FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

(X)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

( )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period

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

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 [

]

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

Large accelerated filer [

]

Accelerated filer [ X ]

Non-accelerated filer o

Smaller reporting company [

]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [

]

No [ X ]

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 April 17, 2008
Common Stock, $0.15 par value per share		8,456,623

MEDTOX SCIENTIFIC, INC.

INDEX

Page

Part I

Financial Information:

Item 1:

Financial Statements (Unaudited)

Consolidated Statements of Income – Three

Months Ended March 31, 2008 and 2007

Consolidated Balance Sheets – March 31, 2008

and December 31, 2007

Consolidated Statements of Cash Flows – Three

Months Ended March 31, 2008 and 2007

Notes to Consolidated Financial Statements

Item 2:

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Item 3:

Quantitative and Qualitative Disclosures

About Market Risk

Item 4:

Controls and Procedures

Part II

Other Information

Item 1:

Legal Proceedings

Item 1A:

Risk Factors

Item 2:

Unregistered Sales of Equity Securities and Use of

Proceeds

Item 3:

Defaults upon Senior Securities

Item 4:

Submission of Matters to a Vote of Securities Holders

Item 5:

Item 6:

PART IFINANCIAL INFORMATION

Item 1:

FINANCIAL STATEMENTS (UNAUDITED)

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended
	March 31, 2008			March 31, 2007
REVENUES:
Laboratory services	$	15,519		$	14,961
Product sales		5,186			4,065
		20,705			19,026

COST OF REVENUES:
Cost of services		9,604			8,792
Cost of sales		1,929			1,492
		11,533			10,284

GROSS PROFIT		9,172			8,742

OPERATING EXPENSES:
Selling, general and administrative		5,870			5,725
Research and development		605			597
		6,475			6,322

INCOME FROM OPERATIONS		2,697			2,420

OTHER EXPENSE:
Interest expense		(30	)		(57	)
Other expense		(167	)		(137	)
		(197	)		(194	)

INCOME BEFORE INCOME TAX EXPENSE		2,500			2,226

INCOME TAX EXPENSE		(913	)		(671	)

NET INCOME	$	1,587		$	1,555

BASIC EARNINGS PER COMMON SHARE	$	0.19		$	0.19

DILUTED EARNINGS PER COMMON SHARE	$	0.18		$	0.18

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic		8,447,875			8,178,483
Diluted		8,968,547			8,854,830

See Notes to Consolidated Financial Statements (Unaudited).

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	March 31, 2008			December 31, 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,353		$	2,220
Accounts receivable:
Trade, less allowance for doubtful accounts ($279 in 2008 and $264 in 2007)		13,938			13,159
Other		660			651
Total accounts receivable		14,598			13,810
Inventories		4,336			3,910
Prepaid expenses and other		1,184			1,182
Deferred income taxes		1,761			1,761
Total current assets		23,232			22,883
BUILDING, EQUIPMENT AND IMPROVEMENTS, net		26,840			26,885
GOODWILL		15,967			15,967
OTHER INTANGIBLE ASSETS, net		527			588
DEFERRED INCOME TAXES, net		2,144			3,057
OTHER ASSETS		934			569
TOTAL ASSETS	$	69,644		$	69,949

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Line of credit	$	900		$	-
Accounts payable		3,977			3,580
Accrued expenses		5,473			7,377
Current portion of long-term debt		677			677
Total current liabilities		11,027			11,634
LONG-TERM DEBT, net of current portion		810			979
OTHER LONG-TERM LIABILITIES		1,787			1,680

STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; authorized shares, 50,000; none issued and outstanding		-			-
Common stock, $0.15 par value; authorized shares, 28,000,000; issued shares, 8,560,054
in 2008 and 8,538,281 in 2007		1,284			1,281
Additional paid-in capital		87,557			87,780
Accumulated deficit		(28,207	)		(29,794	)
Common stock held in trust, at cost, 307,267 shares in 2008 and 244,127 shares in 2007		(3,614	)		(2,611	)
Treasury stock, at cost, 103,431 shares in 2008 and 2007		(1,000	)		(1,000	)
Total stockholders' equity		56,020			55,656
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	69,644		$	69,949

See Notes to Consolidated Financial Statements (Unaudited).

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 31, 2008			March 31, 2007

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	1,587		$	1,555
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		1,127			941
Provision for losses on accounts receivable		111			90
Loss on sale of equipment		5			-
Deferred and stock-based compensation		113			199
Deferred income taxes		913			671
Changes in operating assets and liabilities:
Accounts receivable		(899	)		(2,095	)
Inventories		(426	)		(99	)
Prepaid expenses and other current assets		(2	)		215
Other assets		(364	)		5
Accounts payable and accrued expenses		(41	)		817
Net cash provided by operating activities		2,124			2,299

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of building, equipment and improvements		(2,493	)		(798	)
Net cash used in investing activities		(2,493	)		(798	)

CASH FLOWS USED IN FINANCING ACTIVITIES:
Net proceeds on revolving credit facility		900			-
Principal payments on long-term debt		(169	)		(569	)
Principal payments on capital leases		-			(3	)
Purchase of common stock for incentive plan		(1,003	)		(508	)
Net proceeds from sale of common stock		-			11
Payment of taxes from traded shares		(226	)		(192	)
Net cash used in financing activities		(498	)		(1,261	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(867	)		240

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		2,220			1,261

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,353		$	1,501

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	27		$	62
Income taxes		13			56

Supplemental noncash activities:
Asset additions and related obligations in payables		478			1,009

See Notes to Consolidated Financial Statements (Unaudited).

MEDTOX SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2008

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of MEDTOX Scientific, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of financial condition and results of operations have been included. Operating results for the three month period ended March 31, 2008 are not necessarily indicative of the results that may be attained for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

New Accounting Standards:

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements regarding fair value measurement. Where applicable, SFAS No. 157 simplifies and codifies fair value related guidance previously issued within generally accepted accounting principles. Although, this Statement does not require any new fair value measurements, its application may, for some entities, change current practice. The Company adopted this Statement as of January 1, 2008. The adoption of this Statement did not have an impact on the Company’s financial position or results of operations. In February 2008, the FASB issued Staff Position 157-2, “Effective Date of FASB Statement No. 157” which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. The Company is currently evaluating the future impact that the implementation of SFAS No. 157 will have on its non-financial assets and liabilities which are not recognized on a recurring basis; however the Company does not anticipate it to significantly impact its financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose, at specified election dates, to measure eligible financial instruments at fair value that are not currently required to be measured at fair value. The Company adopted SFAS No. 159 as of January 1, 2008, however no assets or liabilities have currently been remeasured at fair value.

value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For the Company, SFAS No. 141R is effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after December 31, 2008. The Company is currently evaluating the future impacts and disclosures of this Statement.

2. SEGMENTS

The Company has two reportable segments: Laboratory Services and Product Sales. The Laboratory Services segment consists of MEDTOX Laboratories, Inc. and New Brighton Business Center, LLC. 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 diagnostic devices, consists of MEDTOX Diagnostics, Inc.. Products manufactured include easy to use, inexpensive, on-site drug tests such as PROFILE®-II, PROFILE®-II A, PROFILE®-III, PROFILE®-III A, PROFILE-II ER®, PROFILE®-III ER, MEDTOXScan®, 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.

(In thousands)	Three Months Ended
	March 31, 2008		March 31, 2007
Laboratory Services:
Revenues	$	15,519	$	14,961
Depreciation and amortization		974		810
Income from operations		1,411		1,778
Capital expenditures for segment assets		2,211		626

Product Sales:
Revenues	$	5,186	$	4,065
Depreciation and amortization		153		131
Income from operations		1,286		642
Capital expenditures for segment assets		282		172

(In thousands)	Three Months Ended
	March 31, 2008		March 31, 2007
Corporate (unallocated):
Other expense	$	(197)	$	(194)

Company:
Revenues	$	20,705	$	19,026
Depreciation and amortization		1,127		941
Income from operations		2,697		2,420
Other expense		(197)		(194)
Income before income tax expense		2,500		2,226
Capital expenditures for assets		2,493		798

(In thousands)
	March 31, 2008		December 31, 2007
Assets:
Laboratory Services	$	56,826	$	56,430
Product Sales		8,913		8,701
Corporate (unallocated)		3,905		4,818
Company	$	69,644	$	69,949

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

(In thousands)	Three Months Ended
	March 31, 2008		March 31, 2007
Workplace drugs-of-abuse testing	$	9,834	$	9,157
Specialty Laboratory Services		5,685		5,804
	$	15,519	$	14,961

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

(In thousands)	Three Months Ended
	March 31, 2008		March 31, 2007
POC on site testing products	$	4,601	$	3,661
Contract manufacturing services		479		215
Other diagnostic products		106		189
	$	5,186	$	4,065

3. INVENTORIES

Inventories consisted of the following:

(In thousands)	March 31, 2008		December 31, 2007

Raw materials	$	1,024	$	977
Work in process		407		317
Finished goods		779		583
Supplies, including off-site inventory		2,126		2,033
	$	4,336	$	3,910

4. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per common share:

(In thousands, except share and per share data)	Three Months Ended
	March 31, 2008		March 31, 2007

Net income (A)	$	1,587	$	1,555
Weighted average number of basic common shares outstanding (B)		8,447,875		8,178,483
Dilutive effect of stock options computed based on the treasury stock method using average market price		520,672		676,347
Weighted average number of diluted common shares outstanding (C)		8,968,547		8,854,830
Basic earnings per common share (A/B)	$	0.19	$	0.19
Diluted earnings per common share (A/C)	$	0.18	$	0.18

5. INCOME TAXES

In the first quarter of 2007, the Company recorded a $141,000 tax benefit from additional net operating loss carryforwards determined to be available to the Company.

At December 31, 2007, the Company had federal net operating loss carryforwards (NOLs) of approximately $12.9 million, which are available to offset future taxable income. The Company's federal NOLs expire in varying amounts each year from 2008 through 2026 in accordance with applicable federal tax regulations and the timing of when the NOLs were incurred. 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.

6. CONTINGENCIES

Leases - The Company leases 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.

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.

7. RELATED PARTY TRANSACTION

In January 2008, the Company prepaid approximately $430,000 of the lease agreement for the office and research facilities leased from a director relating to leasehold improvements after determining that the prepayment would be financially beneficial to the Company. The prepayment was recorded as prepaid rent in other assets (long-term) in the consolidated balance sheet and will continue to be amortized over the remaining life of the lease as additional rent.

Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q 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 Form 10-Q 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 Form 10-Q 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 the next paragraph, 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 Form 10-Q. In light of the significant uncertainties inherent in the forward looking statements included in this Form 10-Q, 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. 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.

The following is a listing of some of the important factors that could cause actual results to differ materially from those indicated by the forward looking statements contained in this Form 10-Q:

•

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, 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 control the costs in our business

•

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

•

adverse results in litigation matters

•

our inability to continue to develop innovative products and services

•

our inability to provide our services in a timely manner

•

an unforeseen decrease in the acceptance of current new products and services, including in the market for clinical laboratory testing for physicians offices and patients

•

fluctuations in clinical trial activities

•

inaccurate information regarding market opportunities

The following additional factors could cause actual results to differ materially from those indicated by the forward looking statements contained in this Form 10-Q:

•

The failure to obtain FDA “prescription use” clearance for the new generation of MEDTOXScan® electronic reader which could cause the loss of existing clients and reduce the market for future new business.

•

The expected increase in sales of POCT products fails to materialize.

•

Our inability to continue the revenue growth and the reduction of selling, general and administrative expenses as a percentage of revenues as attained in the first quarter of 2008.

In addition, the potential future value of signed contracts in clinical trials services is a forward looking statement. The value realized of signed contracts may be less than amounts projected due to contract cancellations and delays.

The above listing should not be construed as exhaustive; we cannot predict all the factors that could cause results to differ materially from those indicated by the forward looking statements.

Executive Overview

Our Business

We are engaged primarily in distinct, but very much 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.

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, criminal justice facilities, 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.

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.

We recently expanded our Specialty Laboratory Services to include clinical laboratory tests used by physicians and other healthcare providers for the purpose of diagnosing or treating disease or illness or the assessment of health in humans. Testing is performed on blood, body fluids or tissues. Our comprehensive clinical laboratory services includes clinical chemistry, hematology, coagulation, urinalysis, immunology/serology (viruses, infectious diseases, immune system) immunohematology (blood typing, antibody screens), microbiology (bacteria, parasites), anatomical pathology/cytology (tissue biopsies, cancer), molecular diagnostics (infectious diseases, genetic disorders) and sub-specialties of these categories.

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.

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 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 POCT diagnostic drug screening devices, such as our PROFILE^®-II, PROFILE^®-II A, PROFILE^®-III, PROFILE^®-III A, PROFILE-II ER^®, PROFILE^®-III ER, MEDTOXScan^® reader, 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 the offices, research and development laboratories, production operations, and warehouse/distribution facilities.

In January 2008, we announced that we were voluntarily recalling approximately 400 MEDTOXScan^® electronic readers because of mis-branding. The PROFILE^®-III ER devices sold for use with the readers and which are properly cleared for sale by the FDA can be read visually without the reader. The readers were provided to customers at no cost, therefore the direct financial impact of the recall is limited to shipping fees which are estimated to be less than $10,000. It had been our original intention to replace these readers with a new generation of reader having over-the-counter (OTC) approval in 2008. As a result of the recall, we have now sought “prescription use” clearance for the new reader. We filed a 510(k) application in March, 2008. We have been in contact with the FDA and are in the process of providing them with some additional data that they have requested. To date, we have not experienced significant attrition of clients for this product line.

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:

Economic Uncertainties Causing Variability in Testing Volumes in the Laboratory Services, Drugs-of-Abuse Business

In the past, we have experienced a decrease in testing volume from our existing workplace drugs-of-abuse clients, which we primarily attributed to lower new job creation and reduced employee turnover caused by economic uncertainties. In the first quarter of 2008, testing volume from our existing workplace drugs-of-abuse clients was lower than in the prior year period. We feel economic uncertainties may continue to cause variability in our workplace drugs-of-abuse testing volume in the foreseeable future.

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

Our strategy is to drive profitable growth by building market share, leveraging our existing infrastructure and technical expertise, and driving innovation. We maintain a disciplined culture, focused on the successful execution of our strategy and plans.

Building Market Share

We have solid niche positions in large markets that allow us to build market share by offering high quality products and services that are delivered rapidly, priced competitively, and supported by excellent customer service and value-added services. Our value added services include data management, collection site management, training, technical support and expertise, as well as review of drug testing policies for clients.

Our success in penetrating new accounts has represented a significant component of our growth in market share. Over the past two years, we have expanded our number of sales representatives from 23 to 36. The increase in sales representatives has increased our business from new accounts in the first three months of 2008 and helps offset risks from uncertain economic conditions that may result in lower activity from existing workplace drugs-of-abuse clients.

Leveraging Existing Infrastructure and Technical Expertise

We leverage our existing infrastructure and technical expertise to facilitate top line growth and improve operating margins. Our LEAN and Six-Sigma initiatives support this effort by improving quality and productivity, cutting costs, and increasing throughput. 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 within processes. 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.”

Driving Innovation

We have introduced a number of innovative products and services.

In 2007, we continued improvement in our 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 higher degree of customization to our clients, both in terms of specific assays on a particular device, and supplying a “private label” device to large clients. In 2007, we initiated a relationship with one private label client.

In 2006, we developed and introduced MEDTOXScan^®, an electronic reader, which we provide to hospitals for use with our PROFILE-II ER^® and PROFILE^®-III ER POCT devices in hospital laboratories and emergency rooms.

In 2005, we developed and introduced eChain^®, our web-based electronic chain-of-custody and donor tracking system. We currently have over 1,500 clinics and collection sites utilizing eChain^® throughout the country.

In 2005, we also introduced SURE-SCREEN^®, our lower detection level POCT device targeted for the government and rehabilitation markets and our PROFILE^®-III device, an integrated cup and testing device for sale to the workplace drug testing market.

ClearCourse^®, another innovative solution we offer, is a 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.

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 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 our 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 in the Notes to the Consolidated Financial Statements in Item 15 on Form 10-K for the year ended December 31, 2007. Note that the preparation of the interim, unaudited consolidated financial statements included in this Form 10-Q 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 financial statements, and the reported amounts of revenues 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 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 March 31, 2008 was $13.9 million, net of allowance for doubtful accounts of $0.3 million.

Revenue Recognition:

Revenues from Laboratory Services are recognized as earned when we have performed the applicable laboratory testing services and the results have been sent to our customers or posted to our secure website.

Some of our Laboratory Services revenues for certain types of tests are billed to third-party payers including insurance companies, state Medicaid and Medicare agencies. These payers 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 payers in situations where incorrect billing information was submitted to us by the customer. Historically, the amounts of such incorrect billings have not been material. We estimate a discount on the billings for these tests and recognize revenues and related accounts receivable at a net amount, after discount, in order to state revenues and accounts receivable at the amount expected to be paid. While we believe that estimated discounts and the related net revenues 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 payers and historical discounts when estimating future discounts on a monthly basis.

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.

Off-Site Supplies Inventory:

Off-site supplies represent collection kits and forms located at collection sites throughout the United States used by Laboratory Services’ customers to submit specimens for testing services. These inventories are recorded at the lower of historical cost or market. At March 31, 2008, off-site inventory was $1.2 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:

Goodwill and indefinite-lived intangible assets are 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. 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 unaudited consolidated interim 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 primarily consist of certain net operating losses (NOLs) carried forward. In the future, 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.

We account for uncertain tax positions in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of FASB Statement No. 109 (“SFAS 109”). The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of income.

Results of Operations

In evaluating our financial performance, our management has primarily focused on three objectives: maximizing operating income, increasing our cash flows and strengthening 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 the first quarter of 2008, we were able to achieve solid revenue growth and reduced selling, general and administrative (SG&A) expense as a percentage of revenues, but we experienced a decrease in gross margins in the quarter resulting primarily from higher costs and limited incremental revenue associated with our clinical laboratory expansion.

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Revenues

	Three Months Ended				Quarter-over-Quarter
	March 31, 2008	% of Revenues	March 31, 2007	% of Revenues	$ Change	% Change
Revenues:

Laboratory Services	$ 15,519	75.0%	$ 14,961	78.6%	$ 558	4%

Product Sales	5,186	25.0%	4,065	21.4%	1,121	28%

	$ 20,705	100.0%	$ 19,026	100.0%	$ 1,679	9%

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 7% to $9.8 million in the first quarter of 2008 due to an increase in sample volume from new client relationships with relatively stable pricing. Revenues from our existing clients were down approximately 3% from the prior year period due to challenging economic conditions affecting hiring decisions by those clients. 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 percentage of samples that test positive for drugs-of-abuse and the average number of samples per shipment.

Revenues from our Specialty Laboratory Services decreased 2% to $5.7 million in the first quarter of 2008 due to a slight decline in testing for our clinical trial services business compared to a very strong first quarter of 2007. Specialty Laboratory Services represented 37% of our Laboratory Services revenue in the first quarter of 2008 compared to 39% in the prior year period. Revenues from clinical trial services can fluctuate from quarter-to-quarter based on the project nature, size, and the actual timing of clinical trials. We entered 2008 with signed contracts which may have the potential for $5.5 million in future clinical trials services activity. The dollar amount of future clinical trials services activity has continued to increase since the beginning of 2008, and we have a growing number of proposals outstanding.

In the Product Sales segment, sales of POCT products, which consists of the PROFILE^®-II, PROFILE-II ER^®, PROFILE-III ER^®, PROFILE^®-II A, PROFILE^®-III, PROFILE^®-III A, VERDICT^®-II and SURE-SCREEN^®on-site test kits and other ancillary products for the detection of abused substances, increased 26% to $4.6 million in the first quarter of 2008. This growth primarily reflected strong sales of PROFILE-III ER^® and SURE-SCREEN^®devices. Overall, pricing for our POCT devices was slightly lower than the prior year quarter.

In the Product Sales segment, sales of contract manufacturing services increased 123%, or $0.3 million, to $0.5 million in the first quarter of 2008. During the first quarter of 2007, our largest client experienced a product recall, unrelated to the component that we provide them, which caused them to experience a loss of market share and consequently lower demand for our services during this time. After an analysis of this product category in 2007, we concluded that it had diminishing opportunities for us, and we plan to exit the contract manufacturing services business over the next few years. Based on the expected increased sales of higher-margin POCT products, we do not anticipate a significant impact on our results of operations from exiting this business.

Additionally in the Product Sales segment, sales of other diagnostic products (including agricultural testing products and other diagnostic tests for the detection of alcohol) decreased 44% to $0.1 million in the first quarter of 2008. The decrease was due to the phase-out of agricultural testing products in late 2007.

Cost of Revenues and Gross Margin

	Three Months Ended				Quarter-over-Quarter
	March 31, 2008	% of Revenues	March 31, 2007	% of Revenues	$ Change	% Change
Cost of Revenues:

Cost of Services	$ 9,604	61.9%*	$ 8,792	58.8%*	$ 812	9%

Cost of Sales	1,929	37.2%**	1,492	36.7%**	437	29%

	$ 11,533	55.7%	$ 10,284	54.0%	$ 1,249	12%

*	Cost of services as a percentage of Laboratory Services revenues

**	Cost of sales as a percentage of Product Sales revenues

Consolidated gross margin decreased to 44.3% of revenues in the first quarter of 2008, compared to 46.0% of revenues for the same period in 2007.

Laboratory Services gross margin was 38.1% in the first quarter of 2008, down from 41.2% in the first quarter of 2007. In the first quarter of 2008, Laboratory Services gross margin was impacted by higher costs and limited incremental revenue associated with the expansion of our clinical laboratory business.

Gross margin from Product Sales decreased slightly to 62.8% in the first quarter of 2008, down from 63.3% in the same period of 2007 and primarily reflects a shift in sales mix of POCT devices.

Operating Expenses

	Three Months Ended				Quarter-over-Quarter
	March 31, 2008	% of Revenues	March 31, 2007	% of Revenues	$ Change	% Change
Operating Expenses:

Selling, general and administrative	$ 5,870	28.4%	$ 5,725	30.1%	$ 145	3%

Research and development	605	2.9%	597	3.1%	8	1%

	$ 6,475	31.3%	$ 6,322	33.2%	$ 153	2%

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $5.9 million, or 28.4% of revenues in the first quarter of 2008, compared to $5.7 million, or 30.1% of revenues in the first quarter of 2007. The lower percentage reflects the increase in revenues on marginally higher quarter-over-quarter expenses.

Income Taxes

We recorded a tax provision for the three months ended March 31, 2008 and March 31, 2007 based upon an effective tax rate of 36.5% and 30.1%, respectively. The lower rate in the first quarter of 2007 was due to a $141,000 tax benefit from additional net operating loss carryforwards determined to be available to the Company.

Liquidity and Capital Resources

Our working capital requirements have been funded primarily by various combinations of profitable operations and cash received from debt financing. Cash and cash equivalents at March 31, 2008 were $1.4 million, compared to $2.2 million at December 31, 2007.

Net cash provided by operating activities was $2.1 million for the three months ended March 31, 2008 compared to $2.3 million for the same period of 2007.

In January 2008, we prepaid approximately $430,000 of the lease agreement for the office and research facilities leased from a director relating to leasehold improvements after determining that the prepayment would be

financially beneficial to us. The prepayment was recorded as prepaid rent in other assets (long-term) in the consolidated balance sheet and will continue to be amortized over the remaining life of the lease as additional rent.

Net cash used in investing activities, consisting of capital expenditures, was $2.5 million for the three months ended March 31, 2008 compared to $0.8 million for the same period of 2007. The significant increase in the first quarter of 2008 reflects the expansion of our regional clinical laboratory capabilities. In both years, these expenditures included equipment purchased and costs incurred to continue to improve efficiencies and reduce operating costs within our Laboratory Services and Product Sales businesses.

Net cash used in financing activities was $0.5 million for the three months ended March 31, 2008, compared to $1.3 million in the prior year period. The decrease was primarily due to net proceeds received on the revolving credit facility of $0.9 million in the first quarter of 2008. This impact was partially offset by an increase in the repurchase of shares of our common stock. In the first quarter of 2008, we repurchased 63,140 shares of our common stock from officers of our Company for a cost of $1.0 million. In the first quarter of 2007, we repurchased 32,929 shares of our common stock in the open market and 2,270 shares of our common stock from a director of our Company for a combined total cost of $508,000. The shares repurchased were placed in trust to fund our Long-Term Incentive Plan.

We are party to a credit security agreement (the "Wells Fargo Credit Agreement") with Wells Fargo Bank, National Association (the “Bank”). The Wells Fargo Credit Agreement, as amended, 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 $4.9 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 Credit Agreement also requires us to comply with certain financial covenants, including maintaining, on a consolidated basis:

•	Tangible Net Worth not less than $30,000,000 at any time, with “Tangible Net Worth” defined as the aggregate of total stockholders’ equity plus subordinated debt less any intangible assets.

•	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.

We are relying on expected positive cash flows from operations and our Line of Credit to fund our future working capital and asset purchases. As of March 31, 2008, we had total borrowing capacity of $8.0 million on our line of credit, of which $0.9 million was borrowed, leaving a net availability of $7.1 million.

In the short term, we believe that the aforementioned resources will be sufficient to fund our planned operations through 2008. While there can be no assurance that the available capital will be sufficient to fund our future operations beyond 2008, 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 revenues 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.

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 as of March 31, 2008:

	Payments Due by Period
(In thousands)	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years

Long-term debt (1)	$ 1,566	$ 732	$ 834	$ -	$ -

Operating leases	4,120	698	1,192	957	1,273

Total contractual obligations	$ 5,686	$ 1,430	$ 2,026	$ 957	$ 1,273

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

In addition to our long-term debt obligations, we have a revolving line of credit, payable on demand, which we routinely pay down.

The table above excludes our obligation for future payments to participants under our Supplemental Executive Retirement Plan of approximately $0.5 million at March 31, 2008 as the specific payment dates and amounts are unknown.

Off-Balance Sheet Transactions

The Company does 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 the Company’s 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 on the Company has been primarily limited to salary, laboratory and operating supplies and rent increases and has historically not been material to the Company’s operations. In the future, the Company may not be able to increase the prices of laboratory testing by an amount sufficient to cover the cost of inflation, although the Company is responding to these concerns by refocusing the laboratory operations towards higher margin testing (including clinical and pharmaceutical trials) as well as emphasizing the marketing, sales and operations of the Product Sales business.

Seasonality

The Company believes that the laboratory testing business is subject to seasonal fluctuations in pre-employment screening. These seasonal fluctuations include reduced volume in the 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 flows.

Impact of New Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Financial Standards (SFAS) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements regarding fair value measurement. Where applicable, SFAS No. 157 simplifies and codifies fair value related guidance previously issued within generally accepted accounting principles. Although, this Statement does not require any new fair value measurements, its application may, for some entities, change current practice. We adopted this Statement as of January 1, 2008. The adoption of this Statement did not have an impact on our financial position or results of operations. In February 2008, the FASB issued Staff Position 157-2, “Effective Date of FASB Statement No. 157” which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. We are currently evaluating the future impact that the implementation of SFAS No. 157 will have on our non-financial assets and liabilities which are not recognized on a recurring basis; however we do not anticipate it to significantly impact our financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose, at specified election dates, to measure eligible financial instruments at fair value that are not currently required to be measured at fair value. We adopted SFAS No. 159 as of January 1, 2008, however no assets or liabilities have currently been remeasured at fair value.

In November 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which changes how business acquisitions are accounted. SFAS No. 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. SFAS No. 141R is effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after December 31, 2008. We are currently evaluating the future impacts and disclosures of this Statement.

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in our market risk during the quarter ended March 31, 2008. For additional information refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 4: 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.

PART II OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS.

Inapplicable

ITEM 1A RISK FACTORS. There have been no material changes to our risk factors during the quarter ended March 31, 2008. For additional information refer to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (a)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b)

January 1 - 31		-	-	-
February 1 - 28	63,140	15.87	63,140	-
March 1 - 31				-
Total	63,140	15.87	63,140

(a) Represents the number of shares repurchased as part of the Company’s publicly announced plan to repurchase shares of the Company’s common stock to fund the Company’s Long-Term Incentive Plan (LTIP). Repurchases of shares may be made through open market or privately negotiated transactions at times and in such amounts as management deems appropriate.

(b) In February 2008, the Company announced that the Board of Directors had authorized the repurchase of shares of the Company’s common stock to fund the Company’s LTIP. The announcement did not indicate the maximum number of shares to be repurchased under the program.

In addition to shares repurchased under the Board of Director’s authorization, shares of common stock were surrendered by employees to satisfy the exercise price or tax withholding obligations on stock option exercises.

ITEM 3

DEFAULTS UPON SENIOR SECURITIES. Inapplicable

ITEM 4

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable

ITEM 5

OTHER INFORMATION. Inapplicable

ITEM 6

EXHIBITS. See Exhibit Index on page following signature page

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Signature	Title	Date
/s/ Richard J. Braun	President, Chief Executive Officer, and	May 1, 2008
Richard J. Braun	Chairman of the Board of Directors (Principal Executive Officer)

/s/ Kevin J. Wiersma	Vice President and Chief Financial Officer	May 1, 2008
Kevin J. Wiersma	(Principal Financial Officer)

/s/ Steven J. Schmidt	Vice President, Finance	May 1, 2008
Steven J. Schmidt	(Principal Accounting Officer)

EXHIBIT INDEX

MEDTOX SCIENTIFIC, INC.

FORM 10-Q FOR QUARTER ENDED MARCH 31, 2008

Exhibit

Number

Description

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.