjunction with confirmation testing, logistic, data management, and program management services provided by our Laboratory Services segment. Our customers for substance abuse testing products include public and private companies, as well as occupational health clinics and third party administrators.

Drug abuse is frequently a factor in emergency room treatment of patients. We manufacture and distribute the PROFILE-II ER^® line of diagnostic drug screening products marketed to the hospital markets for drug detection in patients presenting in emergency rooms. The PROFILE-II ER^® devices are Food and Drug Administration (FDA)-cleared one step qualitative screening assays for the detection of the following drugs and/or their metabolites (any substance produced by metabolism):

• amphetamines/methamphetamines/methylenedioxymethyl amphetamine (ecstasy, speed, crystal)

• barbiturates (Phenobarbital)

• benzodiazepines (Valium, Librium, Halcion)

• cannabinoids/THC (pot, marijuana)

• cocaine (crack)

• methadone (Methadose)

• opiates (heroin)

• phencyclidine/PCP (angel dust)

• propoxyphene (Darvon)

• tricyclic antidepressants

We also manufacture and distribute diagnostic drug screening products within the criminal justice and drug rehabilitation markets. Our VERDICT®-II and SURE-SCREEN® product lines are primarily sold within these markets and are sold alone or as part of our comprehensive drug testing program solution, ClearCourse™. ClearCourse™ is a unique and comprehensive drug testing program that combines four essential components: Drug Abuse Recognition System (DARS™) training, SURE-SCREEN^® on-site drug screening devices, laboratory based confirmation testing and WEBTOX^® online data management.

The SURE-SCREEN^® is a diagnostic device utilizing lowered drug cut-off levels that assists criminal justice agencies in their "no drug use" mandate and supports efforts at early intervention. The chart below shows the specific cut-offs for the SURE-SCREEN^® device as compared to the traditional National Institute of Drug Abuse (NIDA) cut-offs:

Drug	Screening Cut-Off
	Traditional	SURE-SCREEN®
Amphetamine	1000 ng/ml	300 ng/ml
Methamphetamine	1000 ng/ml	300 ng/ml
Benzoylecgonine	300 ng/ml	100 ng/ml
Morphine	NA	100 ng/ml
Methadone	NA	200 ng/ml
Phencyclidine	25 ng/ml	25 ng/ml
Benzodiazepines	NA	200 ng/ml
Cannabinoids	50 ng/ml	40 ng/ml

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B.            Contract Manufacturing Services and Other Diagnostic Products. In addition to the sale of POCT products for drugs-of-abuse, our Product Sales segment derives revenues from the manufacture of coagulation (blood clotting) market controls for various customers. We also distribute other diagnostic tests, including diagnostic tests for the detection of alcohol with the EZ-SCREEN^® Breath Alcohol Test, as well as agricultural diagnostic products. Our agricultural diagnostic products are distributed to processing plants and the U.S. Department of Agriculture for the detection of antibiotic residues in meat and the identification of meat species. The table below reflects information regarding the revenues derived by our Product Sales segment from contract manufacturing services and the distribution of other diagnostic products.

(In thousands)	2005	2004	2003
Contract manufacturing services revenues	$ 1,840	$ 1,980	$ 1,416
% of Product Sales revenues	13%	15%	12%
Other diagnostic products revenues	$ 223	$ 291	$ 338
% of Product Sales revenues	1%	2%	3%

3. Marketing and Sales.

We believe that the combined operations of the Laboratory Services business and the on-site test kits manufactured by the Product Sales segment have created synergy in the marketing of comprehensive, on-site and laboratory testing programs to a common customer base. We are in a position to offer a full line of products and services for the substance abuse testing and occupational medicine marketplace, including (1) on-site tests for the detection of drugs-of-abuse; (2) SAMHSA (Substance Abuse Mental Health Services Administration) certified laboratory testing (screening and confirmation); (3) biological monitoring of occupational toxins; (4) consultation; and (5) logistics, data management and program management services.

We have expanded our sales effort in the pharmaceutical market by offering testing services for Phase I-IV clinical trials and working with sponsors and CROs on assay development and bio-analytical and pharmacokinetic studies. In addition, we have begun to market clinical diagnostic testing services to clinics, hospitals and physician offices on a regional basis. With the acquisition of Leadtech™ in October 2001, we have expanded our presence in the pediatric lead testing market.

We use several distribution channels to sell our products and services. We employ a direct sales force which consists of 25 sales representatives and four sales managers (one for each of our primary markets - workplace drugs-of-abuse, government, clinical testing and clinical trials). In addition, we are a party to a distribution agreement with Cardinal Health for our PROFILE^® products sold into the hospital laboratory market. We also benefit from sales efforts on our behalf conducted by third party administrator organizations and occupational health clinic groups.

We have a strategic relationship in the area of pediatric lead testing with Sustainable Resource Center (SRC), a not-for-profit organization dedicated to the eradication of lead exposure in homes within the United States. We provide monthly funding of approximately $5,000 to SRC which is primarily utilized for educational purposes.

We have developed strategic sales plans for each of the four primary markets served. These plans include the utilization of supporting materials for advertising and direct marketing efforts, lead generation activities and attending pertinent industry tradeshows.

Major Customers. We had no single customer whose sales amounted to more than 10% of our consolidated revenues during 2005, 2004 or 2003.

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4. New Products, Research and Development.

Laboratory Services. OurLaboratory Services’ research and development group develops assays for new drugs and compounds and new assays for existing drugs and other toxins, and improves existing assays with the goal of improving assay robustness, sensitivity, accuracy, precision, specificity and efficiency. This group also investigates and develops assays for commonly tested compounds in alternative matrices and novel formats. During 2005, this group developed and validated 40 new laboratory-based assays using immunochemistry, liquid chromatography (LC), gas chromatography (GC), gas chromatography with mass spectrometry (GC/MS), inductively coupled plasma mass spectrometry (ICP/MS), and LC with tandem mass spectrometry (LC/MS/MS). These activities continue to enhance our test menu and ability to realize efficiencies of new technologies. A significant effort in 2005 was dedicated to the development of new tests for the pharmaceutical industry and clinical trials.

Product Sales. We continue to develop new and innovative products and services for the drug testing market. We are continually improving our product performance, result hold time (length of time the result is readable on the device) and cost effectiveness in order to meet the evolving demands of the marketplace.

In 2005, we continued implementation of LEAN manufacturing processes in the diagnostic area, resulting in greater flexibility of product configurations for clients, increased efficiency in manufacturing and improved device performance. We can now offer a much greater degree of customization to our clients, both in terms of specific assays on a particular device, and the possibility of our supplying a “private label” device to large clients.

In 2005, we introduced our FDA 510(k)-cleared SURE-SCREEN^® cup product which tests at sensitivity levels substantially lower than traditional levels. The drugs tested as part of the SURE-SCREEN^® product line include THC, cocaine, opiates, amphetamine, methamphetamine, benzodiazepines, phencyclidine and methadone. Specific markets to which SURE-SCREEN^® are targeted include probation, parole, drug rehabilitation, hospital emergency departments, medical clinics, laboratories, and corporate clients interested in lower detection levels for pre-employment testing. Clients in these markets are generally not bound by adherence to traditional drug sensitivity guidelines established by the federal government. In most cases, these clients are interested in determining whether there was a presence of drugs in a specimen at any level.

In 2005, we completed enhancements to our PROFILE^®-II, PROFILE^®-II A and PROFILE-II ER^® products that shorten run times, darken line intensity, improve readability and extend the positive result hold time. Our enhanced product began shipping late in the first quarter of 2005.

In 2005, we made important strides in developing the MEDTOXScan™ electronic reader, which will allow more effective use of our POCT devices in hospital laboratory and emergency room settings. Production units of MEDTOXScan™ are currently expected to be available in the first half of 2006.

In late 2005, we introduced our PROFILE^®-III cup product. This product tests for THC, cocaine, opiates, amphetamine, methamphetamine and PCP at standard SAMHSA sensitivity levels, and benzodiazepines, barbiturates, methadone, tricyclic antidepressants and propoxyphene at standard industry levels. The PROFILE^®-III cup is targeted for the corporate and occupational health clinic markets. The use of a cup format in these markets is advantageous due to the elimination of the standard pipette (laboratory instrument used to transport a measured quantity of liquid) used in a cassette device. The cup format provides an enclosed system where the testing personnel are not exposed to the urine sample. The PROFILE^®-III cup design adds simplicity and time savings to the drug screening process.

Research and Development. We incurred costs of $2.3 million, $1.7 million, and $1.9 million for research and development activities in 2005, 2004, and 2003, respectively. Currently, we employ 16 scientists in research and development activities for the Laboratory Services and Product Sales segments.

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Their primary duties are focused on new methods and assay development for Laboratory Services and developing on-site, rapid in vitro diagnostic devices at the Product Sales facility.

5. Raw Materials.

Laboratory Services. The raw materials required by the laboratory for urine drug testing consist primarily of two types: specimen collection supplies and reagents for laboratory analysis. The collection supplies include drug testing custody and control forms that identify the specimen and the client, as well as document the chain-of-custody. Collection supplies also consist of specimen bottles and shipping supplies. Reagents for drug testing are primarily immunoassay screening products and various chemicals used for confirmation testing. We believe all of these materials are available at competitive prices from numerous suppliers.

Product Sales. The primary raw materials required for the immunoassay-based test kits produced by us consist of antibodies, antigens and other reagents, plastic molded devices, wicking materials, filter materials, absorbent materials and packaging materials. We maintain an inventory of raw materials which, to date, has been acquired primarily from third parties. Currently, most raw materials are available from several sources. The molds and tooling for plastic-molded components are owned by us, which provides supply chain management flexibility. We possess the technical capability to produce our own antibodies and antigens and have initiated production of antibodies and antigens for certain tests. Antibodies are part of the immune system and are proteins which are produced by white blood cells. Their task is to circulate in the body and to attach themselves to any foreign particles (antigen) which they may come across. If we were to change certain raw materials used in a specific test, additional development, validation and accompanying costs may be required to adapt the alternate material to the specific diagnostic test.

6. Patents, Trademarks, Licensing and Other Proprietary Information.

Laboratory Services. We believe that the basic technologies requisite to the production of antibodies are in the public domain and are not patentable. We rely upon trade secret protection of certain proprietary information, rather than patents, where we believe disclosure could cause us to be vulnerable to competitors that could successfully replicate our techniques and processes.

Product Sales. We file patent applications to protect our intellectual property as it relates to our technologies, inventions and improvements which can be utilized in the development and manufacture of our Product Sales business. These patents relate to our core technologies and designs for diagnostic testing, screening and services. We hold ten United States issued patents with expiration dates ranging from 2007 to 2012.

General. At December 31, 2005, we held 17 registered trade names and/or trademarks in reference to our products and corporate names. Our trade names and/or trademarks range in duration from 10 to 20 years with expiration dates ranging from 2006 to 2014. Applications have also been made for additional trade names.

7. Seasonality.

Laboratory Services. We believe that the laboratory testing business is subject to seasonal fluctuations in pre-employment screening. These seasonal fluctuations include reduced volume in the summer months, year-end holiday periods, and other major holidays. In addition, inclement weather may have a negative impact on volume thereby reducing revenues and cash flow.

Product Sales. We do not believe that seasonality is a significant factor in the sale of our on-site immunoassay testing devices.

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8. Backlog.

Laboratory Services. At December 31, 2005, MEDTOX Laboratories, Inc. did not have any significant backlog. We do not believe that sales backlog is a significant factor in the Laboratory Services segment of our business. However, the time from when an account becomes a client to the time the laboratory starts receiving specimens may be up to four months. The delay in receiving samples is primarily due to the necessity of establishing communication capabilities between the client and us, the requirement to ship out collection kits and forms, and the establishment of a collection site network. At December 31, 2005, we had several accounts that were in the process of being set up where revenues won’t be realized until 2006.

Product Sales. At December 31, 2005, MEDTOX Diagnostics, Inc. did not have any significant backlog. We do not believe that sales backlog is a significant factor in the Product Sales segment of our business.

9. Competition.

Laboratory Services. Our Laboratory Services segment competes in a fragmented, though highly competitive, industry. At December 31, 2005, 47 labs, including MEDTOX Laboratories, Inc., were certified by the Department of Health and Human Services as having met the standards for Subpart C of the Mandatory Guidelines for Federal Workplace Drug Testing Programs (59 FR 29916, 29925) and were involved in workplace drugs-of-abuse testing. Without ongoing certification in this program, a laboratory would not be permitted to conduct drug testing for Federal Workplace Drug Testing Programs such as testing for the Department of Transportation and other similar programs. Competitors include Quest Diagnostics and Laboratory Corporation of America, as well as the testing units of other clinical laboratories, including independent laboratories, specialized laboratories, and in-house testing facilities maintained by hospitals.

Our Laboratory Services segment competes on the basis of the reliability and accuracy of its test results, price structure, service, transportation and collection network, and the ability to establish relationships with hospitals, physicians and users of drug abuse testing programs. Many of the segment’s competitors and potential competitors have substantially greater financial and other resources than we do.

The laboratory services drugs-of-abuse industry is consolidating, with the consolidation being driven by customers’ desires to minimize the number of laboratories they work with, the need for operating efficiencies in the form of critical mass (testing volumes), required investment levels and government regulation. In light of these forces, we face an increasing challenge to differentiate ourselves through our technology and value-added services, such as data management, collection site management, training and technical support and expertise. Our ability to successfully compete in the future and maintain our margins will be based on our ability to maintain our quality and customer service while maintaining efficiencies and low cost operations.

Product Sales. Numerous large companies with greater research and development, marketing, financial and other capabilities, as well as smaller research firms, are engaged in research, development and marketing of diagnostic assays for application in the areas for which we produce our products.

The diagnostics market has become highly competitive with respect to the price, quality and ease of use of various tests, and is characterized by rapid technological changes. We have designed our diagnostic screening products to be inexpensive, on-site tests for use by unskilled personnel, and have not endeavored to compete with laboratory-based systems. These laboratory-based systems consist of bench-top auto analyzers that have fast, automated throughput. Our POCT devices are not designed to compete with such automated systems.

We have experienced increased competition with respect to our immunoassay tests from systems and products developed by others, many of whom compete solely on price. As the number of firms marketing diagnostic tests has grown, we have experienced increased price competition for certain diagnostic testing devices. Competitors of this nature in the government sector of our business include Phamatech, ACON,

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Alfa Scientific, Princeton BioMeditech, American Bio Medica and ABI. In the hospital market, our competitors include Abbott Laboratories and BioSite.

10. Government Regulation.

Our products and services are subject to the regulations of a number of governmental agencies as listed below. We believe we are currently in compliance with all applicable regulations. We cannot predict whether future changes in governmental regulations might significantly increase compliance costs or adversely affect the time or cost required to develop and introduce new products.

A.           Substance Abuse and Mental Health Services Administration (SAMHSA). MEDTOX Laboratories, Inc. has been certified by SAMHSA since 1988. SAMHSA certifies laboratories meeting strict standards under Subpart C of the Mandatory Guidelines for Federal Workplace Drug Testing Programs. Continued certification is accomplished through periodic inspection by SAMHSA to assure compliance with applicable regulations. Without ongoing certification in this program, our laboratory would not be permitted to conduct drug testing for Federal Workplace Drug Testing Programs such as testing for the Department of Transportation and other similar programs. Testing performed under the SAMHSA program comprises 25% to 30% of our workplace drug testing customer base.

B.          Food and Drug Administration (FDA). Certain tests for human diagnostic purposes must be cleared by the FDA prior to their marketing for in vitro diagnostic use in the United States. In vitro diagnostic products are those reagents, instruments and systems intended for use in diagnosis of disease or other conditions, including a determination of the state of health, in order to cure, mitigate, treat or prevent disease or its complications. Such products are intended for use in the collection, preparation and examination of specimens taken from the human body. The FDA provides clear guidance that in vitro diagnostic devices used for workplace drug testing must be cleared by the FDA prior to being marketed. The FDA-regulated products we produce are in vitro diagnostic products subject to FDA clearance through the Federal Food, Drug and Cosmetic Act, Section 510(k) process, which requires the submission of information and data to the FDA that demonstrates that the device to be marketed is substantially equivalent to a currently marketed device. This data is generated by performing clinical studies comparing the results obtained using our device to those obtained using an existing test product. Although no maximum statutory response time has been set for review of a 510(k) submission, as a matter of policy the FDA has attempted to complete review of 510(k) submissions within 90 days. To date, we have received 510(k) clearance for 19 different products. Products subject to 510(k) regulations may not be marketed for in vitro diagnostic use until the FDA issues a letter stating that a finding of substantial equivalence has been made.

As a registered manufacturer of FDA-regulated products, we are subject to a variety of FDA regulations including the Good Manufacturing Practices (GMP) regulations, which define the conditions under which FDA regulated products are to be produced. These regulations are enforced by the FDA and failure to comply with GMP or other FDA regulations can result in the delay of pre-market product reviews, fines, civil penalties, recalls, seizures, injunctions and/or criminal prosecution. With the exception of the forensic market, FDA clearance of our diagnostic products is required by our clients and regulatory agencies.       

As an accredited laboratory performing testing for clinical trials, our laboratory is subject to FDA regulations including Good Laboratory Practices (GLP) and related requirements.

C.         Drug Enforcement Administration (DEA). Our primary business involves either testing for drugs-of-abuse or developing test kits for the detection of drugs/drug metabolites in urine. MEDTOX Laboratories, Inc. is registered with the DEA to conduct chemical analyses with controlled substances. The MEDTOX Diagnostics, Inc. facility in Burlington, North Carolina is registered by the DEA to manufacture and distribute controlled substances and to conduct research with controlled substances. Maintenance of these registrations requires that we comply with applicable DEA regulations.

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D.            Canadian Medical Devices Conformity Assessment System (CMDCAS). MEDTOX Diagnostics, Inc. maintains a quality system which satisfies the requirements for ensuring the safety and effectiveness of our products and meeting the customer needs in accordance with FDA requirements as described in 21 CFR Part 820 (Quality Systems), and that satisfies the requirements of the Canadian Medical Devices Regulations (CMDR) and CAN/CSA ISO 13485:1998 and ISO 9001:2003. Our product sales to Canada are immaterial to our overall operations.

CMDCAS addresses the quality system requirements found in the CMDR. To sell a medical device in Canada, manufacturers must meet the regulatory requirements as defined in the CMDR. The quality system implemented by the manufacturer for design and manufacture of medical devices must satisfy the quality system requirements of ISO 13485 and the manufacturer is required to have its quality system registered by an approved CMDCAS registrar. A CMDCAS approved registrar audits the manufacturer’s quality system to ISO 13485:1998 and ISO 9001:2003. MEDTOX Diagnostics, Inc. maintains a quality system fulfilling the requirements of EN ISO 13485 and CMDCAS ISO 13485, Quality Systems – Medical Devices and ISO 9001:2000 — Quality Management Systems – Requirements. MEDTOX Diagnostics, Inc. has been issued the TUV Rheinland Product Safety GmbH quality system certificate to EN ISO 13485:2000 and the TUV Rheinland of North America Inc. quality system certificate to ISO 13485 under CMDCAS.

E.            Centers for Medicare and Medicaid Services (CMS). The Clinical Laboratory Improvement Act (CLIA) introduced in 1992 requires that all in vitro diagnostic products be categorized as to level of complexity. A request for CLIA categorization of any new clinical laboratory test system must be made simultaneously with FDA 510(k) submission. The EZ-SCREEN^®, PROFILE^®, PROFILE^®-II, PROFILE^®-III, VERDICT^® and VERDICT^®-II drugs-of-abuse tests currently mar keted by MEDTOX Diagnostics, Inc. have been categorized as moderately complex. The complexity category to which a clinical laboratory test system is assigned may limit the number of laboratories qualified to use the test system, thus impacting product sales. MEDTOX Laboratories, Inc. is a CLIA-licensed high complexity laboratory and is accredited by the College of American Pathologists (CAP) Laboratory Accreditation Program.

F.             Health Insurance Portability and Accountability Act (HIPAA). MEDTOX Laboratories, Inc. is committed to safeguarding the privacy and confidentiality of its patients’ protected health information. Our policy is to be in compliance with the requirements of federal and Minnesota state law related to protecting the privacy of health information, including the Standards for Privacy of Individually Identifiable Health Information (45 CFR, Parts 160 and 164 - commonly called the “HIPAA Final Privacy Rule”). MEDTOX Laboratories, Inc. complies with out-of-state regulations as applicable. MEDTOX Laboratories, Inc. has compiled several policies and procedures that outline the steps that are taken to ensure compliance with the HIPAA privacy standards and Minnesota state laws related to protected health information. All employees receive appropriate training on these policies and procedures, and it is the responsibility of each individual to follow the policies and procedures in the performance of their jobs. The “Notice of Privacy Practices” and “HIPAA Privacy Policy” for MEDTOX Laboratories, Inc. are posted on our internet website (http://www.medtox.com).

G.           Additional Laboratory Regulations. MEDTOX Laboratories, Inc. and certain of its laboratory personnel are licensed or otherwise regulated by certain federal agencies, states and localities in which it conducts business. Federal, state and local laws and regulations require MEDTOX Laboratories, Inc., among other things, to meet standards governing the qualifications of laboratory owners and personnel, as well as the maintenance of proper records, facilities, equipment, test materials and quality control programs. In addition, the laboratories are subject to a number of other federal, state and local requirements that provide for inspection of laboratory facilities and participation in proficiency testing, as well as govern the transportation, packaging and labeling of specimens tested. The laboratories are also subject to laws and regulations prohibiting the unlawful rebate of fees and limiting the manner in which business may be solicited.

Our laboratory located in St. Paul, Minnesota receives and uses small quantities of hazardous chemicals and radioactive materials in its operations and is licensed to handle and dispose of such chemicals and materials. We comply with all federal, state and local regulations regarding the safe handling,

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storage and disposal of such chemicals and materials. Employees working with chemicals are trained initially regarding safe practices, procedures and policies and also participate in annual safety reviews. Periodic inspections by laboratory accrediting agencies and local authorities assure adherence to safe practices and compliance with applicable regulations.

11. Product and Professional Liability.

Laboratory Services. Our laboratory testing services are primarily diagnostic and expose us to the risk of liability claims. Our laboratories have maintained continuous professional and general liability insurance since 1984. The insurance policy covers those amounts we are legally obligated to pay for damages resulting from a medical incident, which arises out of a failure to render professional services. To date, we have not paid any material amounts for claims of this type and no material professional service claims are currently pending.

Product Sales. Manufacturing and marketing of products by us entail a risk of product liability claims. Since 1993, we have maintained insurance coverage against the risk of product liability arising out of events after such date, but such insurance does not cover claims made after that date based on events that occurred prior to that date. The insurance policy covers damages that we are legally obligated to pay as a result of bodily injury and property damage. Consequently, for uncovered claims, we could be required to pay any and all costs associated with any product liability claims brought against us, the cost of defense whatever the outcome of the action, and possible settlement or damages if a court rendered a judgment in favor of any plaintiff asserting such a claim against us. Damages may include punitive damages, which may substantially exceed actual damages. The obligation to pay such damages could have a material adverse effect on us and exceed our ability to pay such damages. As of the date of filing this Annual Report on Form 10-K, no product liability claims are pending.

12. Employees.

At December 31, 2005, we had a total of 402 full-time employee equivalents compared to 415 full-time employee equivalents at December 31, 2004.

Our employees are not covered by any collective bargaining agreements and we have not experienced any work stoppages. We believe that we maintain good relations with our employees.

13. Available Information.

We make available free of charge on or through our internet website (http://www.medtox.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission.

ITEM 1A. RISK FACTORS.

We have a history of net losses and cannot be certain of future profitability.

We incurred net losses of $0.3 million and $2.6 million in 2003 and 2000, respectively. Although profitable in the other years since 2000, at December 31, 2005 we had an accumulated deficit of approximately $41.0 million reflecting our lack of profitability during much of the period we have been in business. A lack of profitability in the future would likely result in a decline in the value of our common stock.

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A substantial portion of our revenue is derived from the provision of laboratory testing services for the identification of drugs-of-abuse, a business that is influenced by general economic conditions. As such, our operating results are subject to volatility.

Approximately 66% of our Laboratory Services segment’s revenues in 2005 was derived from the provision of laboratory testing services for the identification of drugs-of-abuse. We expect that a substantial percentage of our revenues will continue to be derived from the provision of such services for the foreseeable future. This business is influenced by the strength of the U.S. economy. When the U.S. economy is growing and characterized by job creation, this business tends to experience increased testing levels. Conversely, lower testing levels tend to be associated with periods of job contraction in the U.S. As a result, our revenues and operating results are subject to volatility.

The laboratory services drugs-of-abuse industry is consolidating, with the market forces driving such consolidation tending to favor the larger industry participants. We face an increasing challenge to differentiate ourselves through our technology and value-added services.

Our Laboratory Services segment competes in what is currently a fragmented, but highly competitive, industry. At December 31, 2005, 47 labs, including MEDTOX Laboratories, Inc., were certified by the Department of Health and Human Services as having met the standards for Subpart C of the Mandatory Guidelines for Federal Workplace Drug Testing Programs and were involved in workplace drugs-of-abuse testing. However, the laboratory services, drugs-of-abuse industry is consolidating, with the consolidation being driven by customers’ desires to minimize the number of laboratories they work with, the need for operating efficiencies in the form of critical mass (testing volumes), required investment levels and government regulation. In light of these forces, we face an increasing challenge to differentiate ourselves through our technology and value-added services, such as data management, collection site management, training and technical support and expertise. If we are unsuccessful in these differentiation efforts, we may experience declining revenues and gross margins, and reduced cash flows.

We are experiencing increased competition in our Product Sales business segment. Such competition may have a negative effect on our business and future financial prospects.

We are experiencing increased competition, including increased price competition, in our Product Sales business segment. We have experienced increased competition with respect to our immunoassay tests from systems and products developed by others, many of whom compete solely on price. As the number of firms marketing diagnostic tests has grown, we have experienced increased price competition for certain diagnostic testing devices, particularly in the probation, parole and rehabilitation market. A further increase in competition may reduce our ability to compete in the diagnostic market and have a negative effect on our financial results and future prospects.

If reimbursement for our services by third party payors is reduced, our net revenues could diminish.

There has been and will likely continue to be significant efforts by both federal and state agencies to reduce costs in government healthcare programs and otherwise implement government control of healthcare costs. In addition, increasing emphasis on managed care in the U.S. may continue to put pressure on the pricing of healthcare services. Third party payors, including state payors and Medicare, are challenging the prices charged for medical products and services. Government and other third party payors increasingly are limiting both coverage and the level of reimbursement for our services. In 2005 and 2004, third party payors accounted for approximately 4.7% and 5.4%, respectively, of our net revenues. A portion of the testing for which we bill our hospital and laboratory clients is ultimately paid by third party payors. Any pricing pressure exerted by these third party payors on our customers may, in turn, be exerted by our customers on us. If government and other third party payors do not provide adequate coverage and reimbursement for our services, our net revenues could decline. If we cannot offset additional reductions in the payments we receive for our services by reducing costs, increasing test volume and/or introducing new procedures, our net revenues and profitability could decline.

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If we fail to keep up with technological advancements and fail to develop our products, we may be at a competitive disadvantage and our products may become less attractive or obsolete.

The continuing changes in modern biotechnology could render our products or services as unmarketable or obsolete. These changes come in the form of technological innovation, changes in customer requirements, declining prices and evolving industry requirements. Historically, our product and service obsolescence has not had a material impact on our profitability. New products and services, as well as new technology, may render existing technology products and services obsolete, or too costly and unmarketable. If we do not commit the resources necessary to develop and sell products incorporating new technologies as demanded by our markets, our products and services may be rendered obsolete, impacting our revenues and profitability. Even with the development of new technologically advanced products and services, we cannot assure you that they will gain market acceptance. Lack of market acceptance for any of these products and services could reduce our revenues and negatively affect our profitability. 

Our business and products are subject to stringent laws and regulations and if we are unable to comply, our business may be significantly harmed.

Our products and services are subject to the regulations of a number of governmental agencies as listed in Item I, “Business” under the heading “10. Government Regulation.” We cannot predict whether future changes in governmental regulations might significantly increase compliance costs or adversely affect the time or cost required to develop and introduce new products. In addition, our products are or may become subject to foreign regulations. If we do not comply with existing or additional laws or regulations, or if we incur penalties, it could increase our expenses, prevent us from increasing net revenue, or hinder our ability to conduct our business.

Our operations might be affected by the occurrence of a natural disaster or other catastrophic event.

We depend on our customers and our laboratory in St. Paul, Minnesota and the production facilities in Burlington, North Carolina for the continued operation of our business. Although we have contingency plans in effect for natural disasters or other catastrophic events, these events could still disrupt our operations or those of our customers, which could also affect us. Even though we carry business interruption insurance policies and typically have provisions in our contracts that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage. Any natural disaster or catastrophic event affecting us or our customers could have a significant negative impact on our operations and financial performance.

Our Laboratory Services segment is exposed to liability claims.

Our Laboratory Services testing services are primarily diagnostic. As a result, we are exposed to the risk of liability claims. We currently maintain insurance with coverage up to $7 million to cover professional and general liability claims. In the past, all professional and general liability claims have been covered under our insurance policy. However, in the future, we may be faced with litigation claims which exceed our insurance coverage or are not covered under our insurance policy, which could have a significant impact on our results of operations and financial condition.

We may have product liability exposure not covered by insurance.

We face financial exposure to product liability claims if the use of our products results in an improper diagnosis. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of our insurance policy. We currently maintain insurance with coverage up to $2 million to cover such claims. To the extent any such claim is uncovered or our insurance coverage is inadequate, we could be required to pay any and all costs associated with such claim, the cost of defense whatever the outcome of the action, and possible settlement or damages if a court rendered a judgment in favor of any plaintiff asserting such claim against us. Damages assessed in connection with, and the costs of

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defending, any legal action could be substantial. Damages may include punitive damages, which may substantially exceed actual damages. The obligation to pay such damages could exceed our ability to pay such damages, which could have a significant impact on our results of operations and financial condition.

We rely on intellectual property, which we may not be able to protect fully or effectively.

We rely on a combination of patents, copyright, trademark, trade secret rights, employee confidentiality agreements and non-disclosure agreements in order to develop and protect our proprietary technology and information. Notwithstanding our efforts to protect our proprietary rights, existing trade secret, copyright, and trademark laws afford only limited protection. Despite our efforts to protect our proprietary rights and other intellectual property, unauthorized parties may attempt to copy aspects of our products, obtain and use information that we regard as proprietary or misappropriate our copyrights, trademarks, tradenames and similar proprietary rights. Our means of protecting our proprietary rights may not be adequate. In addition, our competitors might independently develop similar technology or duplicate our products or circumvent any patents or our other intellectual property rights.

The technologies used in all of our diagnostic point of collection products are covered by one or more patents. As these patents expire over the next several years, we will no longer have protection from competitors, unless we develop new technology, which could impact our ability to compete in the biotechnology industry and reduce our revenues.          

If our tests and business processes infringe on the intellectual property rights of others, we could be forced to engage in costly litigation, pay substantial damages or be prohibited from selling certain of our tests or products.

Other companies or individuals, including our competitors, may obtain patents or other property rights that would prevent, limit or interfere with our ability to develop, perform or sell our tests or products or operate our business. As a result, we may be involved in intellectual property litigation and we may be found to infringe on the proprietary rights of others, which could force us to do one or more of the following:

• cease developing, performing or selling tests of products that incorporate the challenged intellectual property;

•  change our business processes; or

• pay substantial damages, court costs and attorneys' fees, including potentially increased damages for any infringement held to be willful.

Patents generally are not issued until several years after an application is filed. Our performing a test or other activity prior to the issuance of a patent to a third party is not a defense to an infringement claim. Thus, even tests or products that we develop could become the subject of infringement claims if a third party obtains a patent covering those tests or products.

Infringement and other intellectual property claims, regardless of their merit, can be expensive and time-consuming to litigate. In addition, any requirement to reengineer our tests or products or change our business processes could substantially increase our costs, force us to interrupt product sales or delay new test releases. In the past, we have not been subject to a dispute regarding infringement of intellectual property of third parties. However, infringement claims could arise in the future as patents could be issued on tests or processes that we may be performing.

If we lose our key personnel or are unable to attract and retain qualified personnel as necessary, our business could be harmed.

We are dependent on the expertise and experience of our senior management team, including Richard Braun, Chairman, President, and Chief Executive Officer; Kevin Wiersma, Vice President, Chief Financial Officer and Chief Operating Officer of MEDTOX Laboratories; James Schoonover, Vice President and Chief

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Marketing Officer; B. Mitchell Owens, Vice President and Chief Operating Officer of MEDTOX Diagnostics; and Susan Puskas, Vice President, Quality, Regulatory Affairs and Human Resources, for our future success. Although we have an employment contract with Mr. Braun and severance agreements with Mr. Wiersma, Mr. Schoonover and Mr. Owens, we do not maintain any key man life insurance policies on any management personnel. The loss of services of any of our key employees could delay the development of our business and have a negative impact on our operating results and financial condition.

ITEM 2. PROPERTIES.

The administrative offices and laboratory operations for the Laboratory Services segment of our business are located primarily in a 67,000 square foot facility in St. Paul, Minnesota. Until March 2001, we leased this space. In March 2001, we purchased the entire three building complex with a total of 129,000 square feet, which includes the 67,000 square feet utilized by our Laboratory Services segment and an additional 17,000 square feet held for future expansion of our Laboratory Services segment. The purchasing entity was New Brighton Business Center, LLC, a limited liability company, established by us for the sole purpose of purchasing the entire three building complex. The facility includes other commercial tenants that have individual leases that range from ten years to less than one year in duration. In 2005, the annual rent paid by such third-party tenants, excluding their pro-rata share of operating expenses, was approximately $248,000.

In addition, effective September 2001, the Laboratory Services segment entered into a seven year lease for a 30,000 square foot facility to be used in connection with its courier business and also as additional warehouse and shipping space. This building is a special purpose facility and enables us to store our vehicles indoors, when appropriate, and to perform routine maintenance on the vehicles. The annual base rent on this second facility, exclusive of operating expenses, is currently $141,000 per year.

The operations for the Product Sales segment of our business are located in Burlington, North Carolina where we maintain the offices, research and development laboratories, production operations and warehouse for MEDTOX Diagnostics, Inc. In March 2001, we entered into a 10-year lease of the entire building (approximately 39,500 square feet) for an annual base rent of $197,000, exclusive of operating expenses. In addition, under the lease $600,000 of tenant improvements made to the building by us are being amortized over the life of the lease as additional rent. Effective February 2003, we entered into a month-to-month lease for an additional 30,000 square feet of space located in an adjacent building. The additional space is used for warehousing and distribution for a monthly base rent of $9,400, exclusive of operating expenses. In November 2003, we amended and restated these leases. Under the terms of the amended and restated lease, the original leases have been combined and the expiration of the amended and restated lease has been extended to March 31, 2016, for an annual base rent of $386,000, exclusive of operating expenses, effective January 2004, including amortization of the $600,000 of improvements.

The Burlington facilities have always been owned and leased to us by Dr. Samuel C. Powell, a member of our Board of Directors. We believe we are renting these facilities in Burlington on terms similar to those available from third parties for equivalent premises based upon our review of prevailing market rates at the time of lease renewal.

We believe that our existing facilities are adequate for the purposes being used to accommodate our product development, and manufacturing and laboratory testing requirements.

ITEM 3. LEGAL PROCEEDINGS.

Not applicable.

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

No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Common Stock

Effective February 16, 2006, the Company’s common stock became listed on the Nasdaq National Market under the symbol “MTOX”. Prior to February 16, 2006, the Company’s common stock was listed on the American Stock Exchange under the symbol “TOX”. At February 28, 2006, the number of holders of record of the common stock was 1,201. The following tables set forth, for the calendar quarters indicated, the high, low, and closing prices per share for the common stock, as reported by the American Stock Exchange. The quotations shown represent inter dealer prices without adjustment for retail markups, markdowns or commissions, and do not necessarily reflect actual transactions.

2005:		High		Low		Close*
First Quarter.............................	$	8.84	$	7.38	$	8.00
Second Quarter........................		7.77		5.44		7.70
Third Quarter...........................		7.80		6.96		7.25
Fourth Quarter.........................		7.58		6.27		7.58

2004:		High		Low		Close*
First Quarter.............................	$	5.87	$	3.83	$	5.27
Second Quarter........................		7.20		5.20		6.76
Third Quarter...........................		7.63		6.77		7.25
Fourth Quarter.........................		9.15		6.28		9.00

*Closing price as of the last day of the calendar quarter

Dividends

No cash dividends have been declared or paid by the Board of Directors of the Company since its inception and the Board of Directors of the Company has no plans to pay a cash dividend in the foreseeable future. The Company’s financial covenants under its credit agreement may effectively preclude the Company from paying cash dividends without approval.

On July 29, 2004, the Board of Directors declared a three-for-two stock split on the Company’s common stock, effected in the form of a 50% stock dividend, which was paid on August 20, 2004. All stock option, warrant, share and per share data included in the consolidated financial statements have been restated to reflect the stock split.

In September 1998, the Company’s Board of Directors authorized and declared a dividend of one preferred share purchase right (Right) for each share of common stock then outstanding. Subsequent to that date, the Company has maintained a plan in which one Right exists for each common share of the Company. These Rights are exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the Company’s outstanding common stock.

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ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data is derived from the consolidated financial statements of the Company included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with such consolidated financial statements, the related notes and other financial information included in this Annual Report on Form 10-K.

(In thousands, except share and per share data)		2005		2004		2003		2002		2001
STATEMENT OF OPERATIONS DATA:
Revenues	$	63,047	$	56,736	$	51,473	$	52,024	$	49,084
Cost of revenues		35,927		32,902		31,520		31,476		29,637
Selling, general, and administrative		19,309		17,826		16,722		16,317		14,436
Research and development		2,287		1,705		1,910		1,217		1,292
Other expense, net		1,319		1,366		1,629		1,427		1,221
Income tax benefit (expense)		(887)		(1,116)		-		10,150		-
Net income (loss)	$	3,318	$	1,821	$	(308)	$	11,737	$	2,498
Basic earnings (loss) per common share	$	0.43	$	0.24	$	(0.04)	$	1.63	$	0.38
Diluted earnings (loss) per common share	$	0.40	$	0.23	$	(0.04)	$	1.56	$	0.36
Weighted average number of shares outstanding:
Basic	7,785,037		7,471,847		7,413,926		7,197,147		6,602,925
Diluted	8,199,650		7,853,916		7,413,926		7,516,995		6,921,228
BALANCE SHEET DATA:
Total assets	$	59,390	$	55,960	$	56,518	$	58,055	$	44,156
Long-term obligations		5,793		6,090		7,639		9,007		10,015
Total stockholders’ equity		44,845		37,789		35,070		34,884		22,520
SEGMENT DATA:
Net revenues:
Laboratory Services	$	48,582	$	43,219	$	39,424	$	39,673	$	37,990
Product Sales		14,465		13,517		12,049		12,351		11,094
Total net revenues	$	63,047	$	56,736	$	51,473	$	52,024	$	49,084
Operating income:
Laboratory Services	$	4,722	$	2,965	$	1,032	$	1,317	$	1,933
Product Sales		802		1,338		289		1,697		1,786
Total operating income	$	5,524	$	4,303	$	1,321	$	3,014	$	3,719
Assets:
Laboratory Services	$	44,504	$	41,356	$	39,893	$	42,186	$	39,358
Product Sales		6,775		6,340		7,290		6,532		4,798
Corporate (unallocated)		8,111		8,264		9,335		9,337		-
Total assets	$	59,390	$	55,960	$	56,518	$	58,055	$	44,156

All share and per share amounts have been restated for the three-for-two stock split, effected in the form of a 50% stock dividend, paid on August 20, 2004 and the 10% stock dividends paid on July 5, 2002 and November 9, 2001.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Annual Report on Form 10-K contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward looking statements, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our strategy, future operations, future expectations and future estimates, future financial position or results and future plans and objectives of management. Those statements in this Annual Report on Form 10-K containing the words “believes”, “anticipates”, “plans”, “expects” and similar expressions constitute forward looking statements, although not all forward looking statements contain such identifying words.

The forward looking statements contained in this Annual Report on Form 10-K are based on our current expectations, assumptions, estimates and projections about our Company and its businesses. All such forward looking statements involve significant risks and uncertainties, including those risks identified in Item 1A of this Annual Report on Form 10-K, many of which are beyond our control. Although we believe that the assumptions underlying our forward looking statements are reasonable, any of the assumptions could prove inaccurate. Actual results may differ materially from those indicated by the forward looking statements included in this Annual Report on Form 10-K. In light of the significant uncertainties inherent in the forward looking statements included in this Annual Report on Form 10-K, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward looking statements to reflect actual results or changes in assumptions, expectations or projections, except as otherwise required by law. In addition, our financial and performance outlook concerning future revenues, margins, earnings, earnings per share and other operating or performance results does not include the impact of any future acquisitions, future acquisition-related expenses or accruals, or any future restructuring or other charges that may occur from time-to-time due to management decisions and changing business circumstances and conditions.

Executive Overview

We are engaged in distinct but related businesses, which for financial reporting purposes are divided into two reportable segments: Laboratory Services and Product Sales. For financial information relating to our segments, see Note 2 of notes to the consolidated financial statements in Item 15.

Laboratory Services

Our “Laboratory Services” business segment includes the activities of our wholly-owned subsidiary, MEDTOX Laboratories, Inc. MEDTOX Laboratories, Inc. principally engages in forensic toxicology (primarily laboratory testing for identification of drugs-of-abuse), providing these services to private and public companies, drug treatment counseling centers, occupational health clinics and hospitals, as well as third party administrators.

Our “Specialty Laboratory Services” operations consist of clinical toxicology, clinical testing for the pharmaceutical industry (e.g., central laboratory services, bioanalytical and pharmacokinetic testing), and analysis of heavy and trace metals. We provide these services to hospitals, clinics, HMOs and small to mid-sized biotech and pharmaceutical companies and other laboratories.

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Testing is conducted using methodologies that include various immunoassays, gas liquid chromatography, gas chromatography/mass spectrometry and high performance liquid chromatography with tandem mass spectrometry.

The Laboratory Services segment also includes New Brighton Business Center, LLC, a wholly-owned limited liability company formed for the sole purpose of acquiring the facilities in St. Paul, Minnesota, where our Laboratory Services segment’s administrative offices and laboratory operations are located. These facilities include other commercial tenants that have individual leases with terms of up to ten years.

Product Sales

Our “Product Sales” business segment consists of our wholly-owned subsidiary, MEDTOX Diagnostics, Inc. MEDTOX Diagnostics, Inc. is engaged in the development, manufacturing and distribution of a variety of point-of-collection testing (POCT) diagnostic drug screening devices, such as our PROFILE^®-II, PROFILE^®-II A, PROFILE-II ER^®, PROFILE^®-III, VERDICT^®-II, and SURE-SCREEN^® products, in addition to a variety of agricultural testing products and other diagnostic tests for the detection of alcohol. MEDTOX Diagnostics, Inc. also provides contract manufacturing services, such as coagulation market controls. The operations of the Product Sales segment are located in Burlington, North Carolina, where we maintain offices, research and development laboratories, production operations and warehouse/distribution facilities.

Key Trends Influencing Our Operating Results

Our management believes that there are several notable trends that are currently influencing, and are expected in the foreseeable future to continue to influence, our operating results. These include:

Consolidation in the Laboratory Services Drugs-of-Abuse Business

The laboratory services drugs-of-abuse industry is consolidating, with the consolidation being driven by customers’ desires to minimize the number of laboratories they work with, the need for operating efficiencies in the form of critical mass (testing volumes), required investment levels and government regulation. Given the competitive environment, we are increasingly seeking to differentiate ourselves through our technology and value-added services, such as data management, collection site management, training, and technical support and expertise.

Increased POCT Diagnostic Device Test Competition

We have experienced increased competition with respect to our POCT diagnostic tests from systems and products developed by others, many of whom compete solely on price. As the number of firms marketing diagnostic tests has grown, we have experienced increased price competition for certain diagnostic testing devices, particularly in the probation, parole and rehabilitation market.

Our Strategy

We believe that the combined operations of our Laboratory Services business and on-site test kits manufactured by the Product Sales segment have created synergy in the marketing of comprehensive, on-site and laboratory testing programs to a common customer base. Our management has positioned us to offer a full line of products and services for the substance abuse testing and occupational medicine marketplace, including on-site tests for the detection of substance of abuse drugs, Substance Abuse Mental Health Services Administration

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(SAMHSA) certified laboratory testing (screening and confirmation), biological monitoring of occupational toxins, consultation, and logistics, data management and program management services.

Our strategy is to build market share by offering the highest quality products and services, delivered rapidly, priced competitively and supported by value-added services for customers. These services include data management, collection site management, training, technical support and expertise, as well as policy review. In the data management area, we have a new service-eChain^®, the first multi-purpose electronic chain-of-custody system in the market. We have initiated deployment of eChain^® and we anticipate it to be in use in more than 1,000 specimen collection sites in 2006. Also in development is MEDTOXScan™, an electronic reader for our devices for use in hospital laboratories and emergency rooms. Production units of MEDTOXScan™ are currently expected to be available in the first half of 2006. In May 2005, we introduced SURE-SCREEN^®, a cup-based POCT device with significantly lower detection levels for eight drugs-of-abuse, into the forensic markets where FDA 510(k) marketing clearance is not required. In October 2005, we received FDA 510(k) clearance for our SURE-SCREEN^® device and will now be able to expand the markets into which it is sold. Specific markets to which SURE-SCREEN^® are targeted are probation, parole, drug rehabilitation, hospital emergency departments, medical clinics, laboratories, and corporate clients interested in lower detection levels for pre-employment testing. In the fourth quarter of 2005, we introduced the PROFILE^®-III device, an integrated cup and testing device for sale to the workplace drug testing market. This new device is in the same format as SURE-SCREEN^®.

We have committed to improve productivity and quality in our organization through LEAN and Six-Sigma processes. Our LEAN and Six-Sigma initiatives are designed to improve quality and productivity, cut costs and increase throughput. While all key departments in the Laboratory Services and Product Sales segments have now been through initial LEAN processes, as an organization we recognize that LEAN is an ongoing philosophy, not a project to be “finished.” LEAN is a highly disciplined process that helps us focus on reducing waste and eliminating unnecessary steps in our business processes. Our Six-Sigma initiatives address quality and variability in processes.  

Critical Accounting Policies

We have identified the policies outlined below as critical to understanding our business and results of operations. The listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management's judgment in their application. The impact and any associated risks related to these policies on the Company’s business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 of notes to the consolidated financial statements in Item 15. Note that the preparation of this Annual Report on Form 10-K requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Our critical accounting policies are as follows:

Accounts Receivable:

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customers' current creditworthiness, as determined by management’s review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision

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for estimated credit losses based upon our historical experience and any specific customer collection issues that have been identified. While such credit losses have generally been within our historical expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that have occurred in the past. Our consolidated trade accounts receivable balance at December 31, 2005 was $9.7 million, net of allowance for doubtful accounts of $0.3 million.

Some of our Laboratory Services revenues for certain types of tests are billed to third-party payors including insurance companies, state Medicaid and Medicare agencies. These payors pay for such services at established amounts, which are typically lower than gross amounts billed by us. However, the tests are sometimes billed directly to patients or other parties and paid at the gross amount billed for these tests. In addition, billings for the tests are occasionally re-billed to alternative payors in situations where incorrect billing information was submitted to us by the customer. We estimate a discount on the billings for these tests, and recognize revenue and related accounts receivable at a net amount, after discount, in order to state revenue and accounts receivable at the amount expected to be paid. While we believe that estimated discounts and the related net revenue and net accounts receivable from these testing services are materially correct, there can be differences in amounts ultimately paid compared to estimated amounts. These differences are recorded upon payment and may affect previously recorded amounts. We consider contracted rates with payors and historical discounts when estimating future discounts on a monthly basis.

Off-Site Supplies Inventory:

Off-site supplies represent collection kits and forms located at collections sites throughout the United States used by Laboratory Services’ customers to submit specimens for testing services. At December 31, 2005, off-site inventory was $0.9 million. The process for valuing off-site inventory involves making significant assumptions regarding the average time that a collection site uses the inventory, as well as the amount of inventory expected to be scrapped.

Goodwill and Other Intangible Assets:

In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” goodwill and indefinite-lived intangible assets are not amortized, but are instead reviewed for impairment at least annually and between annual test dates in certain circumstances. We perform our annual impairment test for goodwill and other intangible assets in the fourth quarter of each year. No impairments were indicated as a result of our annual impairment reviews for goodwill and other intangible assets in 2005, 2004 or 2003. In assessing the recoverability of goodwill and other intangible assets, projections regarding estimated future cash flows and other factors are made to determine the fair value of the respective assets. If these estimates or related projections change in the future, we may be required to record impairment charges for these assets in future periods.

Accounting for Income Taxes:

As part of the process of preparing the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that deferred tax assets will be recovered from future taxable income and tax planning strategies, and to the extent management believes that recovery is not likely, we must establish a valuation allowance. To the extent we increase or decrease the valuation allowance in a period, we must include an expense or benefit within the tax provision in the consolidated statement of operations.

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. Our deferred tax assets

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primarily consist of certain net operating losses (NOLs) carried forward. At December 31, 2005, we had a valuation allowance on deferred tax assets of approximately $54,000, which represents the portion of certain state NOL carryforwards that will more likely than not expire unused in future years. The valuation allowance is based on management’s estimate of future taxable income and the period over which NOLs will be recoverable. In the future, subsequent revisions to the estimated net realizable value of these deferred tax assets could cause the provision for income taxes to vary significantly from period-to-period, although our cash payments would remain unaffected until the benefit of the NOLs is completely utilized or expires unused.

Results of Operations

In evaluating our financial performance, our management has primarily focused on three objectives: maximizing operating income, increasing our cash flows and improving our balance sheet. The first of these objectives is discussed in this section. The other two are addressed under “Liquidity and Capital Resources.”

To maximize our operating income, we have sought revenue growth, improved gross margins and reduced selling, general and administrative (SG&A) expense as a percentage of revenues. As discussed below, during 2005 we made positive strides on all three fronts.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenues

	Year Ended December 31				Year–over-Year
	2005	% of Revenues	2004	% of Revenues	$ Change	% Change
Revenues:
Laboratory Services	$ 48,582	77.1%	$ 43,219	76.2%	$ 5,363	12%
Product Sales	14,465	22.9%	13,517	23.8%	948	7%
	$ 63,047	100.0%	$ 56,736	100.0%	$ 6,311	11%

Our Laboratory Services segment includes revenues from workplace drugs-of-abuse testing and revenues from Specialty Laboratory Services. Our revenues from workplace drugs-of-abuse testing grew 14% due to an increase in sample volume, partially offset by a slight decrease in the average price per testing specimen. Pricing for our workplace drugs-of-abuse testing services tends to be stable overall; however, the average price per testing specimen can vary slightly from quarter-to-quarter. Test price can vary by client based on the amount of confirmation testing and transportation charges associated with the client’s workplace drugs-of-abuse samples. Our increased sample volume was from both new and existing customers across a broad customer base and resulted from the execution of our business strategy. During the fourth quarter of 2005, we initiated deployment of our eChain^® web-based system, capable of delivering enhanced electronic results reporting, as well as sample and donor tracking. We anticipate that eChain^® will be in use in more than 1,000 specimen collection sites in 2006.

Revenues from our Specialty Laboratory Services increased 9% to $16.7 million due to strong growth in testing for our clinical trial services.While we continue to add new clients in clinical trial services, we are also experiencing significant repeat business from existing clients. Overall, our clinical trial services have experienced growth quarter-over-quarter during 2005. However, revenues from these services can fluctuate from quarter-to-quarter depending on the actual timing of clinical trials.

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In the Product Sales segment, sales of POCT products, which consists of the PROFILE^®-II, PROFILE-II ER^®, PROFILE^®-II A, PROFILE^®-III, VERDICT^®-II and SURE-SCREEN^® on-site test kits and other ancillary products for the detection of abused substances, increased 10% to $12.4 million in 2005. This growth reflected strong sales of PROFILE^®-II products and solid gains later in the year in the government and rehabilitation markets as our new lower detection POCT device (SURE-SCREEN^®) begins to have a positive impact on sales in those markets. In late 2005, we also introduced our PROFILE^®-III cup product which tests at standard SAMHSA sensitivity levels and is targeted at the corporate, occupational health and hospital laboratory markets. Overall, pricing for our POCT devices was stable year-over-year.

Sales of contract manufacturing services and associated products decreased 7% to $1.8 million in 2005 and were impacted by the timing of the placement of orders from our two existing clients for these services. Product sales from other diagnostic products were down $68,000, or 23%, due to decreased purchases of agricultural diagnostic products by the U.S. Department of Agriculture (USDA). The USDA’s need for our products varies from year-to-year and sales to the USDA are expected to fluctuate accordingly.

Gross Profit

	Year Ended December 31				Year-over-Year
	2005	% of Revenues	2004	% of Revenues	$ Change	% Change
Cost of Revenues:
Cost of Services	$ 30,111	62.0%*	$ 27,611	63.9%*	$ 2,500	9%
Cost of Sales	5,816	40.2%**	5,291	39.1%**	525	10%
	$ 35,927	57.0%	$ 32,902	58.0%	$ 3,025	9%

*	Cost of services as a percentage of Laboratory Services revenues
**	Cost of sales as a percentage of Product Sales revenues

Consolidated gross margin increased to 43.0% of revenues in 2005, compared to 42.0% of revenues in 2004. The increase was driven by improvement in Laboratory Services’ gross margin, partially offset by a decline in Product Sales’ gross margin.

Laboratory Services gross margin was 38.0% in 2005, up from 36.1% in 2004. The margin improvement was attributable to increased revenues from additional testing volume through our existing infrastructure. We also continued the implementation of LEAN initiatives within our Specialty Laboratory Services operations.

Gross margin from Product Sales declined to 59.8% in 2005, down from 60.9% in 2004, largely due to the impact of costs associated with the transition to an enhanced product format for our PROFILE^®-II product line during the first half of 2005. The enhanced product began shipping late in the first quarter of 2005. We also continued the implementation of LEAN initiatives in our manufacturing processes within our Product Sales segment.

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Operating Expenses

	Year Ended December 31				Year-over-Year
	2005	% of Revenues	2004	% of Revenues	$ Change	% Change
Operating Expenses:
Selling, general and administrative	$ 19,309	30.6%	$ 17,826	31.4%	$ 1,483	8%
Research and development	2,287	3.7%	1,705	3.0%	582	34%
	$ 21,596	34.3%	$ 19,531	34.4%	$ 2,065	11%

Operating expenses increased in 2005, but as a percentage of revenues were down slightly. The increase reflected a continued increased investment in sales and marketing, information technology and research and development activities.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $19.3 million, or 30.6% of revenues in 2005, compared to $17.8 million, or 31.4% in 2004. The lower percentage reflects the increase in revenue on marginally higher year-over-year expenses. The increase in spending was primarily associated with higher performance-based compensation such as executive deferred compensation expense and sales commissions based on our financial performance, as well as increased spending in information technology.

Research and Development Expenses. Research and development expenses increased $0.6 million, or 34%, to $2.3 million in 2005, primarily due to continued spending for significant development projects in our Product Sales segment. During 2005, we completed enhancements to our PROFILE^®-II, PROFILE^®-II A, and PROFILE-II ER^® products that shorten run times, darken line intensity, improve readability and extend the positive result hold time. We received FDA 510(k) clearance for SURE-SCREEN^®. We also made substantial progress on development of an electronic reader (MEDTOXScan™) expected to be utilized with our devices in the hospital laboratory and emergency room markets. Production units of MEDTOXScan™ are scheduled to be available late in the first half of 2006.

Other Expense

Other income and expense consists primarily of interest expense and the net expenses associated with our building rental activities. These expenses were $1.3 million in 2005, a decrease of 3% compared to 2004. The slight decline was primarily due to lower interest expense, reflecting a reduction in average debt levels, partially offset by reduced net operating results from our building rental activities.

Income Taxes

In 2005, we recorded $0.9 million in income tax expense, or an effective rate of 21.1%, compared to an effective rate of 38.0% in 2004. The lower rate in 2005 was caused primarily by a $0.9 million reduction in our valuation allowance on deferred tax assets. The reduction in the valuation allowance was based on the available evidence, including our recent historical performance and projected future results. At December 31, 2005, we had a valuation allowance on deferred tax assets of approximately $54,000, which represents the portion of certain state net operating loss (NOL) carryforwards that will more likely than not expire unused in future years. Should operating results in 2006 and future years differ from expectations, the valuation allowance against the NOL

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carryforwards and the related deferred tax asset may require adjustment in future periods. The reduction in income tax expense from the valuation allowance change was partially offset by a charge of $0.3 million related to a North Carolina Department of Revenue examination of MEDTOX Diagnostics, Inc.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenues

	Year Ended December 31				Year-over-Year
	2004	% of Revenues	2003	% of Revenues	$ Change	% Change
Revenues:
Laboratory Services	$ 43,219	76.2%	$ 39,424	76.6%	$ 3,795	10%
Product Sales	13,517	23.8%	12,049	23.4%	1,468	12%
	$ 56,736	100.0%	$ 51,473	100.0%	$ 5,263	10%

In the Laboratory Services segment, revenues in 2004 from our workplace and occupational health clients grew 16% over the prior year due to increased sample volume from both new and existing clients. We were also able to benefit from consolidation in the drugs-of-abuse market, leaving fewer competitors able to compete on a national level. Revenues from our Specialty Laboratory Services were essentially flat with 2003.

In the Product Sales segment, sales of POCT devices, which incorporate the PROFILE^®-II, PROFILE-II ER^®, PROFILE^®-II A and VERDICT^®-II on-site test kits and other ancillary products for the detection of abused substances, increased 9% to $11.2 million in 2004. This growth reflected strong sales of PROFILE^®-II products, which grew 31% from 2003. However, sales within the VERDICT^®-II product line to government clients for probation, parole and rehabilitation were down 19% from 2003. In 2004, we continued the introduction of a proprietary value-added service called DARS™ (Drug Abuse Recognition System) in the government workplace and have identified numerous state and county agencies interested in program implementation. The implementation of DARS™ to new clients helped offset additional revenue declines of VERDICT^®-II products caused by constraints on state budgets for drug testing services.

Sales of our contract manufacturing services increased 40% to $2.0 million in 2004 and were positively impacted by the timing of orders from existing clients. Product sales from other diagnostic products were down $47,000, or 14%, due to decreased purchases of agricultural diagnostic products by the USDA. The USDA’s needs our products vary from year-to-year and sales to the USDA are expected to fluctuate accordingly.

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Gross Profit

	Year Ended December 31				Year-over-Year
	2004	% of Revenues	2003	% of Revenues	$ Change	% Change
Cost of Revenues:
Cost of Services	$ 27,611	63.9%*	$ 26,357	66.9%*	$ 1,254	5%
Cost of Sales	5,291	39.1%**	5,163	42.9%**	128	2%
	$ 32,902	58.0%	$ 31,520	61.2%	$ 1,382	4%

*	Cost of services as a percentage of Laboratory Services revenues
**	Cost of sales as a percentage of Product Sales revenues

Consolidated gross margin increased to 42.0% of revenues in 2004 from 38.8% in 2003, driven by improvement in both Laboratory Services and Product Sales gross margins.

Laboratory Services gross margin was 36.1% in 2004, up from 33.1% in 2003. The margin improvement was attributable to increased revenue spread over relatively stable fixed costs, as well as improved operating efficiencies realized from the implementation of LEAN in the drugs-of-abuse testing laboratory. We also initiated LEAN within our Specialty Laboratory Services in 2004, with implementation expected in 2005.

Gross margin from Product Sales improved to 60.9% in 2004, from 57.1% in 2003, largely due to the impact of fixed-type costs on increased production levels. We also implemented LEAN initiatives across multiple areas of our diagnostic products operations in 2004 which improved efficiency and productivity.

Operating Expenses

	Year Ended December 31				Year-over-Year
	2004	% of Revenues	2003	% of Revenues	$ Change	% Change
Operating Expenses:
Selling, general and administrative	$ 17,826	31.4%	$ 16,722	32.5%	$ 1,104	7%
Research and development	1,705	3.0%	1,910	3.7%	(205)	(11)%
	$ 19,531	34.4%	$ 18,632	36.2%	$ 899	5%

Operating expenses increased in 2004 compared to the prior year, but were down as a percentage of revenues. The increase reflected higher performance-based compensation such as bonuses and sales commissions, increased depreciation expense and increased spending in information technology.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 7% to $17.8 million in 2004 from $16.7 million in 2003. The increase in spending was primarily associated with higher

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performance-based compensation such as bonuses and sales commissions based on our financial performance, increased depreciation expense related to capital improvements to improve operating efficiencies in connection with our initiatives, and increased spending in information technology.

Research and Development Expenses. Research and development expenses in 2004 decreased $0.2 million, or 11%, to $1.7 million. In 2003, we incurred recruiting and hiring costs associated with the addition of a new Vice President of Technology, Research and Development at our Product Sales segment, as well as severance and other costs associated with the reorganization of the department.

Other Expense

Other income and expense consists primarily of interest expense and the net expenses associated with our building rental activities. These expenses decreased 16% to $1.4 million in 2004. The decrease was primarily due to a reduction in interest expense of $0.2 million, reflecting lower average debt levels. The decrease was also due to increased rental income as a result of lower vacancy rates.

Income Taxes

We recorded a tax provision for 2004 based upon an effective tax rate of 38.0%. We did not record a tax provision or benefit for 2003. At December 31, 2004, we had a valuation allowance on deferred tax assets of $0.9 million.

Liquidity and Capital Resources

Our working capital requirements have been funded primarily by various combinations of profitable operations, cash received from debt financing, and the sale of equity securities. Cash and cash equivalents at December 31, 2005 were $1.3 million, compared to $0.3 million at December 31, 2004.

Net cash provided by operating activities was $7.7 million in 2005 compared to $6.5 million and $3.2 million in 2004 and 2003, respectively. The increase in 2005 was primarily due to an improvement in our operating results as well as an increase in accounts payable and accrued expenses, partially offset by an increase in accounts receivable. Accounts payable and accrued expenses increased $1.8 million in 2005 compared to a reduction of $0.1 million in 2004. The increase in 2005 was primarily due to the timing of payments as well as an overall increase in revenues. Accounts receivable increased $2.3 million in 2005 compared to an increase of $0.5 million in 2004. The significant increase in accounts receivable in 2005 was primarily due to strong sales in November and December 2005 and the timing of cash receipts. Our days sales outstanding was 52 days at both December 31, 2005 and 2004. The increase in net cash provided by operating activities in 2004 over 2003 was primarily due to an improvement in operating results as well as a smaller decrease in accounts payable and accrued expenses.

Net cash used in investing activities, consisting primarily of capital expenditures, was $4.2 million in 2005 compared to $4.0 million and $2.6 million in 2004 and 2003, respectively. The increased spending in 2004 from 2003 reflected equipment purchased and costs incurred in redesigning the laboratory operations to improve operating efficiencies in connection with our LEAN initiatives.

We expect equipment and capital improvement expenditures to be between $4.0 million and $5.0 million in 2006. These expenditures are intended primarily to continue to improve efficiencies and reduce operating costs within our Laboratory Services and Product Sales businesses. Such expenditures are expected to be funded through borrowings under our credit facilities and cash provided by operating activities.

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Net cash used in financing activities was $2.5 million in 2005, compared to $2.9 million and $0.3 million in 2004 and 2003, respectively.

In 2005, we received proceeds of approximately $4.1 million from the exercise of warrants to acquire 604,589 common shares issued in connection with our private placements in July and August 2000. The proceeds received from the exercise of these warrants were used to reduce the amount outstanding on our revolving credit facility. In July or August 2005, warrants exercisable for an aggregate of 511,219 shares expired without being exercised.

In 2005, we purchased 59,000 shares of our common stock in the open market and 35,874 shares of our common stock from an officer of our Company for a total cost of $688,000. The acquired stock was contributed to our Long-Term Incentive Plan.

We also made payments on long-term debt of $1.8 million, $2.8 million and $2.6 million during 2005, 2004 and 2003, respectively.

The increase in net cash used in financing activities in 2004 over 2003 was primarily the result of payments on the revolving credit facility and a reduction in new financing activity in 2004.

On December 1, 2005, we entered into a credit agreement (the Wells Fargo Credit Agreement) with Wells Fargo Bank, National Association (the Bank), which replaced the existing Amended and Restated Credit and Security Agreement with Wells Fargo Business Credit, Inc.

The Wells Fargo Credit Agreement consists of:

(i) a revolving line of credit (Line of Credit), payable on demand, of up to $8.0 million bearing interest at either a fluctuating rate of 0.5% below the Bank’s prime rate or at a fixed rate of 1.9% above LIBOR, as defined and calculated by the Bank, in effect on the first day of the applicable fixed rate term; and

(ii) a note or notes aggregating up to $2.0 million (loan limit) for the purchase of capital equipment bearing interest at either a rate of 0.25% below the Bank’s prime rate or at a fixed rate for a period of one, two, three or four years at a rate of 2.25% in excess of the then current yield on U.S. Treasury Securities, adjusted to a constant maturity equal to such fixed rate period.

Subject to certain conditions, the Wells Fargo Credit Agreement also provides for the issuance of letters of credit which, if drawn upon, would be deemed advances under the Line of Credit. We are required to pay a fee equal to 0.125% per annum on the average daily unused amount of the Line of Credit. We have granted the Bank a first priority security interest in all of the Company’s accounts receivable, other rights to payment, general intangibles, inventory and equipment to secure all indebtedness of the Company to the Bank.

Extensions of credit under the Wells Fargo Credit Agreement are subject to certain conditions. The Wells Fargo Agreement also requires us to comply with certain financial covenants, including maintaining, on a consolidated basis:

• A Current Ratio not less than 1.3 to 1.0 at any time, with “Current Ratio” defined as total current assets divided by total current liabilities.

• Tangible Net Worth not less than $22,500,000 at any time, with “Tangible Net Worth” defined as the aggregate of total stockholders’ equity plus subordinated debt less any intangible assets.

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• Total Liabilities divided by Tangible Net Worth not greater than 1.75 to 1.0 at any time, with “Total Liabilities” defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with “Tangible Net Worth” as defined above.

• A Debt Service Coverage Ratio not less than 1.5 to 1.0 as of each fiscal quarter end, determined on a rolling four-quarter basis, with “Debt Service Coverage Ratio” defined as the aggregate of Net income before non-cash tax expense plus depreciation expense and amortization expense, divided by the aggregate of the current maturity of long-term debt for the previous four fiscal quarters plus current capital lease obligations for the previous four fiscal quarters.

On December 1, 2005, we entered into a term loan with the Bank which was used to repay existing capital expenditure advances made in 2002 and 2005 under the Amended and Restated Credit and Security Agreement with Wells Fargo Business Credit, Inc. The December 1, 2005 Term Note was made pursuant to and subject to the terms and conditions of the Wells Fargo Credit Agreement under the $2.0 million loan limit. The Term Note was for approximately $341,000, payable in monthly installments over three years bearing interest at a rate of 0.25% below the Bank’s prime rate. The term loan is secured by the equipment purchased with the proceeds from the 2002 and 2005 capital expenditure advances.

On March 16, 2006, we entered into a Term Note (the Note) with the Bank to refinance, on March 31, 2006, a portion of the outstanding balance of $5.4 million on our mortgage loan with Principal Life Insurance Company (Principal). We financed the March 2001 purchase of the building complex where our Laboratory Services’ segment and other commercial tenants are located with the mortgage loan from Principal. The mortgage loan has a term of ten years and is being repaid based on a 20 year amortization schedule at a fixed interest rate of 7.23% for the first five years. In accordance with the provisions of the mortgage loan, Principal had the option to adjust the interest rate, effective March 1, 2006, or to call the loan due on March 31, 2006. We elected not to accept the interest rate adjustment and will refinance $3.4 million with the Bank over a five year term in monthly installments of approximately $56,000 plus interest, commencing May 1, 2006. Interest will be calculated at either (i) a variable rate of 0.5% below the prime rate or (ii) a fixed rate of 1.9% above LIBOR in effect on the first day of the applicable fixed rate term. We will refinance the remaining outstanding mortgage loan balance of approximately $2.0 million with a portion of our Line of Credit from the Bank.

We are relying on expected positive cash flow from operations and our Line of Credit to fund our future working capital and asset purchases. At December 31, 2005, we had total borrowing capacity of $8.0 million on our line of credit. We did not have an outstanding balance on the Line of Credit at December 31, 2005.

In the short term, we believe that the aforementioned resources will be sufficient to fund our planned operations through 2006. While there can be no assurance that the available capital will be sufficient to fund our future operations beyond 2006, we believe that future profitable operations, as well as access to additional capital through debt or equity financings, will be the primary means for funding our operations for the long term.

We continue to follow a plan which includes (i) aggressively monitoring and controlling costs, (ii) increasing revenue from sales of the our existing products and services (iii) developing new products and services, as well as (iv) selectively pursuing synergistic acquisitions to increase our critical mass. However, there can be no assurance that costs can be controlled, revenues can be increased, financing may be obtained, acquisitions successfully consummated, or that we will be profitable.

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Disclosures about Contractual Obligations and Commercial Commitments

The following table aggregates all contractual commitments and commercial obligations that affect the Company’s financial condition and liquidity position at December 31, 2005:

	Payments Due by Period
(In thousands)	Total	Less than 1 year	1-3 years	4-5 years	More than 5 years
Long-term debt (1)	$ 9,964	$ 1,296	$ 2,014	$ 1,174	$ 5,480
Capital lease obligations (1)	35	18	17	-	-
Operating leases	4,731	716	1,567	809	1,639
Total contractual obligations	$ 14,730	$ 2,030	$ 3,598	$ 1,983	$ 7,119

The following revised table aggregates all contractual commitments and commercial obligations that affect the Company’s financial condition and liquidity position at December 31, 2005, giving effect to the refinancing of long-term debt entered into on March 16, 2006 discussed in the “Liquidity and Capital Resources” section above.

	Payments Due by Period
(In thousands)	Total	Less than 1 year	1-3 years		4-5 years		More than 5 years
Long-term debt (1)	$ 5,142	$ 1,505	$ 2,690	$	947	$	-
Capital lease obligations (1)	35	18	17		-		-
Operating leases	4,731	716	1,567		809		1,639
Total contractual obligations	$ 9,908	$ 2,239	$ 4,274	$	1,756	$	1,639

(1) Amounts include interest payments based upon contractual or prevailing interest rates.

Off-Balance Sheet Transactions

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Impact of Inflation and Changing Prices

The impact of inflation and changing prices has been primarily limited to salary, laboratory and operating supplies and rent increases and has historically not been material to our operations. In the future, we may not be

33

able to increase the prices of laboratory testing by an amount sufficient to cover the cost of inflation, although we are responding to these concerns by offering the highest quality products and services, delivered rapidly, priced competitively and supported by value-added services for customers.

Seasonality

We believe that the laboratory testing business is subject to seasonal fluctuations in pre-employment screening. These seasonal fluctuations include reduced volume in the summer months, year-end holiday periods, and other major holidays. In addition, inclement weather may have a negative impact on volume thereby reducing net revenues and cash flow.

Impact of New Accounting Standards

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 will be effective for us on January 1, 2006.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which is a revision of SFAS No. 123.  SFAS No. 123(R) supersedes APBO No. 25 and amends SFAS No. 95, “Statement of Cash Flows.”  The revision requires companies to measure and recognize compensation expense for all share-based payments to employees, including grants of employee stock options, in the financial statements based on the fair value at the date of the grant. SFAS No. 123(R) permits companies to adopt its requirements using either the modified prospective method or the modified retrospective method. Under the modified prospective method, compensation cost is recognized beginning with the effective date for all share-based payments granted after the effective date and for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. The modified retrospective method includes the requirements of the modified prospective method, but also permits entities to restate either all prior periods presented or prior interim periods of the year of adoption for the impact of adopting this standard. We will apply the modified prospective method upon adoption. In April 2005, the Securities and Exchange Commission announced it would provide for phased-in implementation of SFAS No. 123(R). As a result, SFAS No. 123(R) is effective for the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. We estimate that compensation expense related to employee stock options for 2006 will be in the range of $100,000 to $150,000.  SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. We believe this reclassification will not have a material impact on our consolidated statements of cash flows.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 requires that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. SFAS No. 151 was effective for us on July 1, 2005. The adoption of this statement did not have a material impact on our results of operations or financial position.

34

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the risk that we will incur losses due to adverse changes in interest rates or currency exchange rates and prices. Our primary market risk exposures are to changes in interest rates. During 2005, 2004, and 2003, we did not have sales denominated in foreign currencies nor did we have any subsidiaries located in foreign countries. As such, we are not exposed to market risk associated with currency exchange rates and prices.

At December 31, 2005, we had a $5.4 million mortgage loan payable to Principal at a fixed annual rate of 7.23%. In accordance with the provisions of the loan, Principal had the option to adjust the interest rate, effective March 1, 2006, or to call the loan due on March 31, 2006. We elected not to accept the interest rate adjustment and will repay the outstanding balance of $5.4 million on March 31, 2006. We will be refinancing $3.4 with Wells Fargo Bank over a five year term bearing interest at either (i) a variable rate of 0.5% below the prime rate or (ii) a fixed rate of 1.9% above LIBOR in effect on the first day of the applicable fixed rate term. At December 31, 2005 we had capital leases totaling $32,000 at various fixed rates. These fixed-rate financial instruments are subject to interest rate risk and will increase or decrease in value if market interest rates change. Changes in market interest rates would not impact our cash obligations under fixed rate debt.

At December 31, 2005, we had approximately $0.9 million in long-term debt outstanding under the Wells Fargo Credit Agreement. At December 31, 2004, we had approximately $6.6 million outstanding under our line of credit and long-term debt issued under the Amended and Restated Credit and Security Agreement with Wells Fargo Business Credit. The debt under the Wells Fargo Credit Agreement has variable interest rates. We have cash flow exposure on our committed and uncommitted line of credit and long-term debt due to its variable prime rate pricing. At December 31, 2005, a 1% change in the prime rate would increase or decrease interest expense or cash flows by less than $0.1 million.

We do not enter into derivative or other financial instruments or hedging transactions for trading or speculative purposes.

35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Reference is made to the consolidated financial statements, financial statement schedule, and notes thereto included later in this Annual Report on Form 10-K under Item 15.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls Procedures

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information that is required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

On March 16, 2006, MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc. and MEDTOX Laboratories, Inc. (collectively, the Company) entered into a Term Note (the Note) with Wells Fargo Bank, National Association (the Bank). The Company entered into the Note to refinance, on March 31, 2006, the outstanding balance on its mortgage loan with Principal.

The Note is for $3,382,986 payable in monthly installments of $56,383 plus interest, commencing May 1, 2006, and continuing up to and including March 1, 2011, with a final installment consisting of all remaining unpaid principal due and payable in full on April 1, 2011. The outstanding principal balance of the Note bears interest either at a fluctuating rate of 0.5% below the Bank’s prime rate or at a fixed rate of 1.9% above LIBOR, as defined and calculated by the Bank, in effect on the first day of the applicable fixed rate term.

LIBOR is defined, for purposes of the Note, as the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal to 100% less any LIBOR Reserve Percentage.

36

• Base LIBOR is defined as the rate per annum for United States dollar deposits quoted by the Bank as the Inter-Bank Market Offered Rate which rate may be based upon such offers or other market indicators of the Inter-Bank Market as the Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

• LIBOR Reserve Percentage is defined as the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by the Bank for expected changes in such reserve percentage during the applicable fixed rate term.

The Note was issued under and is subject to the terms and conditions of the Wells Fargo Credit Agreement. Any default in the payment or performance of any obligation under the Note, or any defined event of default under the Wells Fargo Credit Agreement, shall constitute an event of default under the Note.

All indebtedness of MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc. and MEDTOX Laboratories, Inc. to the Bank under the Note is guaranteed jointly and severally by the New Brighton Business Center, LLC (Guarantor) as evidenced by and subject to the terms of a guaranty in form and substance satisfactory to the Bank. The Guarantor also executed and delivered to the Bank a negative pledge agreement on all of its business assets.

On March 16, 2006, the Company entered into a First Amendment to the Credit Agreement with the Bank that modifies the terms of the Wells Fargo Credit Agreement. The First Amendment incorporates the provisions of the Note.

37

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated by reference from the section labeled “Proposal 1- Election of Directors” that will appear in the Definitive Proxy Statement to be used in connection with the 2006 Annual Meeting of Stockholdersof MEDTOX Scientific, Inc.

The Company has adopted the MEDTOX Scientific, Inc. Code of Ethics for senior financial and executive officers (Code of Ethics). The Code of Ethics is available at no charge to anyone who sends a request for a paper copy to MEDTOX Scientific, Inc. 402 West County Road D, St. Paul, Minnesota, 55112. If the Company makes any substantive amendments to the Code of Ethics or grants any waiver, including any implicit waiver from a provision of the Code of Ethics to its directors or executive officers, the Company will disclose the nature of such amendments or waiver on its internet website at http://www.medtox.com or in a report on Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference from the sections labeled “Executive Compensation” and “Summary Compensation Table” that will appear in the Definitive Proxy Statement to be used in connection with the 2006 Annual Meeting of Stockholdersof MEDTOX Scientific, Inc.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this Item is incorporated by reference from the sections labeled “Common Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” that will appear in the Definitive Proxy Statement to be used in connection with the 2006 Annual Meeting of Stockholdersof MEDTOX Scientific, Inc.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference from the section labeled “Certain Relationships and Related Transactions” that will appear in the Definitive Proxy Statement to be used in connection with the 2006 Annual Meeting of Stockholders of MEDTOX Scientific, Inc.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is incorporated by reference from the section labeled “Fees toIndependent Registered Public Accounting Firm” that will appear in the Definitive Proxy Statement to be used in connection with the 2006 Annual Meeting of Stockholdersof MEDTOX Scientific, Inc.

38

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

a.	Financial Statements	Page
	Report of Independent Registered Public Accounting Firm	44
	Consolidated Balance Sheets at December 31, 2005 and 2004	45
	Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003	46
	Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2005, 2004 and 2003	47
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003.	48
	Notes to Consolidated Financial Statements	49
b.	Consolidated Financial Statements Schedule
	Schedule II - Valuation and Qualifying Accounts	67
All other financial statement schedules normally required under Regulation S-X are omitted as the required information is not applicable.
c.	Exhibits

The exhibits included in the Report are set forth on the exhibit index and follow the signature page of this Annual Report on Form 10-K.

3.1 Bylaws of the Registrant, as amended.*

3.2 Restated Certificate of Incorporation, as amended.*

3.3 Amended Certificate of Designations of Preferred Stock (Series A Convertible Preferred Stock) of the Registrant, filed with the Delaware Secretary of State on January 29, 1996 (incorporated by reference to Exhibit 3.1 filed with the Registrant’s report on Form 8-K dated January 30, 1996).

4.1 Rights Agreement dated September 18, 1998 between the Registrant and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 filed with the Registrant’s Report on Form 8-K dated September 21, 1998).

10.1 Second Amendment dated December 31, 1986 to Exclusive License Agreement amending and restating exclusive license granted by the Registrant to Disease Detection International, Inc. (incorporated by reference to Exhibit 10.25 filed with the Registration Statement on Form S-1 dated August 26, 1987, Commission File No. 33-15543).

39

10.2 Registrant’s Amended and Restated Qualified Employee Stock Purchase Plan (incorporated by reference to Exhibit 4 filed with the Registrant’s Registration Statement on Form S-8 dated November 11, 1993, Commission File No. 33-71596).

10.3 Agreement regarding rights to “MEDTOX” name dated as of January 30, 1996 between the Registrant and Harry G. McCoy. (Incorporated by reference to Exhibit 10.38 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 1995.)**

10.4 Employment Agreement dated January 1, 2000 between the Registrant and Harry G. McCoy. (Incorporated by reference to Exhibit 10.45 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 1999.)**

10.5 Registrant’s Restated Equity Compensation Plan dated May 10, 2000. (Incorporated by reference to exhibit 10.46 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2000.)**

10.6 Form of Severance Agreement between the Registrant and James B. Lockhart, James A. Schoonover, B. Mitchell Owens, and Kevin J. Wiersma. (Incorporated by reference to exhibit 10.47 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2000).**

10.7 Purchase and Sale Agreement dated July 27, 2000 by and between the Registrant and NMRO, Inc. (Incorporated by reference to exhibit 10.48 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2000).

10.8 Registration Rights Agreement dated July 31, 2000 among the Registrant, certain investors, and Miller, Johnson, & Kuehn, Inc. (“MJK”). (Incorporated by reference to exhibit 10.50 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2000).**

10.9 Purchase and Sale Agreement dated December 29, 2000 by and between MEDTOX Laboratories, Inc. and PHL-OPCO, LP. (Incorporated by reference to exhibit 10.52 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2000).

10.10 Mortgage and Security Agreement dated March 16, 2001 by and between New Brighton Business Center LLC and Principal Life Insurance Company. (Incorporated by reference to exhibit 10.53 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2000).

10.11 Secured Promissory Note dated March 16, 2001 by and between New Brighton Business Center LLC and Principal Life Insurance Company. (Incorporated by reference to exhibit 10.54 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2000).

10.12 Employment Agreement dated January 1, 2003, between the Registrant and Richard J. Braun. (Incorporated by reference to exhibit 10.59 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2002).**

40

10.13 Amended and Restated Nova Building Lease dated November 1, 2003 by and between Powell Enterprises and MEDTOX Diagnostics, Inc. (Incorporated by reference to exhibit 10.23 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2003).

10.14 Purchase and Sale Agreement dated July 1, 2003 by and between MEDTOX Laboratories, Inc. and CoxHealth. (Incorporated by reference to exhibit 10.26 filed with the Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2003).

10.15 Registrant’s Supplemental Executive Retirement Plan dated December 21, 2004. (Incorporated by reference to exhibit 10.2 filed with the Registrant’s Report on Form 8-K dated December 22, 2004).**

10.16 Registrant’s Long-Term Incentive Plan as Amended dated July 27, 2005. (Incorporated by reference to exhibit 10.1 filed with the Registrant’s Report on Form 8-K dated July 28, 2005).**

10.17 Credit Agreement between MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc., and MEDTOX, Laboratories Inc. and Wells Fargo Bank dated December 1, 2005. (Incorporated by reference to exhibit 10.1 filed with the Registrant’s Report on Form 8-K dated December 6, 2005).

10.18 Revolving Line of Credit Note between MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc., and MEDTOX, Laboratories Inc. and Wells Fargo Bank dated December 1, 2005. (Incorporated by reference to exhibit 10.2 filed with the Registrant’s Report on Form 8-K dated December 6, 2005).

10.19 Security Agreement: Equipment between MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc., and MEDTOX, Laboratories Inc. and Wells Fargo Bank dated December 1, 2005. (Incorporated by reference to exhibit 10.3 filed with the Registrant’s Report on Form 8-K dated December 6, 2005).

10.20 Continuing Security Agreement: Rights to Payment and Inventory between MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc., and MEDTOX, Laboratories Inc. and Wells Fargo Bank dated December 1, 2005. (Incorporated by reference to exhibit 10.4 filed with the Registrant’s Report on Form 8-K dated December 6, 2005).

10.21 Term Note between MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc., and MEDTOX, Laboratories Inc. and Wells Fargo Bank dated December 1, 2005. (Incorporated by reference to exhibit 10.5 filed with the Registrant’s Report on Form 8-K dated December 6, 2005).

10.22 Agreement and Acknowledgment of Security Interest between Wells Fargo Bank, MEDTOX Diagnostics, Inc., and Powell Enterprises, Inc. dated December 1, 2005. (Incorporated by reference to exhibit 10.6 filed with the Registrant’s Report on Form 8-K dated December 6, 2005).

10.23 Term Note between MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc., and MEDTOX, Laboratories Inc. and Wells Fargo Bank dated March 16, 2006.*

41

10.24 Continuing Guaranty between New Brighton Business Center, LLC and Wells Fargo Bank dated March 16, 2006.*

10.25 First Amendment to Credit Agreement between MEDTOX Scientific, Inc., MEDTOX Diagnostics, Inc., and MEDTOX, Laboratories Inc. and Wells Fargo Bank dated March 16, 2006.*

10.26 Negative Pledge Agreement between New Brighton Business Center, LLC and Wells Fargo Bank dated March 16, 2006.*

21.1 Subsidiaries of Registrant*

23 Consent of Independent Registered Public Accounting Firm*

31.1 Section 302 Certification of Chief Executive Officer pursuant to the Sarbanes-Oxley Act of 2002.*

31.2 Section 302 Certification of Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002.*

32.1 Section 906 Certification of Chief Executive Officer pursuant to the Sarbanes-Oxley Act of 2002.*

32.2 Section 906 Certification of Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002.*

*	Filed herewith
**	Denotes a management contract or compensatory plan or arrangement

42

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 16th of March, 2006.

MEDTOX Scientific, Inc.

Registrant

By:/s/ Richard J. Braun

Richard J. Braun

President, Chief Executive Officer and

Chairman of the Board of Directors

Pursuant to the requirements of the Securities Act of 1934, this Registration Statement has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Richard J. Braun	President, Chief Executive Officer, and	March 16, 2006
Richard J. Braun	Chairman of the Board of Directors (Principal Executive Officer)
/s/ Kevin J. Wiersma	Vice President and Chief Financial Officer	March 16, 2006
Kevin J. Wiersma	(Principal Financial Officer)
/s/ Angela M. Lacis	Controller	March 16, 2006
Angela M. Lacis	(Principal Accounting Officer)
/s/ Brian P. Johnson	Director	March 16, 2006
Brian P. Johnson
/s/ Robert J. Marzec	Director	March 16, 2006
Robert J. Marzec
/s/ Samuel C. Powell	Director	March 16, 2006
Samuel C. Powell, Ph.D.
/s/ Robert A. Rudell	Director	March 16, 2006
Robert A. Rudell

43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

MEDTOX Scientific, Inc.

Saint Paul, Minnesota

We have audited the accompanying consolidated balance sheets of MEDTOX Scientific, Inc. and subsidiaries (the “Company”) at December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15.b.  These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MEDTOX Scientific, Inc. and subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Minneapolis, Minnesota

March 16, 2006

44

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2005 AND 2004

(In thousands, except share and per share data)

		2005			2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,312		$	263
Accounts receivable:
Trade, less allowance for doubtful accounts ($332 in 2005 and $630 in 2004)		9,691			8,084
Other		198			203
Total accounts receivable		9,889			8,287
Inventories		3,301			3,624
Prepaid expenses and other		1,237			1,293
Deferred income taxes		1,390			1,531
Total current assets		17,129			14,998
BUILDING, EQUIPMENT AND IMPROVEMENTS, net		17,927			16,348
GOODWILL, net		15,967			15,967
OTHER INTANGIBLE ASSETS, net		1,229			1,608
DEFERRED INCOME TAXES, net		6,721			6,733
OTHER ASSETS		417			306
TOTAL ASSETS	$	59,390		$	55,960
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Line of credit	$	-		$	4,690
Accounts payable		2,793			1,661
Accrued expenses		5,079			4,188
Current portion of long-term debt		864			1,469
Current portion of capital leases		16			73
Total current liabilities		8,752			12,081
LONG-TERM DEBT, net of current portion		5,465			6,050
OTHER LONG-TERM LIABILITIES		312			-
LONG-TERM PORTION OF CAPITAL LEASES, net of current portion		16			40
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; authorized shares, 50,000; none issued and outstanding		-			-
Common stock, $0.15 par value; authorized shares, 14,400,000; issued and outstanding
shares, 8,161,159 in 2005 and 7,534,842 in 2004		1,224			1,130
Additional paid-in capital		85,743			81,693
Deferred stock-based compensation		(226	)		(508	)
Accumulated deficit		(41,032	)		(44,350	)
Common stock held in trust		(688	)		-
Treasury stock		(176	)		(176	)
Total stockholders' equity		44,845			37,789
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	59,390		$	55,960

See notes to consolidated financial statements.

45

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003

(In thousands, except share and per share data)

		2005			2004			2003
REVENUES:
Laboratory services	$	48,582		$	43,219		$	39,424
Product sales		14,465			13,517			12,049
		63,047			56,736			51,473
COST OF REVENUES:
Cost of services		30,111			27,611			26,357
Cost of sales		5,816			5,291			5,163
		35,927			32,902			31,520
GROSS PROFIT		27,120			23,834			19,953
OPERATING EXPENSES:
Selling, general and administrative		19,309			17,826			16,722
Research and development		2,287			1,705			1,910
		21,596			19,531			18,632
INCOME FROM OPERATIONS		5,524			4,303			1,321
OTHER INCOME (EXPENSE):
Interest expense		(816	)		(997	)		(1,147	)
Other expense, net		(503	)		(369	)		(482	)
		(1,319	)		(1,366	)		(1,629	)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE		4,205			2,937			(308	)
INCOME TAX EXPENSE		(887	)		(1,116	)		-
NET INCOME (LOSS)	$	3,318		$	1,821		$	(308	)
BASIC EARNINGS (LOSS) PER COMMON SHARE	$	0.43		$	0.24		$	(0.04	)
WEIGHTED AVERAGE NUMBER OF BASIC SHARES OUTSTANDING		7,785,037			7,471,847			7,413,926
DILUTED EARNINGS (LOSS) PER COMMON SHARE	$	0.40		$	0.23		$	(0.04	)
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING		8,199,650			7,853,916			7,413,926

See notes to consolidated financial statements.

46

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003

(In thousands, except share data)

	Common Stock			Additional Paid-in Capital		Deferred Stock-Based Compensation			Accumulated Deficit			Common Stock Held in Trust			Treasury Stock		Total
	Shares	Par Value
BALANCE AT DECEMBER 31, 2002	4,814,001	$	722	$	80,699		$	(498)		$	(45,863)		$	-	$	(176)	$	34,884
Issuance of common stock under employee stock plans	8,861		1		44													45
Exercise of stock options	1,222		-		7													7
Deferred stock-based compensation	165,840		25		992			(1,017)										-
Traded shares for payment of taxes	(12,703)		(2)		(76)													(78)
Amortization of deferred stock-based compensation								520										520
Net loss											(308)							(308)
BALANCE AT DECEMBER 31, 2003	4,977,221		746		81,666			(995)			(46,171)			-		(176)		35,070
Issuance of common stock under employee stock plans	9,028		1		41													42
Exercise of stock options and warrants	94,738		14		533													547
Forfeiture of deferred stock-based compensation	(11,861)		(1)		(73)			74										-
Traded shares for payment of taxes	(16,155)		(2)		(147)													(149)
Amortization of deferred stock-based compensation								413										413
Tax benefit related to restricted stock vesting					45													45
Stock split	2,481,871		372		(372)													-
Net income											1,821							1,821
BALANCE AT DECEMBER 31, 2004	7,534,842	$	1,130	$	81,693		$	(508)		$	(44,350)			-	$	(176)	$	37,789
Issuance of common stock under employee stock plans	5,347		1		28													29
Exercise of stock options and warrants	640,159		96		4,108													4,204
Deferred stock-based compensation	10,000		1		68			(69)										-
Forfeiture of deferred stock-based compensation	(15,500)		(2)		(73)			75										-
Traded shares for payment of taxes	(13,689)		(2)		(117)													(119)
Amortization of deferred stock-based compensation								276										276
Tax benefit related to restricted stock vesting					36													36
Purchase of common stock for incentive plan														(688)				(688)
Net income											3,318							3,318
BALANCE AT DECEMBER 31, 2005	8,161,159	$	1,224	$	85,743		$	(226)		$	(41,032)		$	(688)	$	(176)	$	44,845

See notes to consolidated financial statements.

47

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003

(In thousands)

		2005			2004			2003
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)	$	3,318		$	1,821		$	(308)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		3,174			3,135			2,850
Provision for losses on accounts receivable		663			582			635
Loss on sale of equipment		1			29			9
Deferred compensation		588			413			520
Deferred income taxes		189			1,116			2
Changes in operating assets and liabilities:
Accounts receivable		(2,265	)		(502	)		396
Inventories		323			(60	)		831
Prepaid expenses and other current assets		56			113			(237)
Other assets		(111	)		(62	)		75
Accounts payable and accrued expenses		1,810			(133	)		(1,566)
Net cash provided by operating activities		7,746			6,452			3,207
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of building, equipment and improvements		(4,125	)		(3,900	)		(2,563)
Purchase of customer list		(37	)		(156	)		(50)
Proceeds from sale of equipment		-			46			1
Net cash used in investing activities		(4,162	)		(4,010	)		(2,612)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net proceeds (payments) on revolving credit facility		(4,690	)		(436	)		781
Proceeds from long-term debt		641			-			1,641
Principal payments on long-term debt		(1,831	)		(2,821	)		(2,637)
Principal payments on capital leases		(81	)		(73	)		(82)
Purchase of common stock for incentive plan		(688	)		-			-
Net proceeds from sale of common stock		4,233			589			52
Payment of taxes from traded shares		(119	)		(149	)		(78)
Net cash used in financing activities		(2,535	)		(2,890	)		(323)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,049			(448	)		272
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		263			711			439
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	1,312		$	263		$	711
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	839		$	995		$	1,144
Income taxes, net of refunds received		163			119			-
Supplemental noncash activities:
Asset additions and related obligations	$	213		$	97		$	-
Tax benefit related to restricted stock vesting		36			45			-

See notes to consolidated financial statements.

48

MEDTOX SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of significant accounting policies

The Company – The consolidated financial statements include the accounts of MEDTOX Scientific, Inc. and its wholly owned subsidiaries, MEDTOX Laboratories, Inc. (MEDTOX Laboratories), MEDTOX Diagnostics, Inc. (MEDTOX Diagnostics), and New Brighton Business Center, LLC (NBBC) (collectively referred to as the Company).

MEDTOX Laboratories provides laboratory analyses, logistics management, data management, and program management services. Laboratory analyses include clinical testing services for the detection of substances of abuse and other toxins in biological fluids and tissues. Logistics, data, and program management services include courier services for medical specimen transportation, management programs for on-site drug testing, data collection and reporting services, coordination of specimen collection sites, and medical surveillance program management.

MEDTOX Diagnostics is engaged in the research, development, and sale of products based upon enzyme immunoassay technology for the detection of antibiotic residues, mycotoxins, drugs-of-abuse and other hazardous substances as well as distribution of agridiagnostic and food safety testing products.

NBBC conducts the Company’s building rental activities that are not related to the Company’s operations. The operations of NBBC are shown in the statements of operations as “other expense, net”.

All significant intercompany transactions and balances have been eliminated.

Use of Estimates - The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The more significant estimates include the valuation of accounts receivable, inventories, goodwill and other intangible assets, deferred income taxes, and the recorded amounts for certain accruals. Actual results could differ from those estimates.

Cash and Cash Equivalents – Cash equivalents include highly liquid investments maturing within three months of purchase.

Trade Accounts Receivable –Sales are made to local and national customers including corporations, clinical laboratories, government agencies, medical professionals, law enforcement agencies, and health care facilities. The Company extends credit based on an evaluation of the customer’s financial condition, and receivables are generally unsecured. The Company provides an allowance for doubtful accounts equal to the estimated losses expected to be incurred in the collection of accounts receivable. In addition, some of the Company’s Laboratory Services revenues for certain types of tests are billed to third-party payors including insurance companies, state Medicaid and Medicare agencies. These payors pay for such services at established amounts, which are typically lower than gross amounts billed by the Company. The Company estimates a discount on the billings for these tests, and recognizes revenue and related accounts receivable at a net amount after discount in order to state revenue and accounts receivable at the amount expected to be paid.

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Inventories - Inventories are valued at the lower of cost (first-in, first-out method) or market.

Equipment and Improvements – Equipment and improvements are stated at cost. Provisions for depreciation have been computed using the straight-line method to amortize the cost of depreciable assets over their estimated useful lives. Leasehold improvements are amortized over the lesser of the lease term or the economic useful lives of the improvements.

Goodwill and Other Intangible Assets – Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” provides that goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually and between annual test dates in certain circumstances. The Company performs its annual impairment test for goodwill and other intangible assets in the fourth quarter of each year after the Company’s annual forecasting process. No impairments were indicated as a result of the annual impairment reviews for goodwill and other intangible assets in 2005, 2004 or 2003. In assessing the recoverability of goodwill and other intangible assets, projections regarding estimated future cash flows and other factors are made to determine the fair value of the respective assets. If these estimates or related projections change in the future, the Company may be required to record impairment charges for these assets.

Goodwill and other intangible assets are allocated to the Company’s reporting units, which are either the operating segment or one reporting level below the operating segment. SFAS No. 142 requires the Company to compare the fair value of the reporting unit to its carrying amount on an annual basis to determine if there is potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill and other intangible assets within the reporting unit is less than their carrying value. If the carrying amount of the goodwill and other intangible assets exceeds their fair value, an impairment loss is recognized. Fair values for goodwill and other intangible assets are determined based on discounted cash flows.

Amortizable intangible assets are amortized on a straight-line or accelerated basis based upon estimated useful or contractual lives as follows as of December 31, 2005:

Customer lists: 5 – 20 years

Non-compete agreement: 5 years

Revenue Recognition - Revenues from Laboratory Services are recognized as earned at such time as the Company has completed services. The Company’s services are considered to be complete when it has performed the applicable laboratory testing services and the results have been sent to the Company’s customers or posted to the Company’s secure website. Revenues from Product Sales are recognized FOB shipping point net of an allowance for estimated returns. When shipment occurs, the sales price is fixed and determinable, and collection of the resulting receivable is reasonably assured.

Freight charges to customers are included in product sales and freight costs are included in cost of sales.

Research and Development – Research and development expenditures are charged to expense as incurred.

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Income Taxes - The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance against deferred tax assets is established for the estimated amount of net operating losses that will more likely than not expire unused in future periods.

Earnings (Loss) per Common Share –Basic earnings (loss) per common share equals net earnings (loss) divided by the weighted average common shares outstanding during the period. Diluted earnings (loss) per common share equals net earnings (loss) divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents. Common stock equivalents are shares assumed to be issued if outstanding stock options or warrants were exercised. Common stock equivalents that are anti-dilutive are excluded from net earnings per common share. Common stock equivalents are not considered in periods with a net loss as the effect would be anti-dilutive.

Fair Value of Financial Instruments – The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are considered to be representative of their respective fair values due to their short-term nature. The carrying amount of the line of credit and long-term debt approximated fair value at December 31, 2005 and 2004. The fair value of the Company’s debt was estimated using interest rates that are representative of debt with similar terms and maturities.

Concentrations of Credit Risk – Concentrations of credit risk with respect to accounts receivable are limited due to the diversity of the Company’s clients as well as their dispersion across many different geographic regions. The Company had no customers that accounted for more than 10% of consolidated revenues in 2005, 2004, or 2003 or accounts receivable at December 31, 2005 or 2004, respectively.

Stock-Based Compensation– SFAS No. 123, “Accounting for Stock-Based Compensation,” requires companies to measure employee stock compensation plans and non-employee stock-based compensation based on the fair value method of accounting. However, for stock compensation granted to employees, SFAS No. 123 allows the continued use of Accounting Principles Board Opinion (APBO) No. 25, “Accounting for Stock Issued to Employees,” with pro forma disclosure of net income and earnings per share determined as if the fair value method had been applied in measuring compensation cost. The Company elected the continued use of APBO No. 25.

Had the Company determined compensation expense based on the fair value at the grant date for its stock options under SFAS No. 123 (as amended by SFAS No. 148), the Company’s net income (loss) and earnings (loss) per share would have been changed to the pro forma amounts indicated below:

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(In thousands, except per share data)			2005		2004		2003
Net income (loss)..................................	As reported	$	3,318	$	1,821	$	(308)
Less: Total stock-based compensation
expense			(131)		(273)		(615)
	Pro forma	$	3,187	$	1,548	$	(923)
Basic earnings (loss) per share...................	As reported	$	0.43	$	0.24	$	(0.04)
	Pro forma		0.41		0.21		(0.12)
Diluted earnings (loss) per share................	As reported	$	0.40	$	0.23	$	(0.04)
	Pro forma		0.39		0.20		(0.12)
No options were granted in 2005 or 2004. In 2003, the fair value of the options at the grant date was estimated using the Black-Scholes model with the following assumptions:

Expected life (years)	4.0
Interest rate	2.6	%
Volatility	62.4	%
Dividend yield	0	%

The weighted average fair value of options granted in 2003, using the above assumptions, was $1.93 per share.

Comprehensive Income (Loss) – Comprehensive income (loss) is a measure of all non-owner changes in shareholders’ equity and includes such items as net income (loss), certain foreign currency translation items, minimum pension liability adjustments, and changes in the value of available-for-sale securities. In 2005, 2004, and 2003, comprehensive income (loss) for the Company was equal to net income (loss) as reported.

New Accounting Standards –In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 will be effective for the Company on January 1, 2006.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”, which is a revision of SFAS No. 123.  SFAS No. 123(R) supersedes APBO No. 25 and amends SFAS No. 95, “Statement of Cash

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Flows.”  The revision requires companies to measure and recognize compensation expense for all share-based payments to employees, including grants of employee stock options, in the financial statements based on the fair value at the date of the grant. SFAS No. 123(R) permits companies to adopt its requirements using either the modified prospective method or the modified retrospective method. Under the modified prospective method, compensation cost is recognized beginning with the effective date for all share-based payments granted after the effective date and for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. The modified retrospective method includes the requirements of the modified prospective method, but also permits entities to restate either all prior periods presented or prior interim periods of the year of adoption for the impact of adopting this standard. The Company will apply the modified prospective method upon adoption. In April 2005, the Securities and Exchange Commission announced it would provide for phased-in implementation of SFAS No. 123(R). As a result, SFAS No. 123(R) is effective for the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. The Company estimates that compensation expense related to employee stock options for 2006 will be in the range of $100,000 to $150,000.  SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The Company believes this reclassification will not have a material impact on its consolidated statements of cash flows.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 requires that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. SFAS No. 151 was effective for the Company on July 1, 2005. The adoption of this statement did not have a material impact on the Company’s results of operations or financial position.

2. SEGMENTS

The Company has two reportable segments: Laboratory Services and Product Sales. The Laboratory Services segment consists of MEDTOX Laboratories and NBBC. Services provided include forensic toxicology (primarily workplace drugs-of-abuse testing) and Specialty Laboratory Services, which include clinical toxicology, clinical testing for the pharmaceutical industry, pediatric lead testing, heavy metals analyses, courier delivery, and medical surveillance. The Product Sales segment, which includes POCT (point-of-collection testing) disposable diagnostics devices, consists of MEDTOX Diagnostics. Products manufactured include easy to use, inexpensive, on-site drug tests such as PROFILE^®-II, PROFILE^®-II A, PROFILE-II ER^®, PROFILE^®-III, VERDICT^®-II and SURE-SCREEN^®,in addition to a variety of agricultural testing products and other diagnostic tests for the detection of alcohol. MEDTOX Diagnostics also provides contract manufacturing services in its Food and Drug Administration (FDA) registered/ISO 13845 certified facility.

The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately as each business requires different products, services and marketing strategies.

In evaluating financial performance, management focuses on income from operations as a segment’s measure of profit or loss. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1).

The following is a summary of certain segment information for the years ended December 31:

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(In thousands)
		2005		2004		2003
Laboratory Services:
Revenues	$	48,582	$	43,219	$	39,424
Depreciation and amortization		2,643		2,561		2,316
Income from operations		4,722		2,965		1,032
Segment assets		44,504		41,356		39,893
Capital expenditures for segment assets		3,755		3,390		1,113

Product Sales:
Revenues	$	14,465	$	13,517	$	12,049
Depreciation and amortization		531		574		534
Income from operations		802		1,338		289
Segment assets		6,775		6,340		7,290
Capital expenditures for segment assets		370		510		1,450

Corporate (unallocated):
Other expense	$	(1,319)	$	(1,366)	$	(1,629)
Net deferred tax assets		8,111		8,264		9,335

Company:
Revenues	$	63,047	$	56,736	$	51,473
Depreciation and amortization		3,174		3,135		2,850
Income from operations		5,524		4,303		1,321
Other expense		(1,319)		(1,366)		(1,629)
Income (loss) before income taxes		4,205		2,937		(308)
Total assets		59,390		55,960		56,518
Capital expenditures for assets		4,125		3,900		2,563

The following is a summary of revenues from external customers for each group of services provided within the Laboratory Services segment for the years ended December 31:

(In thousands)
		2005		2004		2003
Workplace drugs-of-abuse testing	$	31,838	$	27,913	$	24,098
Other specialty laboratory services		16,744		15,306		15,326
	$	48,582	$	43,219	$	39,424

The following is a summary of revenues from external customers for each group of products and services provided within the Product Sales segment for the years ended December 31:

(In thousands)
		2005		2004		2003
POCT products	$	12,402	$	11,246	$	10,295
Contract manufacturing services		1,840		1,980		1,416
Other diagnostic products		223		291		338
	$	14,465	$	13,517	$	12,049

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3. ACQUISITION

In July 2003, the Company completed the acquisition of the forensic drug testing customer list from Cox Toxicology, a full-service, SAMHSA-certified drug testing laboratory and a division of CoxHealth. The purchase price is based on varying percentages of the revenue realized from the transitioned business from July 2003 through June 2006. During this period, the Company estimates that revenue from these accounts will total approximately $1.2 million and that the sum of the payments for the acquisition should not exceed 25% of this total. Per the terms of the agreement, $50,000 was paid in 2003, which was recorded as a customer list intangible asset and is being amortized on a straight-line basis over a five-year period. In 2005 and 2004, an additional $37,000 and $156,000, respectively, were paid based upon the revenue realized from the transitioned business, which amounts were also recorded as a customer list asset and is being amortized on a straight-line basis over the remaining useful life. Pro forma results related to the Cox Toxicology customer list acquisition were not material to the financial condition or results of operations of the Company.

4. INVENTORIES

Inventories consisted of the following at December 31:

(In thousands)		2005		2004
Raw materials	$	970	$	984
Work in process		289		344
Finished goods		427		627
Supplies, including off-site inventory		1,615		1,669
	$	3,301	$	3,624

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets, resulting primarily from acquisitions, include the value assigned to customer lists, non-compete agreements and goodwill. Amortizable intangible assets are amortized on a straight-line or accelerated basis based upon their estimated useful lives.

The components of goodwill were as follows at December 31:

(In thousands)	2005						2004
		Gross Carrying Amount	Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount	Accumulated Amortization			Net Carrying Amount
Goodwill	$	21,100	$	(5,133)	$	15,967	$	21,100	$	(5,133)	$	15,967

The entire amount of goodwill is included in the Laboratory Services segment, which is tested annually for impairment during the fourth quarter after the Company’s annual forecasting process. No goodwill impairment was recognized in 2005, 2004 or 2003. There were no other changes in the carrying amount of goodwill in 2005, 2004 or 2003.

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The components of other intangible assets were as follows at December 31:

(In thousands)		2005						2004
	Weighted average useful life		Gross Carrying Amount	Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount	Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Non-compete agreements	3.5 years	$	521	$	(487)	$	34	$	521	$	(437)	$	84
Customer lists	10.6 years		2,660		(1,505)		1,155		2,623		(1,145)		1,478
Trademarks and other	9.7 years		55		(15)		40		55		(9)		46
Total	9.4 years	$	3,236	$	(2,007)	$	1,229	$	3,199	$	(1,591)	$	1,608

Amortization expense for amortizable intangible assets was approximately $0.4 million, $0.4 million, and $0.5 million during 2005, 2004, and 2003, respectively. Future amortization expense for amortizable intangible assets is estimated to be as follows for the years ending December 31:

(In thousands)
2006	$	363
2007		284
2008		209
2009		125
2010		73
2011 and thereafter		175
	$	1,229

6. BUILDING, EQUIPMENT AND IMPROVEMENTS

Building, equipment and improvements consisted of the following at December 31:

(In thousands)		2005		2004
Furniture and equipment	$	19,907	$	19,173
Building		7,291		7,220
Leasehold improvements		5,252		4,034
		32,450		30,427
Less accumulated depreciation		(14,523)		(14,079)
	$	17,927	$	16,348

Depreciation expense was approximately $2.8 million, $2.7 million and $2.2 million during 2005, 2004 and 2003, respectively.

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7. DEBT

Long-term debt consisted of the following at December 31:

(In thousands)		2005		2004
Term loan, due February 2009, 7.00% at December 31, 2005	$	341	$	-
Capex note, due June 2006, 8.50% at December 31, 2005		69		194
Capex note, due December 2006, 8.50% at December 31, 2005		487		933
Capex notes, paid in 2005		-		745
Mortgage loan, due April 2011, 7.23% at December 31, 2005		5,432		5,619
Various vehicle loans, paid in 2005		-		28
		6,329		7,519
Less current portion		(864)		(1,469)
	$	5,465	$	6,050

Long-term debt maturities at December 31, 2005 were as follows for the years ending December 31:

2006	$	864
2007		324
2008		340
2009		268
2010		268
2011 and thereafter		4,265
	$	6,329

Wells Fargo Credit Agreement – On December 1, 2005, the Company entered into a credit agreement (the Wells Fargo Credit Agreement) with Wells Fargo Bank, National Association (the Bank), which replaced the then existing Amended and Restated Credit and Security Agreement with Wells Fargo Business Credit, Inc.

The Wells Fargo Credit Agreement consists of:

(i) a revolving line of credit (Line of Credit), payable on demand, of up to $8.0 million bearing interest at either a fluctuating rate of 0.5% below the Bank’s prime rate or at a fixed rate of 1.9% above LIBOR, as defined and calculated by the Bank, in effect on the first day of the applicable fixed rate term; and

(ii) a note or notes aggregating up to $2.0 million (loan limit) for the purchase of capital equipment bearing interest at either a rate of 0.25% below the Bank’s prime rate or at a fixed rate for a period of one, two, three or four years at a rate of 2.25% in excess of the then current yield on U.S. Treasury Securities, adjusted to a constant maturity equal to such fixed rate period.

Subject to certain conditions, the Wells Fargo Credit Agreement also provides for the issuance of letters of credit which, if drawn upon, would be deemed advances under the Line of Credit. The Company is required to pay a fee equal to 0.125% per annum on the average daily unused amount of the Line of Credit. The Company has granted the Bank a first priority security interest in all of the Company’s accounts receivable, other rights to payment, general intangibles, inventory and equipment to secure all indebtedness of the Company to the Bank.

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Extensions of credit under the Wells Fargo Credit Agreement are subject to certain conditions. The Wells Fargo Credit Agreement also requires the Company to comply with certain financial covenants, including current ratio, tangible net worth, total liabilities to tangible net worth ratio, and debt service coverage ratio, all as defined in the Wells Fargo Credit Agreement. At December 31, 2005, the Company was in compliance with all financial covenants contained in the Wells Fargo Credit Agreement.

At December 31, 2005, the Company did not have an outstanding balance on its revolving line of credit. The weighted average interest rate on borrowings outstanding under the revolving line of credit was 6.6%, 4.8% and 4.5% during 2005, 2004, and 2003, respectively.

On December 1, 2005, the Company entered into a term loan with the Bank which was used to repay existing capital expenditure advances made in 2002 and 2005 under the Amended and Restated Credit and Security Agreement with Wells Fargo Business Credit, Inc. The December 1, 2005 Term Note evidencing the term loan was made pursuant to and subject to the terms and conditions of the Wells Fargo Credit Agreement under the $2.0 million loan limit. The Term Note was for approximately $341,000, payable in monthly installments over three years bearing interest at a rate of 0.25% below the Bank’s prime rate. The term loan is secured by the equipment purchased with the proceeds from the 2002 and 2005 capital expenditure advances.

Subordinated Debt – In October and November 2001, the Company received approximately $1.05 million from private placements of subordinated debt. The Company repaid the principal amount of the notes in 2004.

8. STOCKHOLDERS’ EQUITY

On July 29, 2004, the Board of Directors declared a three-for-two stock split on the Company’s common stock, effected in the form of a 50% stock dividend, which was paid on August 20, 2004 to stockholders of record on August 10, 2004. The stock split was recorded as a reduction to additional paid-in capital and an increase in common stock in the amount of approximately $372,000, which was based on the par value of the Company’s common stock. Accordingly, all stock option, warrant, share and per share data included in the consolidated financial statements have been restated to reflect the stock split.

At December 31, 2005, 1,063,010 shares of common stock were reserved for future issuances under the stock option plans discussed in Note 9.

In September 1998, the Company’s Board of Directors declared a dividend of one preferred share purchase right (Right) for each common share then outstanding. The Rights were distributed pursuant to a Rights Agreement between the Company and American Stock Transfer & Trust Company. Each Right entitles the holder to purchase one one-hundredth of a share of a new series of junior participating preferred stock at an exercise price of $29.80, subject to adjustment (such adjustment including the effect of the stock splits described above in Note 8). The Rights are exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the Company's outstanding common stock.

9. STOCK OPTION AND PURCHASE PLANS

The Company has adopted stock option plans to provide incentives to eligible employees, officers, and directors in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted and unrestricted stock awards, performance shares and other stock-based awards. The

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Compensation Committee of the Board of Directors determined the exercise price (not to be less than the fair market value of the underlying stock) of stock options at the date of grant. Options generally become exercisable in installments over a period of one to five years and expire ten years from the date of grant. Restricted stock awards are awarded with a fixed restriction period. At December 31, 2005, all of the Company’s stock option plans had expired, and no options are available for future grant, except as inducement grants to new employees of the Company.

The following table summarizes information about the Company’s stock option activity during 2005, 2004 and 2003:

	Plan Options Outstanding
	1993 Equity Compensation Plan	Non- employee Director Plan	Weighted Average Exercise Price
Balance at December 31, 2002	841,642	13,242	4.51
Granted	328,386		3.90
Exercised	(1,833)		3.95
Canceled	(48,359)		5.67
Balance at December 31, 2003	1,119,836	13,242	4.28
Exercised	(3,111)		3.70
Canceled	(35,398)		9.65
Balance at December 31, 2004	1,081,327	13,242	4.11
Exercised	(24,594)		3.29
Canceled	(6,965)		9.32
Balance at December 31, 2005	1,049,768	13,242	4.10

The following table summarizes information about stock options outstanding at December 31, 2005:

	Plan Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Number Exercisable		Weighted Average Exercise Price
$1.40-$1.50	224,254	$	1.43	3.2	224,254	$	1.43
$3.70	224,532		3.70	8.0	155,207		3.70
$3.95-$4.41	283,050		4.24	5.6	281,637		4.24
$4.52-$6.58	212,556		5.57	3.8	212,556		5.57
$6.73-$7.58	118,618		6.89	6.0	118,618		6.89
	1,063,010		4.10	5.3	992,272		4.12

Nonqualified Stock Options - At December 31, 2005, 2004, and 2003, the Company had 183,336, 213,336 and 213,336, respectively, of nonqualified stock options outstanding to certain current and former officers and new employees of the Company. The weighted average exercise price of nonqualified stock options outstanding was $4.77, $4.63 and $4.63 per share, at December 31, 2005, 2004 and 2003, respectively. The shares of common stock covered by nonqualified options are restricted as to transfer under applicable securities laws.

Restricted Stock Awards - Restricted stock awards are issued to certain key employees and directors of the Company as an incentive for the performance of future services that will contribute materially to the successful operation of the Company. Owners of restricted stock awards have the rights of shareowners, including the right to vote. The Company awarded 10,000 and 248,480 restricted shares in 2005 and 2003, respectively, to certain key employees and directors of the Company with cliff vesting and restriction

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periods of three to five years. The market value of the awards on the date of the grant was recorded as deferred stock-based compensation and additional paid-in capital. Compensation is charged to operations on a straight-line basis over the restriction periods and amounted to approximately $276,000, $413,000, and $520,000 in 2005, 2004 and 2003, respectively. Unvested restricted stock awards totaled 237,983 and 291,058 shares at December 31, 2005 and 2004, respectively, with a weighted average grant date fair value of $4.35 and $4.67 in 2005 and 2004, respectively.

Qualified Employee Stock Purchase Plan - The Company had a Qualified Employee Stock Purchase Plan (the Purchase Plan) under which all employees meeting certain criteria were able to subscribe to and purchase shares of common stock. The number of shares of common stock authorized to be issued under the Purchase Plan was 272,250. In December 2004, the Board of Directors terminated the Purchase Plan. Upon termination of the Purchase Plan, participating employees are permitted to complete unpaid subscriptions. The subscription price of the shares was 85% of the fair market value of the common stock on the day the executed subscription form was received by the Company. The purchase price for the shares is the lesser of the subscription price or 85% of the fair market value of the shares on the day the right to purchase is exercised. Payment for common stock is made through a payroll deduction plan. Shares issued under the Purchase Plan were 5,347, 11,822 and 13,292 during 2005, 2004 and 2003, respectively. As of December 31, 2005, approximately 2,056 shares of common stock are expected to be issued upon completion of subscriptions under the Purchase Plan.

10. EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per common share for the years ended December 31:

(In thousands, except share and per share data)		2005		2004		2003
Net income (loss) (A)	$	3,318	$	1,821	$	(308)
Weighted average number of basic common shares outstanding (B)		7,785,037		7,471,847		7,413,926
Dilutive effect of stock options and warrants computed based on the treasury stock method using average market price		414,613		382,069		-
Weighted average number of diluted common shares outstanding (C)		8,199,650		7,853,916		7,413,926
Basic earnings (loss) per common share (A/B)	$	0.43	$	0.24	$	(0.04)
Diluted earnings (loss) per common share (A/C)	$	0.40	$	0.23	$	(0.04)

Options and warrants to purchase 7,671 and 1,333,612 shares of common stock were outstanding during 2005 and 2004, respectively, but were not included in the computation of diluted earnings per share as their exercise prices were greater than the average market price of the common shares. Options and warrants to purchase an aggregate 2,553,780 shares of common stock were outstanding during 2003 and were excluded from the computation of dilutive earnings per share as their inclusion would have been anti-dilutive due to a net loss.

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11. INCOME TAXES

Income tax expense (benefit) was as follows for the years ended December 31:
(In thousands)		2005		2004		2003
Current:
Federal	$	360	$	44	$	-
State and local		374		1		(2)
Deferred		153		1,071		2
	$	887	$	1,116	$	-

Following is a reconciliation of federal income tax at the statutory rate of 34% to the actual income taxes provided for the years ended December 31:

(In thousands)		2005		2004		2003
Computed expected federal income tax expense (benefit)	$	1,430	$	999	$	(105)
State tax, net of federal effect		168		117		10
Change in valuation allowance		(877)		-		-
Expired net operating loss carryforwards		-		-		986
Charge for state examination		331		-		-
Other, net		(165)		-		(891)
	$	887	$	1,116	$	-

The Company decreased its valuation allowance by $0.9 million during 2005. The reduction in the valuation allowance was based on the available evidence, including the Company’s recent historical performance, and projected future results. The Company also recorded a $0.3 million charge related to a North Carolina Department of Revenue examination of MEDTOX Diagnostics, Inc.

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred assets (liabilities) were as follows at December 31:

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(In thousands)		2005		2004
Current:
Accounts receivable allowances	$	341	$	519
Inventories		140		166
Accrued expenses		668		649
Other		241		197
		1,390		1,531
Non current:
Building, equipment and improvements		78		(542)
Goodwill and other intangible assets		(1,762)		(1,325)
Research and experimental credit carryforwards		308		273
Federal alternative minimum tax credit carryforwards		127		-
Net operating loss carryforwards		8,024		9,259
		6,775		7,665
		8,165		9,196
Less: Valuation allowance		(54)		(932)
Net deferred tax assets	$	8,111	$	8,264

At December 31, 2005, the Company had federal and state net operating loss carryforwards (NOLs) of approximately $23.0 million and $20.1 million, respectively, which are available to offset future taxable income.  The Company's federal and state NOLs expire in varying amounts each year from 2006 through 2020 in accordance with applicable federal and state tax regulations and the timing of when the NOLs were incurred.  For financial reporting purposes, a state valuation allowance has been recorded to offset deferred tax assets that, more likely than not, will not be realized based on the Company’s filing status in certain states.  Section 382 of the Internal Revenue Code restricts the annual utilization of certain NOLs incurred prior to a change in ownership.  However, such limitation is not expected to impair the realization of these NOLs.  In the future, subsequent revisions to the estimated net realizable value of these deferred tax assets could cause the provision for income taxes to vary significantly from period to period, although the Company’s cash payments would remain unaffected until the benefit of the NOLs is completely utilized or expires unused.

12. EMPLOYEE BENEFIT PLANS

Retirement Savings Plan - The Company has a defined contribution benefit plan that covers substantially all employees who meet certain age and length of service requirements. Contributions to the plan are at the discretion of the Company’s Board of Directors. The 401(k) expense for 2005, 2004 and 2003 was approximately $0, $0 and $123,000, respectively.

Long-Term Incentive Plan (LTIP) - In December 2004, the Company adopted the LTIP to provide performance-based compensation to selected officers of the Company and compensation to non-employee members of the Board of Directors. Under the LTIP, an officer becomes eligible for an annual long-term incentive contribution amount based upon performance objectives established by the Compensation Committee of the Board of Directors. A non-employee director receives 50% of his or her annual retainer in the form of an annual LTIP contribution. Annual contribution amounts for both officers and directors are subject to a three-year restriction period with a risk of forfeiture if a participant terminates service prior to becoming vested. Participants may elect to allocate LTIP awards in investment options authorized by the Committee, including shares of the Company’s common stock.

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The Compensation Committee determined the total 2005 contribution amount to be $688,000 allocated among all participants. All LTIP participants elected to allocate their 2005 contribution amounts to Company stock, and accordingly, the future payment of benefits will be settled by delivery of a fixed number of shares of stock. To fund the 2005 contribution amount, the Company purchased $688,000 or 94,874 shares of its own stock from June through September 2005, which was contributed to a grantor trust. Of the total stock purchased, 59,000 shares were purchased in the open market and 35,874 shares were purchased from an officer of the Company (at the closing market price on the American Stock Exchange on August 4, 2005). In accordance with EITF 97-14, “Accounting for Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested,” the acquired stock was recorded at historical cost and classified as common stock held in trust in stockholders’ equity in the accompanying consolidated balance sheet. The Company will record compensation expense on a straight-line basis over the three-year vesting period (April 1, 2005 through March 31, 2008 for the 2005 contribution amount per the LTIP agreement), which is recorded as a deferred compensation obligation in other long-term liabilities in the accompanying consolidated balance sheet. The Company recorded approximately $172,000 of compensation expense in 2005 in conjunction with the LTIP. The Company did not fund any contribution amounts or record any compensation expense in 2004 related to the LTIP.

Supplemental Executive Retirement Plan (SERP) – In December 2004, the Company adopted the SERP, which provides supplemental retirement benefits and allows deferral of a portion of base salary and performance based short-term bonuses for selected officers of the Company. The annual supplemental retirement contribution amount to which an officer is entitled for a plan year is a discretionary amount determined by the Compensation Committee of the Board of Directors. Under the SERP, supplemental retirement benefit contribution amounts will vest over a twelve month period.

The Compensation Committee determined the 2005 contribution amount to be $139,000 for the current sole plan participant. The plan participant elected to allocate his 2005 contribution amount into an investment option consisting of mutual funds. Per the SERP agreement, the future payment of benefits will be distributed to the participant in either a lump sum, or in annual installment payments of at least two years, but not more than ten years, in accordance with the election made by the participant. In accordance with EITF 97-14, the deferred compensation of $139,000 in the form of mutual funds was recorded as a marketable equity security in other assets in the accompanying consolidated balance sheet. The Company recorded compensation expense of $139,000 in 2005 over the 12 month vesting period, which was classified as a deferred compensation obligation in other long-term liabilities in the accompanying balance sheet. In accordance, with EITF 97-14, the deferred compensation liability was adjusted approximately $1,000, with a corresponding charge to compensation expense, to reflect the change in the fair value of the amount owed to the participant at December 31, 2005. The Company did not fund any contribution amounts or record any compensation expense in 2004 in conjunction with the SERP.

13. COMMITMENTS AND CONTINGENCIES

Leases - The Company leases office and research facilities from a director under a fixed term operating lease. Rental payments to the director were approximately $386,000, $386,000, and $347,000 during 2005, 2004 and 2003, respectively.

The Company leases other offices and facilities and office equipment under certain operating leases, which expire on various dates through March 2016. Under the terms of the facility leases, a pro rata share of operating expenses and real estate taxes are charged as additional rent.

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At December 31, 2005, the Company was obligated for future minimum lease payments without regard to sublease payments under noncancelable leases as follows for the years ending December 31:

(In thousands)
		Capital Leases		Operating Leases
2006	$	18	$	716
2007		15		634
2008		2		476
2009		-		457
2010		-		423
2011 and thereafter		-		2,025
		35	$	4,731
Less amount representing interest		(3)
Present value of net minimum lease payments		32
Less current portion		(16)
Long-term capital lease obligations	$	16

Rent expense (including amounts for the facilities leased from the director) amounted to $1.5 million, $1.6 million and $1.7 million during 2005, 2004 and 2003, respectively.

Legal - The Company is party to various legal proceedings arising in the normal course of business activities, none of which, in the opinion of management, are expected to have a material adverse impact on the Company's consolidated financial position or results of operations.

14. RELATED PARTY TRANSACTIONS

In March 2001, the Company entered into a 10-year lease of the Burlington, North Carolina production facility for an annual base rent of $197,000, exclusive of operating expenses. In addition, under the lease $600,000 of tenant improvements made to the building by the Company are being amortized over the life of the lease as additional rent. The Company received $300,000 for reimbursement of tenant improvements completed in 2001. Effective February 2003, the Company entered into a month-to-month lease of a warehousing and distribution facility in an adjacent building for a monthly rent of $9,400, exclusive of operating expenses. These facilities have always been owned and leased to the Company by a director of the Company. In 2003, the Company completed additional tenant improvements to the premises of $300,000. In November 2003, the Company amended and restated these leases. Under the terms of the amended and restated lease, the original leases have been combined and the expiration of the amended and restated lease has been extended to March 31, 2016, for an annual base rent of approximately $386,000, exclusive of operating expenses, effective January 2004, including amortization of the $600,000 of improvements. The Company believes it is renting these facilities on terms similar to those available from third parties for equivalent premises.

In October and November 2001, the Company received approximately $1.05 million from private placements of subordinated debt. Of this amount, $290,000 was received from an officer and two directors of the Company. In the first quarter of 2003, the Company repaid the $40,000 received from the officer prior to the scheduled maturity in September 2004. The Company repaid the remaining $250,000 received from the two directors of the Company at the scheduled maturity in September 2004.

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In October 2000, Harry McCoy was replaced as Chairman and President of the Company but continued to receive payments as an employee under an employment agreement with the Company. At that time, the Company recorded $600,000 as the estimated amount payable to Mr. McCoy under the employment agreement. The Company and Mr. McCoy disputed the effect of the termination of his employment with the Company. In September 2001, the Company entered into an agreement with Mr. McCoy resolving these issues. The parties agreed to a mutual release of claims. Mr. McCoy resigned his position on the Board of Directors and agreed to serve as an ongoing consultant to the Company. In exchange, the Company agreed to provide Mr. McCoy with a lump sum payment of $250,000, and an additional amount of $250,000 in restricted common stock. In exchange for McCoy’s ongoing consulting relationship, he receives $35,000 in cash annually through August 2006.

15. SUBSEQUENT EVENT

On March 16, 2006, the Company entered into a Term Note (the Note) with the Bank to refinance, on March 31, 2006, a portion of the outstanding balance of $5.4 million on the Company’s mortgage loan with Principal Life Insurance Company (Principal). The Company financed the March 2001 purchase of the building complex where its Laboratory Services’ segment and other commercial tenants are located with the mortgage loan from Principal. The mortgage loan has a term of ten years and is being repaid based on a 20 year amortization schedule at a fixed interest rate of 7.23% for the first five years. In accordance with the provisions of the mortgage loan, Principal had the option to adjust the interest rate, effective March 1, 2006, or to call the loan due on March 31, 2006. The Company elected not to accept the interest rate adjustment and will refinance $3.4 million with the Bank over a five year term in monthly installments of approximately $56,000 plus interest, commencing May 1, 2006. Interest will be calculated at either (i) a variable rate of 0.5% below the prime rate or (ii) a fixed rate of 1.9% above LIBOR in effect on the first day of the applicable fixed rate term. The Company will refinance the remaining outstanding mortgage loan balance of approximately $2.0 million with a portion of its Line of Credit from the Bank.

16. QUARTERLY INFORMATION (UNAUDITED)

(In thousands, except per share amounts)

2005		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	14,689	$	16,845	$	16,513	$	15,000
Gross profit		5,958		7,484		7,260		6,418
Net income		421		1,015		825		1,057	*
Basic earnings per share		0.06		0.13		0.10		0.13	*
Diluted earnings per share		0.05		0.13		0.10		0.12	*

2004		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	13,583	$	15,064	$	14,473	$	13,616
Gross profit		5,741		6,613		6,032		5,448
Net income		414		728		569		110
Basic earnings per share		0.06		0.10		0.08		0.01
Diluted earnings per share		0.05		0.09		0.07		0.01

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* During the fourth quarter of 2005, the Company reported a $0.5 net tax benefit as part of net income. The income tax benefit was primarily due to a $0.9 million reduction in the valuation allowance on deferred tax assets. The reduction in income tax expense from the valuation allowance change was partially offset by a charge of $0.3 million related to a North Carolina Department of Revenue examination of MEDTOX Diagnostics, Inc.

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SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions				Balance at the End of Period
Year ended December 31, 2005
Allowance for Doubtful Accounts	$	630,000	$	663,000	$	961,000	(1)	$	332,000
Year ended December 31, 2004
Allowance for Doubtful Accounts	$	294,000	$	582,000	$	246,000	(1)	$	630,000
Year ended December 31, 2003
Allowance for Doubtful Accounts	$	1,125,000	$	635,000	$	1,466,000	(1)	$	294,000

(1) Uncollectible accounts written off, net of recoveries.

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EX-3

Exhibit 3.1

BYLAWS

MEDTOX SCIENTIFIC, INC.

(a Delaware corporation)

ARTICLE I

Offices

1.         The registered office of the corporation shall be located in the City of Wilmington, County of New Castle, and the State of Delaware, or at other such location as designated by the Board of Directors.

2.         The corporation may also have an office or offices at such other place or places, within or without the State of Delaware, as the Board of Directors may from time to time designate or the business of the corporation may require.

ARTICLE II

Stockholders’ Meeting

1.         The annual meeting of the stockholders of the corporation shall be held at such time, date and place as shall be designated by the Board of Directors in the notice of said meeting, for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting.

At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholders’ notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that, in the event that less than seventy (70) days’ notice is given of the date of the meeting, either by mailing such notice to stockholders or by prior public disclosure, notice by the stockholder, to be timely, must be so received not later than the close of business on the 10^th day following the earlier of (i) the day on which such notice of the date of the annual meeting was mailed or (ii) the day on which such public disclosure was made. A stockholder’s notice to the Secretary shall set forth, as to each matter the stockholder proposes to bring before the annual meeting, (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the

annual meeting, (b) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not brought before the meeting properly and in accordance with the provisions of this Section 1; and if he should so determine and declare, any such business not properly brought before the meeting shall not be transacted.

Only persons who are nominated in accordance with the procedures set forth in this Section 1 shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 1. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice, in writing to the Secretary of the corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 60 nor more than 90 days prior to the meeting; provided, however, that, in the event that less than 70 days’ notice is given of the date of the meeting, either by mailing such notice to stockholders or by prior public disclosure, notice by the stockholder, to be timely must be so received not later than the close of business on the 10^th day following the earlier (i) of the day on which such notice of the date of the meeting was mailed or (ii) the day on which such public disclosure was made. Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation, if any, which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as Director if elected), and (b) as to the stockholder giving the notice, (i) the name and address as they appear on the corporation’s books of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholders. At the request of the Board of Directors, any person nominated by the Board of Directors, for election as a Director shall furnish to the Secretary of the corporation that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth in this Section 1. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws; and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

2.         Special meetings of the stockholders shall be held at such location as designated in the notice of said meetings, upon call of the Board of Directors.

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3.         Notice of the purpose or purposes and of the time and place within or without the State of Delaware of every meeting of stockholders shall be give by the Chairman of the Board or the President or the Secretary or an Assistant Secretary either personally or by mail or by telegraph or by any other lawful means of communication not less than ten (10) nor more than fifty (50) days before the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be directed to each stockholder at his address as it appears on the stock book unless he shall have filed with the Secretary of the corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed or transmitted to the address designated in such request. Such further notice shall be given as may be required by law. Except as otherwise expressly provided by statute, no publication of any notice of meeting of stockholders shall be required to be given any stockholder who shall attend such meeting in person or by proxy, or who shall, in person or by attorney thereunto authorized, waive notice in writing or by telegraph, cable, radio, or wireless either before or after such meeting. Except where otherwise required by law, notice of any adjourned meeting of the stockholders of the corporation shall not be required to be given.

4.         A quorum at all meetings of stockholders shall consist of the holders of record of a majority of the shares of stock of the corporation, issued and outstanding, entitled to vote at the meeting, present in person or by proxy, except as otherwise provided by statute or the Certificate of Incorporation. In the absence of a quorum at any meeting or any adjournment thereof, a majority of those present in person or by proxy and entitled to vote may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called.

5.         Meetings of the stockholders shall be presided over by the Chairman of the Board. If there shall be no Chairman of the Board or if he is not present, meetings of stockholders shall be presided over by the President. If either of such officers are not present, meetings of the stockholders shall be presided over by a chairman to be chosen by a majority of the stockholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the meeting shall choose any person present to act as secretary of the meeting.

6.         Except as otherwise provided in the Bylaws, the Certificate of Incorporation, or in the laws of the State of Delaware, at every meeting of the stockholders, each stockholder of the corporation entitled to vote at such meeting shall have one vote in person or by proxy for each share of stock having voting rights held by him and registered in his name on the books of the corporation at the time of such meeting. Any vote on shares of stock of the corporation may be given by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting. Except as otherwise required by statute, by the Certificate of Incorporation or by these Bylaws, all matters coming before any meeting of the stockholders, including the election of directors, shall be decided by a majority vote of the stockholders of the corporation present in person or by proxy at such meetings and entitled to vote thereat, a quorum being present. At all elections of directors the voting may but need not be by ballot.

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7.         A complete list of the stockholders entitled to vote at the ensuing election of directors, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder shall be prepared by the Secretary or other officer of the corporation having charge of the stock ledger. Such list shall be opened to the examination of any stockholder during ordinary business hours, for a period of at least ten (10) days prior to the election, either at a place within the city, town or village where the election is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at a place where said meeting is to be held, and the list shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present.

8.         At all elections of directors, or in any other case in which inspectors may act, two inspectors of election shall be appointed by the chairman of the meeting, except as otherwise provided by law. The inspectors of election shall take and subscribe an oath faithfully to execute the duties of inspectors at such meeting with strict impartiality, and according to the best of their ability and shall take charge of the polls and after the vote shall have been taken shall make a certificate of the result thereof. If there be a failure to appoint inspectors or if any inspector appointed be absent or refuse to act, or if his office becomes vacant, the stockholders present at the meeting, by a per capita vote, may choose temporary inspectors of the number required.

ARTICLE III

Directors

1.         The property, affairs and business of the corporation shall be managed by its Board of Directors consisting of not less than three (3) nor more than twelve (12) persons. The exact number of directors within the maximum and minimum limitations specified shall be fixed from time to time by resolution of the Board of Directors. The Board of Directors shall be divided into three classes, designated Class I, Class II, and Class III, as nearly equal in number as possible, and the term of office of Directors of one class shall expire at each annual meeting of stockholders, and in all cases as to each Director until his successor shall be elected and shall qualify or until his earlier resignation, removal from office, death or incapacity. Additional directorships resulting from an increase in number of Directors shall be apportioned among the classes as equally as possible. The initial term of office of Directors of Class I shall expire at the annual meeting of stockholders in 2000; that of Class II shall expire at the annual meeting in 2001; and that of Class III shall expire at the annual meeting in 2002; and in all cases as to each director until his successor shall be elected and shall qualify or until his earlier resignation, removal from office, death or incapacity. At each annual meeting of stockholders the number of Directors equal to the number of Directors of the class whose term expires at the time of such meeting (or, if less, the number of Directors properly nominated and qualified for election) shall be elected to hold office until the third succeeding annual meeting of stockholders after their election. Directors need not be stockholders.

2.         Meetings of the Board of Directors shall be held at such place within or outside the State of Delaware as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the

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notice of the meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board of Directors, and special meetings may be held at any time upon the call of the Chairman of the Board or the President or a majority of the directors by oral, telegraphic or written notice duly served on or sent or mailed to each director not less than one day before such meeting. A meeting of the Board of Directors may be held without notice immediately after the annual meeting of the stockholders. Notice need not be given of regular meetings of the Board of Directors. Meetings may be held at any time without prior notice if all of the directors are present, or if at any time before or after the meeting those not present waive notice of the meeting in writing.

3.         A majority of the members of the Board of Directors then acting, but in no event less than three (3) directors, acting at a meeting duly assembled, shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting, without further notice, from time to time until a quorum shall have been obtained.

4.         In case one or more vacancies shall occur in the Board of Directors by reason of death, resignation, increase in the number of directors or otherwise except insofar as otherwise provided in these Bylaws, the remaining directors, although less than a quorum, may, by a majority vote, elect a successor or successors for the unexpired term or terms.

5.         At any special meeting of the stockholders, duly called as provided in these Bylaws, any director or directors may be the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote for election of directors be removed from office, but only for cause, and his successor or their successors may be elected at such meeting; or the remaining directors may, to the extent vacancies are not filled by such election, fill any vacancy or vacancies created by such removal.

6.         The corporation shall indemnify any person made a party to an action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a director or officer of the corporation, against expenses, including attorneys’ fees, actually and necessarily incurred by him in connection with the defense of such action or in connection with an appeal therein, except in relation to matters as to which such director or officer is adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation except as otherwise provided by law or in the Certificate of Incorporation of the corporation. The corporation shall indemnify any person made or threatened to be made a party to an action or proceeding other than one of the type referred to in the foregoing, whether civil or criminal, including, without limitation, an action by or in the right of any other corporation which any director or officer of the corporation served in any capacity at the request of the corporation, by reason of the fact that he, his testator or intestate was a director or officer of the corporation or served such other corporation in any capacity, against judgments, fines, amounts paid in settlement and expenses, including attorneys’ fees, actually and necessarily incurred as a result of such action or proceeding or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in the best interests of the corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was

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unlawful. The termination of any such civil criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such director or officer did not act in good faith for a purpose which he reasonably believed to be in the best interest of the corporation or that he had reasonable cause to believe that his conduct was unlawful. Expenses incurred in defending a civil or criminal action or proceeding may be paid by the corporation in advance of the final disposition of such action or proceeding. The foregoing right of indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled as a matter of law or any Bylaw, agreement, vote of stockholders, provision of the Certificate of Incorporation or otherwise.

7.         Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if prior to such action a written consent thereto is signed by all members of the Board of Directors or of the committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or the committee.

8.         Directors may, by resolution of the Board of Directors, be allowed a fixed sum and expenses of attendance for attendance at regular or special meetings of the Board of Directors; provided that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees, and others who attend pursuant to direction, may, by vote of the Board of Directors, be allowed a like fixed sum and expenses of attendance for attending committee meetings.

ARTICLE IV

Officers

1.         The officers of the corporation shall be chosen by the Board of Directors at its first meeting after the election of the directors by the stockholders and shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer. From time to time the Board of Directors may appoint such Assistant Secretaries, Assistant Treasurers and such other officers, agents and employees as it may deem proper. Any number of offices, except the offices of President and Secretary, may be held by the same person. The Chairman of the Board, if such officer exists, and the President shall be chosen from among the directors.

2.         The term of office of all officers shall be one year and until their respective successors are elected and qualify, but any officer may be removed from office, either with or without cause, at any time by the affirmative vote of a majority of the members of the Board of Directors then in office. A vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors.

3.         Unless otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the corporation to attend and to act and to vote at any meeting of security holders of the corporations in which the corporation may hold securities, and at such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities, in which as the owner thereof the corporation might have possessed and exercised, if present. The Board of Directors by resolution from time to time may convert like power upon any other person or persons.

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ARTICLE V

1.         The Chairman of the Board shall chair the meetings of the Board of Directors and shall have such other duties and powers as may be assigned to him from time to time by the Board of Directors and shall preside at all meetings of the stockholders and Board of Directors.

2.         The President shall be the chief executive officer of the corporation and as such shall have general and active direction of the management and supervision of the business operations of the corporation subject to any limitations imposed by the Board of Directors. He shall have such other duties and powers as may be assigned to him from time to time by the Board of Directors and shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and Board of Directors.

3.         During the absence or disability of the President, the Vice Presidents, in the order designated by the Board of Directors, shall exercise all the functions of the President. Each Vice President shall have such powers and discharge such duties as may be assigned to him from time to time by the Board of Directors.

4.         The Treasurer shall have the custody of all the funds and securities of the corporation. When necessary or proper he shall endorse on behalf of the corporation, for collection, checks, notes and other obligations and shall deposit the same to the credit of the corporation in such bank, or banks, or depositories as may be designated by the Board of Directors, or by any officer acting under authority conferred by the Board of Directors. He shall enter regularly in books to be kept for purpose a full and accurate account of all monies received and paid by him on account of the corporation. Whenever required by the Board of Directors, he shall render an account of all his transactions as Treasurer and of the financial condition of the corporations. He shall at all reasonable times exhibit his books and accounts to any director of the corporation upon application at the office of the corporation during business hours and he shall perform all things incident to the position of Treasurer, subject to the control of the Board of Directors. He shall give bond for the faithful discharge of his duties if the Board of Directors so require. He shall do and perform such other duties as may be assigned to him from time to time by the Board of Directors.

5.         The Assistant Treasurers, in the order of their seniority, shall, in the absence of or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe.

6.         The Secretary shall attend all meetings of the stockholders and all meetings of the Board of Directors, and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for other committees when so required. He shall give, or cause to be given, notice of all meetings of stockholders and the Board of Directors and of committees and shall perform such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the corporation and affix the same to any instrument whose execution has been authorized. He shall be sworn to the faithful discharge of his duties. He shall do and perform such other duties as may be assigned to him from time to time by the Board of Directors.

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7.         The Assistant Secretaries, in the order of their seniority, shall, in the absence of or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors shall prescribe.

8.         In the case of absence or inability to act of any officer of the corporation and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers and duties of such officer to any other officer or any director or any other person whom it may select.

ARTICLE VI

Certificates of Stock

1.         The interest of each stockholder of the corporation shall be evidenced by certificates for shares of stock certifying the number of shares represented thereby and in such form not inconsistent with the Certificate of Incorporation as the Board may from time to time prescribe.

Except as otherwise required by law, transfers of shares of stock of the corporation shall be made only on the books of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, or with a transfer clerk or a transfer agent appointed as in Section 4 of this Article provided, and on surrender on the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. The Board may, from time to time, make such additional rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer, registration of certificates for shares of the capital stock of the corporation.

The certificates of stock shall be signed by the Chairman of the Board or the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and sealed with the seal of the corporation. Such seal may be a facsimile, engraved or printed. Where any such certificate is signed by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employee, the signatures of the Chairman of the Board, President, Vice President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer upon such certificate may be facsimiles, engraved or printed. In case any such officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such before such certificate is issued, it may be issued by the corporation with the same effect as if such officer had not creased to be such at the time of its issue.

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2.         In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.

If no record date is fixed:

The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjournment meeting.

3.         No certificate for shares of stock of the corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the corporation, if the Board of Directors shall so require, of a bond of indemnity in such amount (not exceeding twice the value of the shares represented by such certificate), upon such terms and secured by such surety as the Board of Directors may in its discretion require.

4.         The Board of Directors may appoint one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for shares of stock to bear the signature or signatures of any of them.

5.         The books, accounts and records of the corporation, except as may otherwise be required by statute, may be kept outside of the State of Delaware, at such place or places as the Board of Directors may from time to time appoint. The Board of Directors shall determine whether and to what extent the books, accounts and records of the corporation, or any of them, other than the stock ledger, shall be open to the inspection of stockholders, and no stockholder shall have any right to inspect any book, account of record of the corporation except as conferred by statute or by resolution of the Board of Directors.

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ARTICLE VII

Corporate Seal

The corporation shall have no seal.

ARTICLE VIII

Amendments

The Bylaws of the corporation shall be subject to alteration, amendment or repeal, and new Bylaws not inconsistent with any provision of the Certificate of Incorporation or statute, may be made, either by the affirmative vote of the holders of a majority in interest of the stockholders of the corporation present in person or by proxy at any annual or special meeting of the stockholders and entitled to vote thereat a quorum being present, provided that notice of such proposed action shall have been given in the call for the meeting, or by the affirmative vote of a majority of the whole Board, given at any regular or special meeting of the Board of Directors.

ARTICLE IX

Fiscal Year

The fiscal year of the corporation shall end on the last day of December in each year.

Last Amended: March 16, 2006

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EX-3

Exhibit 3.2

RESTATED CERTIFICATE OF INCORPORATION

OF

MEDTOX SCIENTIFIC, INC.

AS AMENDED

(This document constitutes a compilation of the original

Certificate of Incorporation and all subsequent

restatements and amendments through May 10, 2005)

FIRST:            The name of the corporation (hereinafter called the “Corporation”) is MEDTOX Scientific, Inc.

SECOND:      The address, including street, number, city and county of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle; and the name of the registered agent of the Corporation in the State of Delaware at such address is Corporation Service Company.

THIRD:           The nature of the business or purposes to be conducted or promoted by it is to engage in any lawful act or activity forwhich corporations may be organized under the General Corporation Law of Delaware.

FOURTH:       The total number of shares of stock which the Corporation shall have authority to issue is TWENTY-EIGHT MILLION FIFTY THOUSAND (28,050,000) shares, TWENTY-EIGHT MILLION (28,000,000) of which shall be of a class designated as Common Stock with a par value of FIFTEEN CENTS ($0.15) per share and FIFTY THOUSAND (50,000) of which shall be a class designated as Preferred Stock with a par value of ONE DOLLAR ($1.00) per share. All or any part of the authorized capital stock of the Corporation may be issued and sold, from time to time by the Corporation, without further action by stockholders, for such consideration (but not less than the par value thereof) and to such persons and on such terms and conditions as may, from time to time, be fixed or determined by the Board of Directors. The voting powers, designations, preferences, and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof, of the classes of stock of the Corporation which are fixed by this Certificate of Incorporation, and the authority vested in the Board of Directors to fix by resolution or resolution providing for the issue of Preferred Stock the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of Preferred Stock which are not fixed by the Certificate of Incorporation, are as follows:

1.         The Preferred Stock may be issued from time to time in one or more series, each such series to have such distinctive designation or title as may be fixed by the Board of Directors prior to the issuance of any shares thereof. Each such series may differ from every other series already outstanding as may be determined from time to time by the Board of Directors prior to the issuance of any shares thereof, in any or all of the following, but in other, respects:

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(a)       The rate of dividend which the Preferred Stock of any such series shall be entitled to receive, whether the dividends of such series shall be cumulative or non-cumulative and, if such dividends shall be cumulative, the date from which they shall be cumulative.

(b)       The right or obligation, if any, of the Corporation to redeem shares of Preferred Stock of any series and the amount per share which the Preferred Stock of any such series shall be entitled to receive in case of the redemption thereof, and the right of the Corporation, if any, to reissue any such shares after the same shall have been redeemed.

(c)       The amount per share which the Preferred Stock of any such series shall be entitled to receive in case of the voluntary liquidation, distribution or sale of assets, dissolution or winding up of the Corporation, or in case of the involuntary liquidation, distribution or sale of assets, dissolution or winding up of the Corporation.

(d)       The right, if any, of the holders of Preferred Stock of any such series to convert the same into other classes of stock and the terms and conditions of such conversion.

(e)       The voting power, if any, of the holders of Preferred Stock of any such series, and the terms and conditions under which they may exercise such voting power.

(f)         The terms of the sinking fund or fund of similar nature, if any, to be provided for the Preferred Stock of any such series.

The description of terms of the Preferred Stock of each series in respect of the foregoing particulars shall be fixed and determined by the Board of Directors by appropriate resolution at or prior to the time of the authorization of the issue of the original shares of each such series.

2.        In case the stated dividends and the amounts payable on liquidation, distribution or sale of assets, dissolution or winding up of the Corporation are not paid in full, the stockholders of all series of the Preferred Stock shall share ratably in the payment of dividends, including accumulations, if any, in accordance with the same which would be payable on such shares if all dividends were declared and paid in full and in any distribution of assets other than by way of dividends, in accordance with the sums which would be payable on such distribution if all sums payable were discharged and paid in full.

3.        The holders of the Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefor, preferential dividends in cash at, but not exceeding the annual rate fixed for each particular series. The holders of the Preferred Stock shall not be entitled to receive any dividends thereon other than dividends referred to in this Subdivision 3.

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4.         So long as any of the Preferred Stock remains outstanding, in no event shall any dividend whatever, whether in cash or other property (other than shares of Common Stock), be paid or declared or any distribution be made on the Common Stock, nor shall any shares of the Common Stock be purchased, retired or otherwise acquired for a consideration by the Corporation unless (a) the full dividends of the Preferred Stock for all past dividend periods from the respective date or then current quarter-yearly dividend period shall have been paid or declared and a sum set apart sufficient for the payment thereof, and (b) if at any time the Corporation is obligated to retire shares of any series of the Preferred Stock pursuant to a sinking fund or a fund of a similar nature, all arrears, if any, in respect of the retirement of the Preferred Stock of all such series shall have been made good. Subject to the foregoing provisions and not otherwise, such dividends (payable in cash, stock or otherwise) as maybe determined by the Board of Directors may be declared and paid on the Common Stock from time to time out of the remaining funds of the Corporation legally available therefor, and the Preferred Stock shall not be entitled to participate in any such dividend, whether payable in cash, stock or otherwise.

5.         In the event of any liquidation, distribution or sale of assets, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of Common Stock, the holders of the Preferred Stock of each series shall be entitled to be paid in cash the applicable liquidation price per share fixed at the time of the original authorization of issuance of shares of such respective series, together with a sum in the case of each share of the Preferred Stock, computed at the annual dividend on such share because cumulative to the date fixed for such distribution or payment date paid thereon. If such payment shall have been made in full to the holders of the Preferred Stock, the remaining assets and funds of the Corporation shall be distributed among the holders of the Common Stock according to their respective shares.

6.         Subject to the powers, preferences and rights and the qualification, limitations and restrictions thereof, with respect to each class of capital stock of the Corporation having any preference or priority over the Common Stock, the holders of the Common Stock shall have and possess all rights appertaining to capital stock of the Corporation. Holders of Common Stock may not act by written consent without a meeting.

FIFTH:            For the management of the business and for the conduct of the affairs of the Corporation and in further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders, it is further provided:

1. The number of directors of the Corporation shall not be less than three nor more than twelve, the exact number within said limits to be fixed from time to time by the vote of a majority of the directors then in office. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as possible, and the term of office of Directors of one class shall

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expire at each annual meeting of stockholders, and in all cases as to each Director until his successor shall be elected and shall qualify or until his earlier resignation, removal form office, death or incapacity. Additional directorships resulting from an increase in number of Directors shall be apportioned among the classes as equally as possible. The initial term of office of Directors of Class I shall expire at the annual meeting of stockholders in 2000; that of Class II shall expire at the annual meeting in 2001; and that of Class III shall expire at the annual meeting in 2002; and in all cases as to each director until his successor shall be elected and shall qualify or until his earlier resignation, removal from office, death or incapacity. At each annual meeting of stockholders the number of Directors equal to the number of Directors of the class whose term expires at the time of such meeting (or, if less, the number of Directors properly nominated and qualified for election) shall be elected to hold office until the third succeeding annual meeting of stockholders after their election.

In case of any vacancies, by reason of an increase in the number of directors, resignation or otherwise, directors to fill such vacancies shall be elected by a majority of the directors then in office, and any such director so elected shall hold office until the next succeeding election of directors in the Class to which such director is assigned.

2.        In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered:

(a)To make, alter, amend, and repeal Bylaws, subject to the power of the stockholders to alter or repeal the Bylaws made by the Board of Directors.

(b)Subject to the applicable provisions of the Bylaws then in effect, to determine, from time to time, whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the corporation, or any of them shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the Corporation.

(c)Without the assent or vote of the stockholders, to authorize and issue obligations of the Corporation, secured or unsecured, to include therein such provisions as to redeemability, convertibility or otherwise, as the Board of Directors, in its sole discretion, may determine, and to authorize the mortgaging or pledging, as security therefor, of any property of the Corporation, real or personal, including after-acquired property.

(d)To determine whether any, and, if any, what part, of the net profits of the Corporation or of its net assets in excess of its capital shall be declared in dividends and paid to the stockholders, and to direct and determine the use and disposition of any such net profits or such net assets in excess of capital.

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(e)To fix from time to time the amount of profits of the Corporation to be reserved as working capital or for any other lawful purpose.

(f)To establish bonus, profit-sharing or other types of incentive or compensation plans for the employees (including officers and directors) of the Corporation and to fix the amount of profits to be distributed or shared and to determine the persons to participate in any such plans and the amounts of their respective participations.

(g)By resolution passed by a majority of the whole Board to designate one or more committees to consist of three or more directors of the Corporation which, to the extent provided in the resolution or in the By-Laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it, such committee or committees to have such name or names as may be stated in the By-Laws of the Corporation or as determined from time to time by resolution adopted by the Board of Directors. In addition to the powers and authorities hereinbefore or by statute expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, of the Certificate of Incorporation and of the By-Laws of the Corporation.

3.         Any director or any officer elected or appointed by the stockholders, or by the Board of Directors, may be removed at any time in such manner as shall be provided in the By-Laws of the Corporation.

4.         No contract or other transaction between the Corporation and any other corporation and no other act of the Corporation shall, in the absence of fraud, in any way be affected or invalidated by the fact that any of the directors of the Corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation. Any director of the Corporation individually or any firm or association of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the Corporation, provided that the fact that he individually or such firm or association is so interested shall be disclosed or shall have been known to the Board of Directors or a majority of such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such contract or transaction shall be taken. Any director of the Corporation who is also a director or officer of such other corporation or who is so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors which shall authorize any such contract or transaction, and may vote thereat at authorize any such contract or transaction, with like force and effect as if he were not such director or officer of such other corporation or not so interested. Any director of the Corporation may vote upon any contract or other transaction between the Corporation and any subsidiary or affiliated corporation without regard to the fact that he is also a director of such subsidiary or affiliated corporation.

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Any contract, transaction or act of the Corporation or of the directors, which shall be ratified by a majority of a quorum of the stockholders of the Corporation at any annual meeting, or at any special meeting called for such purpose, shall, insofar as permitted by law or by the Certificate of Incorporation, of the Corporation, be as valid and as binding as though ratified by every stockholder of the Corporation; provided, however, that any failure of the stockholders to approve or ratify any such contract, transaction or act, when and if submitted, shall not be deemed in any way to invalidate the same or deprive the Corporation, its directors, officers or employees of its or their right to proceed with such contract, transaction or act.

5.         Subject to any limitation in the By-Laws, the members of the Board of Directors shall be entitled to reasonable fees, salaries or other compensation for their services and to reimbursement for their expenses as such members. Nothing contained herein shall preclude any director from serving the Corporation, or any subsidiary or affiliated corporation, in any other capacity and receiving proper compensation therefor.

6.         If the By-Laws so provide, the stockholders and Board of Directors of the Corporation shall have power to hold their meetings, to have an office or offices and to keep the books of the Corporation, subject to the provisions of the laws of Delaware, outside of said State at such place or places as may from time to time be designated by them.

7.         Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any courts of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code, or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code, or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs.

If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation.

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8.         A director of this Corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.

SIXTH:            From time to time any of the provisions of this Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this Article SIXTH.

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EX-10

Exhibit 10.23

WELLS FARGO TERM NOTE

$3,382,986.00 Minneapolis, Minnesota   

March 16, 2006

FOR VALUE RECEIVED, the undersigned Medtox Scientific, Inc., Medtox Diagnostics, Inc. and Medtox Laboratories, Inc. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Minneapolis RCBO, Sixth and Marquette, Minneapolis, MN 55479, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of $3,382,986.00, with interest thereon as set forth herein.

1. DEFINITIONS:

As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:

1.1        "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in Minnesota are authorized or required by law to close.

1.2        "Fixed Rate Term" means a period commencing on a Business Day and continuing for 1, 2, 3, 6 or 12 months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LlBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than $100,000.00; and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day.

1.3        "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal to 100% less any LlBOR Reserve Percentage.

(a)"Base LlBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

(b)"LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term.

1.4        "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate.

2. INTEREST:

2.1        Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (a) at a fluctuating rate per annum 0.50000% below the Prime Rate in effect from time to time, or (b) at a fixed rate per annum determined by Bank to be 1.90000% above LlBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LlBOR selection option selected hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.

2.2        Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LlBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LlBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At the time this Note is disbursed or Borrower wishes to select a LlBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (a) the interest rate option selected by Borrower; (b) the principal amount subject thereto; and (c) for each LlBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LlBOR selection, (i) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than 3 Business Days after such notice is given, and (ii) such notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at it's sole option but without obligation to do so, accepts Borrower's notice and quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LlBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time this Note is disbursed or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for this Note or the principal amount to which such Fixed Rate Term applied.

2.3        Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (a) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LlBOR, and (b) future, supplemental, emergency or other changes in the LlBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LlBOR to the extent they are not included in the calculation of LlBOR. In determining which of the foregoing are attributable to any LlBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

2.4        Payment of Interest. Interest accrued on this Note shall be payable on the 1st day of each month, commencing May 1, 2006.

2.5        Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note.

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3. REPAYMENT AND PREPAYMENT:

3.1        Repayment. Principal shall be payable on the 1st day of each month in installments of $56,383.10 each, commencing May 1, 2006, and continuing up to and including March 1, 2011, with a final installment consisting of all remaining unpaid principal due and payable in full on April 1, 2011.

3.2        Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LlBOR, with such payments applied to the oldest Fixed Rate Term first.

3.3 Prepayment.

Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty.

LlBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LlBOR at any time and in the minimum amount of $100,000.00; provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month:

(a)Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto.

(b)Subtract from the amount determined in (a) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LlBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid.

(c)If the result obtained in (b) for any month is greater than zero, discount that difference by LlBOR used in (b) above.

Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum 2.000% above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank.

All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid.

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4. EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of December 1, 2005, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note.

5. MISCELLANEOUS:

5.1        Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity.

5.2        Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several.

5.3        Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Minnesota.

IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.

Medtox Scientific, Inc.

By: /s/ Kevin J. Wiersma

Title:    CFO                    

Medtox Diagnostics, Inc.

By: /s/ Kevin J. Wiersma

Title:    CFO                    

Medtox Laboratories, Inc.

By: /s/ Kevin J. Wiersma

Title:    CFO                    

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EX-10

Exhibit 10.24

WELLS FARGO CONTINUING GUARANTY

TO: WELLS FARGO BANK, NATIONAL ASSOCIATION

1.         GUARANTY; DEFINITIONS. In consideration of any credit or other financial accommodation heretofore, now or hereafter extended or made to Medtox Scientific, Inc., Medtox Diagnostics, Inc. and Medtox Laboratories, Inc. ("Borrowers"), or any of them, by WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), and for other valuable consideration, the undersigned New Brighton Business Center LLC ("Guarantor"), jointly and severally unconditionally guarantees and promises to pay to Bank or order, on demand in lawful money of the United States of America and in immediately available funds, any and all Indebtedness of any of the Borrowers to Bank. The term "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Borrowers, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrowers may be liable individually or jointly with others, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. This Guaranty is a guaranty of payment and not collection.

2.         MAXIMUM LIABILITY; SUCCESSIVE TRANSACTIONS; REVOCATION; OBLIGATION UNDER OTHER GUARANTIES. This is a continuing guaranty and all rights, powers and remedies hereunder shall apply to all past, present and future Indebtedness of each of the Borrowers to Bank, including that arising under successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, and notwithstanding the death, incapacity, dissolution, liquidation or bankruptcy of any of the Borrowers or Guarantor or any other event or proceeding affecting any of the Borrowers or Guarantor. This Guaranty shall not apply to any new Indebtedness created after actual receipt by Bank of written notice of its revocation as to such new Indebtedness; provided however, that loans or advances made by Bank to any of the Borrowers after revocation under commitments existing prior to receipt by Bank of such revocation, and extensions, renewals or modifications, of any kind, of Indebtedness incurred by any of the Borrowers or committed by Bank prior to receipt by Bank of such revocation, shall not be considered new Indebtedness. Any such notice must be sent to Bank by registered U.S. mail, postage prepaid, addressed to its office at Minneapolis RCBO, Sixth and Marquette, Minneapolis, MN 55479, or at such other address as Bank shall from time to time designate. Any payment by Guarantor with respect to the Indebtedness shall not reduce Guarantor's maximum obligation hereunder unless written notice to that effect is actually received by Bank at or prior to the time of such payment. The obligations of Guarantor hereunder shall be in addition to any obligations of Guarantor under any other guaranties of any liabilities or obligations of any of the Borrowers or any other persons heretofore or hereafter given to Bank unless said other guaranties are expressly modified or revoked in writing; and this Guaranty shall not, unless expressly herein provided, affect or invalidate any such other guaranties.

3.         OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and several and independent of the obligations of Borrowers, and a separate action or actions may be brought and prosecuted against Guarantor whether action is brought against any of the Borrowers or any other person, or whether any of the Borrowers or any other person is joined in any such action or actions. Guarantor acknowledges that this Guaranty is absolute and unconditional, there are no conditions precedent to the effectiveness of this Guaranty, and this Guaranty is in full force and effect and is binding on Guarantor as of the date written below, regardless of whether Bank obtains collateral or any guaranties from others or takes any other action contemplated by Guarantor. Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder or the enforcement thereof, and Guarantor agrees that any payment of any Indebtedness or other act which shall toll any statute of

limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to Guarantor's liability hereunder. The liability of Guarantor hereunder shall be reinstated and revived and the rights of Bank shall continue if and to the extent that for any reason any amount at any time paid on account of any Indebtedness guaranteed hereby is rescinded or must otherwise be restored by Bank, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all as though such amount had not been paid. The determination as to whether any amount so paid must be rescinded or restored shall be made by Bank in its sole discretion; provided however, that if Bank chooses to contest any such matter at the request of Guarantor, Guarantor agrees to indemnify and hold Bank harmless from and against all costs and expenses, including reasonable attorneys' fees, expended or incurred by Bank in connection therewith, including without limitation, in any litigation with respect thereto.

4.         AUTHORIZATIONS TO BANK. Guarantor authorizes Bank either before or after revocation hereof, without notice to or demand on Guarantor, and without affecting Guarantor's liability hereunder, from time to time to: (a) alter, compromise, renew, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, the Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Indebtedness or any portion thereof, and exchange, enforce, waive, subordinate or release any such security; (c) apply such security and direct the order or manner of sale thereof, including without limitation, a non-judicial sale permitted by the terms of the controlling security agreement, mortgage or deed of trust, as Bank in its discretion may determine; (d) release or substitute any one or more of the endorsers or any other guarantors of the Indebtedness, or any portion thereof, or any other party thereto; and (e) apply payments received by Bank from any of the Borrowers to any Indebtedness of any of the Borrowers to Bank, in such order as Bank shall determine in its sole discretion, whether or not such Indebtedness is covered by this Guaranty, and Guarantor hereby waives any provision of law regarding application of payments which specifies otherwise. Bank may without notice assign this Guaranty in whole or in part. Upon Bank's request, Guarantor agrees to provide to Bank copies of Guarantor's financial statements.

5.         REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Bank that: (a) this Guaranty is executed at Borrowers' request; (b) Guarantor shall not, without Bank's prior written consent, sell, lease, assign, encumber, hypothecate, transfer or otherwise dispose of all or a substantial or material part of Guarantor's assets other than in the ordinary course of Guarantor's business; (c) Bank has made no representation to Guarantor as to the creditworthiness of any of the Borrowers; and (d) Guarantor has established adequate means of obtaining from each of the Borrowers on a continuing basis financial and other information pertaining to Borrowers' financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Guarantor's risks hereunder, and Guarantor further agrees that Bank shall have no obligation to disclose to Guarantor any information or material about any of the Borrowers which is acquired by Bank in any manner.

6. GUARANTOR'S WAIVERS.

6.1        Guarantor waives any right to require Bank to: (a) proceed against any of the Borrowers or any other person; (b) marshal assets or proceed against or exhaust any security held from any of the Borrowers or any other person; (c) give notice of the terms, time and place of any public or private sale or other disposition of personal property security held from any of the Borrowers or any other person; (d) take any action or pursue any other remedy in Bank's power; or (e) make any presentment or demand for performance, or give any notice of nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any obligations or evidences of indebtedness held by Bank as security for or which constitute in whole or in part the Indebtedness guaranteed hereunder, or in connection with the creation of new or additional Indebtedness.

6.2       Guarantor waives any defense to its obligations hereunder based upon or arising by reason of: (a) any disability or other defense of any of the Borrowers or any other person; (b) the cessation or limitation from any cause whatsoever, other than payment in full, of the Indebtedness of any of the

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Borrowers or any other person; (c) any lack of authority of any officer, director, partner, agent or other person acting or purporting to act on behalf of any of the Borrowers which is a corporation, partnership or other type of entity, or any defect in the formation of any such Borrower; (d) the application by any of the Borrowers of the proceeds of any Indebtedness for purposes other than the purposes represented by Borrowers to, or intended or understood by, Bank or Guarantor; (e) any act or omission by Bank which directly or indirectly results in or aids the discharge of any of the Borrowers or any portion of the Indebtedness by operation of law or otherwise, or which in any way impairs or suspends any rights or remedies of Bank against any of the Borrowers; (f) any impairment of the value of any interest in any security for the Indebtedness or any portion thereof, including without limitation, the failure to obtain or maintain perfection or recordation of any interest in any such security, the release of any such security without substitution, and/or the failure to preserve the value of, or to comply with applicable law in disposing of, any such security; (g) any modification of the Indebtedness, in any form whatsoever, including any modification made after revocation hereof to any indebtedness incurred prior to such revocation, and including without limitation the renewal, extension, acceleration or other change in time for payment of, or other change in the terms of, the Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon; or (h) any requirement that Bank give any notice of acceptance of this Guaranty. Until all Indebtedness shall have been paid in full, Guarantor shall have no right of subrogation, and Guarantor waives any right to enforce any remedy which Bank now has or may hereafter have against any of the Borrowers or any other person, and waives any benefit of, or any right to participate in, any security now or hereafter held by Bank. Guarantor further waives all rights and defenses Guarantor may have arising out of (i) any election of remedies by Bank, even though that election of remedies, such as a non-judicial foreclosure with respect to any security for any portion of the Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's rights to proceed against any of the Borrowers for reimbursement, or (ii) any loss of rights Guarantor may suffer by reason of any rights, powers or remedies of any of the Borrowers in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging Borrowers' Indebtedness, whether by operation of law or otherwise, including any rights Guarantor may have to a fair market value hearing to determine the size of a deficiency following any foreclosure sale or other disposition of any real property security for any portion of the Indebtedness.

7.         BANK'S RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN BANK'S POSSESSION. In addition to all liens upon and rights of setoff against the monies, securities or other property of Guarantor given to Bank by law, Bank shall have a lien upon and a right of setoff against all monies, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Bank, whether held in a general or special account or deposit or for safekeeping or otherwise, and every such lien and right of setoff may be exercised without demand upon or notice to Guarantor. No lien or right of setoff shall be deemed to have been waived by any act or conduct on the part of Bank, or by any neglect to exercise such right of setoff or to enforce such lien, or by any delay in so doing, and every right of setoff and lien shall continue in full force and effect until such right of setoff or lien is specifically waived or released by Bank in writing.

8.         SUBORDINATION. Any Indebtedness of any of the Borrowers now or hereafter held by Guarantor is hereby subordinated to the Indebtedness of Borrowers to Bank. Such Indebtedness of Borrowers to Guarantor is assigned to Bank as security for this Guaranty and the Indebtedness and, if Bank requests, shall be collected and received by Guarantor as trustee for Bank and paid over to Bank on account of the Indebtedness of Borrowers to Bank but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Any notes or other instruments now or hereafter evidencing such Indebtedness of any of the Borrowers to Guarantor shall be marked with a legend that the same are subject to this Guaranty and, if Bank so requests, shall be delivered to Bank. Bank is hereby authorized in the name of Guarantor from time to time to file financing statements and continuation statements and execute such other documents and take such other action as Bank deems necessary or appropriate to perfect, preserve and enforce its rights hereunder.

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9.         REMEDIES; NO WAIVER. All rights, powers and remedies of Bank hereunder are cumulative. No delay, failure or discontinuance of Bank in exercising any right, power or remedy hereunder shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by bank of any breach of this Guaranty, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing.

10.        COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with the enforcement of any of Bank's rights, powers or remedies and/or the collection of any amounts which become due to Bank under this Guaranty, and the prosecution or defense of any action in any way related to this Guaranty, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Guarantor or any other person or entity. All of the foregoing shall be paid by Guarantor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank's Prime Rate in effect from time to time, but not in excess of the maximum rate permitted under applicable Minnesota law.

11.        SUCCESSORS; ASSIGNMENT. This Guaranty shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Guarantor may not assign or transfer any of its interests or rights hereunder without Bank's prior written consent. Guarantor acknowledges that Bank has the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, any Indebtedness of Borrowers to Bank and any obligations with respect thereto, including this Guaranty. In connection therewith, Bank may disclose all documents and information which Bank now has or hereafter acquires relating to Guarantor and/or this Guaranty, whether furnished by Borrowers, Guarantor or otherwise. Guarantor further agrees that Bank may disclose such documents and information to Borrowers.

12.        AMENDMENT. This Guaranty may be amended or modified only in writing signed by Bank and Guarantor.

13.        APPLICATION OF SINGULAR AND PLURAL. In all cases where there is but a single Borrower, then all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the word "Borrowers" and the word "Guarantor" respectively shall mean all or any one or more of them as the context requires.

14.        UNDERSTANDING WITH RESPECT TO WAIVERS; SEVERABILITY OF PROVISIONS. Guarantor warrants and agrees that each of the waivers set forth herein is made with Guarantor's full knowledge of its significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any waiver or other provision of this Agreement shall be held to be prohibited by or invalid under applicable public policy or law, such waiver or other provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such waiver or other provision or any remaining provisions of this Agreement.

15.        GOVERNING LAW. This Guaranty shall be governed by and construed in accordance with the laws of the State of Minnesota.

16. ARBITRATION.

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16.1      Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (a) the loan and related loan and security documents which are the subject of this Guaranty and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (b) requests for additional credit.

16.2      Governing Rules. Any arbitration proceeding will (a) proceed in a location in Minnesota selected by the American Arbitration Association ("AAA"); (b) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (c) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the "Rules"). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

16.3     No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (a) foreclose against real or personal property collateral; (b) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (c) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (a), (b) and (c) of this paragraph.

16.4      Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Minnesota or a neutral retired judge of the state or federal judiciary of Minnesota, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Minnesota and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Minnesota Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

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16.5     Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.

16.6      Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Guaranty shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

16.7      Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

16.8      Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the documents between the parties or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the documents or any relationship between the parties.

IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as of March 16, 2006.

New Brighton Business Center LLC

By:  Kevin J. Wiersma     

Title:   CFO                     

6

EX-10

Exhibit 10.25

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of March 16, 2006, by and between MEDTOX SCIENTIFIC, INC., MEDTOX DIAGNOSTICS, INC., and MEDTOX LABORATORIES, INC., each a Delaware corporation (each individually, a "Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). Each reference herein to “Borrower” shall mean each and every party, collectively and individually, defined above as a Borrower.

RECITALS

WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of December 1, 2005, as amended from time to time ("Credit Agreement").

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

1. Sections 1.3, 1.4 and 1.5 of the Credit Agreement are hereby renumbered as Sections 1.4, 1.5 and 1.6.

2. The following is hereby added to the Credit Agreement as Section 1.3:

“SECTION 1.3. TERM LOAN.

(a)Term Loan. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make a loan to Borrower in the principal amount of Three Million Three Hundred Eighty Two Thousand Nine Hundred Eighty Six Dollars ($3,382,986.00) ("Term Loan"), the proceeds of which shall be used for long term financing. Borrower's obligation to repay the Term Loan shall be evidenced by a promissory note dated as of March 16, 2006 ("Term Note"), all terms of which are incorporated herein by this reference. Bank's commitment to grant the Term Loan shall terminate on May 1, 2006.

(b) Repayment. The amount of Principal of the Term Loan shall be repaid in accordance with the provisions of the Term Note.

(c)Prepayment. Borrower may prepay principal on the Term Loan solely in accordance with the provisions of the Term Note."

-1-

3. Section 1.4 is hereby deleted in its entirety, and the following substituted therefor:

“SECTION 1.4. INTEREST/FEES.

(a) Interest.The outstanding principal balance of the Line of Credit shall bear interest, and the amount of each drawing paid under any Letter of Credit shall bear interest from the date such drawing is paid to the date such amount is fully repaid by Borrower, at the rate of interest set forth in each promissory note or other instrument or document executed in connection therewith.

(b) Interest.The outstanding principal balance of the Loan Limit shall bear interest at either (i) a rate per annum one quarter of one percent (0.25%) below the Prime Rate in effect from time to time, or (ii) at a fixed rate for a period of one, two, three, or four years, at a rate equal to 2.25% in excess of the then current yield on U.S. Treasury Securities, adjusted to a constant maturity equal to such fixed rate period.

(c)Interest.The outstanding principal balance of the Term Loan shall bear interest at the rate of interest set forth in the Term Loan Note.

(d) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required hereby.

(e)Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one eight of one percent (0.125%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears within ten (10) days after each billing is sent by Bank.

(f)Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the issuance of each Letter of Credit equal to one and one half of one percent (1.5%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof, and (ii) fees upon the payment or negotiation of each drawing under any Letter of Credit and fees upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity.”

4. The following is hereby added to the Credit Agreement as Section 1.7:

“SECTION 1.7.GUARANTIES. All indebtedness of Borrower to Bank under the Term Loan shall be guaranteed jointly and severally by New Brighton Business Center LLC, as evidenced by and subject to the terms of a guaranty in form and substance satisfactory to Bank. Such Guarantor shall also execute and deliver to Bank a negative pledge agreement on all of its business assets.”

5.Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.

-2-

6.Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.

	WELLS FARGO BANK,
MEDTOX SCIENTIFIC, INC.		NATIONAL ASSOCIATION

By: /s/ Kevin J. Wiersma	By: /s/ Steven P. Johnson
		Steven P. Johnson,
Title: VP, CFO			Vice President

MEDTOX DIAGNOSTICS, INC.

By: /s/ Kevin J. Wiersma

Title: VP, CFO

MEDTOX LABORATORIES, INC.

By: /s/ Kevin J. Wiersma

Title: VP, CFO

-3-

EX-10

Exhibit 10.26

NEGATIVE PLEDGE AGREEMENT

The undersigned, NEW BRIGHTON BUSINESS CENTER, LLC (the "Company") hereby irrevocably agrees with Wells Fargo Bank, National Association, its successors or assigns (the "Bank") that in connection with its guaranty of the indebtedness of Medtox Scientific, Inc., Medtox Diagnostics, Inc., and Medtox Laboratories, Inc., so long as Bank maintains any loans or other extensions of credit for the benefit of Medtox Scientific, Inc., Medtox Diagnostics, Inc., and Medtox Laboratories, Inc., the Company will not incur, create, assume or suffer to exist any security interest, pledge, lien, charge or other encumbrance of any nature whatsoever on any inventory, equipment, accounts or other rights to payment, or general intangibles, whether now owned or hereafter acquired and wherever located, or on the real estate described as follows:

See attached Exhibit A

except:

1.Liens imposed by law, incurred in good faith in the ordinary course of business, and liens arising out of a judgment or award with respect to which an appeal is being prosecuted, a stay of execution pending such appeal having been secured;

2.Security interests, pledges, liens, charges or other encumbrances granted to the Bank at any time.

3.Security interests, pledges, liens, charges or other encumbrances in existence as of the date of this Agreement, and which have been disclosed to the Bank in writing prior to the execution of this Agreement.

The undersigned further agrees that it will not, so long as there is any indebtedness or credit facilities from the Bank to Medtox Scientific, Inc., grant to any other party a negative pledge or in any way agree to keep its assets free from liens or security interests.

The undersigned acknowledges that failure to comply with the terms of this Agreement, unless waived by Bank in writing, shall constitute an event of default under any and all notes, credit agreements or other documents that may be in effect between Medtox Scientific, Inc. and the Bank at the time of such default.

Dated: March 16, 2006 NEW BRIGHTON BUSINESS CENTER, LLC

By: /s/ Kevin J. Wiersma

Its: VP, CFO

tb1579j1

EXHIBIT A

Legal Description of the Land

New Brighton II:

PARCEL 1:

That part of the North 253.16 feet of the South 1100.0 feet of Section 32, Township 30 North, Range 23 West of the 4^th Principal Meridian, lying Westerly of the Westerly Right of Way line of U.S. Interstate Highway No. 35W as described in Final Certificate Document No. 1695522, and lying Easterly of the Easterly Right of Way line of Minnesota Transfer Railway Co. Said property being a part of Lot 2, Auditor’s Subdivision No. 26, Ramsey County, Minnesota.

PARCEL 2:

That part of Lot 2, Auditor’s Subdivision No. 26, Ramsey County, Minnesota lying Westerly and Southerly of the following described line:

Beginning at a point on the South line of Section 32, Township 30 North, Range 23 West, distant 677.15 feet West of the Southeast corner of said Section 32; thence run Northeasterly at an angle of 82 degrees 22 minutes 53 seconds with said South section line 1233.54 feet; thence run Northwesterly at right angles 500 feet and terminating, except the Southerly 1100 feet of said Section 32, and except the Easterly 168 feet thereof; subject to United States Pipe Line Tract, said tract being 33 feet in width the centerline of which is described as follows:

Beginning at a point on the Easterly line of said Section 32, 867.2 feet Southerly of the Northeast corner of the Southeast Quarter of said Section 32; thence South 57 degrees 31 minutes West, 1147.7 feet, more or less, to a point on the Easterly right of way line, Minnesota Transfer Railway and there terminating, said point being 1118.0 feet due North of the South line of said Section 32.

PARCEL 3:

That part of the South 356.94 feet of Section 32, Township 30 North, Range 23 West of the 4^th Principal Meridian, lying Westerly of the Westerly Right of Way line of U.S. Interstate Highway No. 35W as described in Final Certificate, Document No. 1695522, and lying Easterly of the Easterly Right of Way line of Minnesota Transfer Railway Co., said property being a part of Lot 2, Auditor’s Subdivision No. 26, Ramsey County, Minnesota.

Together with the Easements created by Declaration of Easements and Partial Releases of Mortgages dated as of December 1, 1983, recorded January 12, 1984, as Document No. 2206885, as shown on survey prepared by Mark D. Kemper of Kemper & Associates, Inc. certified on November 3, 1998.

New Brighton I:

That part of the North 489.9 feet of the South 846.84 feet of Section 32, Township 30 North, Range 23 West of the 4^th Principal Meridian, lying westerly of the westerly right-of-way line of U.S. Interstate Highway No. 35W as described in Final Certificate Document No. 1695522, and lying easterly of the easterly right-of-way line of Minnesota Transfer Railway Co., said property being a part of Lot 2, Auditor’s Subdivision No. 26, Ramsey County, Minnesota.

Together with the easements created by Declaration of Easements and Partial Releases of Mortgages dated as of December 1, 1983, recorded January 12, 1984, as Document No. 2206885.

EX-21

EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

The Company has a wholly owned subsidiary, New Brighton Business Center, LLC.  The subsidiary operates real estate property in which the Company locates its corporate headquarters.

The Company has a wholly owned subsidiary, MEDTOX Diagnostics, Inc. in Burlington, North Carolina. The subsidiary manufactures and distributes diagnostic devices.

The Company has a wholly owned subsidiary, MEDTOX Laboratories, Inc. in St. Paul, Minnesota. The subsidiary performs forensic and clinical laboratory services.

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-117198 on Form S-3/A and 333-117199 on Form S-8 of our report dated March 16, 2006, appearing in this Annual Report on Form 10-K of MEDTOX Scientific, Inc. for the year ended December 31, 2005.

DELOITTE & TOUCHE LLP

Minneapolis, Minnesota
March 16, 2006

EX-31

EXHIBIT 31.1

CERTIFICATIONS

Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Richard J. Braun, Chief Executive Officer, certify that:

1.     I have reviewed this report on Form 10-K of MEDTOX Scientific, Inc.;  

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:   March 16, 2006	By:   /s/ Richard J. Braun
	Richard J. Braun
	Chief Executive Officer

EX-31

EXHIBIT 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Kevin J. Wiersma, Chief Financial Officer, certify that:

1.     I have reviewed this report on Form 10-K of MEDTOX Scientific, Inc.;  

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:   March 16, 2006	By:   /s/ Kevin J. Wiersma
	Kevin J. Wiersma
	Chief Financial Officer

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of MEDTOX Scientific, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, Richard J. Braun, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

     (1)        The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)        The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:   March 16, 2006	By:   /s/ Richard J. Braun
	Richard J. Braun
	Chief Executive Officer

EX-32

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of MEDTOX Scientific, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, Kevin J. Wiersma, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

     (1)        The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)        The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:   March 16, 2006	By:   /s/ Kevin J. Wiersma
	Kevin J. Wiersma
	Chief Financial Officer