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 June 30, 2009

( )

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [

]

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 July 15, 2009
Common Stock, $0.15 par value per share		8,545,077

MEDTOX SCIENTIFIC, INC.

INDEX

Page

Part I

Financial Information:

Item 1:

Financial Statements (Unaudited)

Consolidated Statements of Income – Three and

Six Months Ended June 30, 2009 and 2008

Consolidated Balance Sheets – June 30, 2009

and December 31, 2008

Consolidated Statements of Cash Flows – Six

Months Ended June 30, 2009 and 2008

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:

Other Information

Item 6:

Exhibits

Signatures

Exhibit Index

PART I FINANCIAL 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				Six Months Ended
	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
REVENUES:
Laboratory services:
Drugs-of-abuse testing services	$ 9,618		$ 10,757		$ 18,064		$ 20,591
Clinical & other laboratory services	6,969		6,024		14,681		11,709
Product sales	4,745		5,096		9,245		10,282
	21,332		21,877		41,990		42,582
COST OF REVENUES:
Cost of services	11,634		10,320		22,751		19,924
Cost of sales	2,032		2,058		3,930		3,987
	13,666		12,378		26,681		23,911

GROSS PROFIT	7,666		9,499		15,309		18,671

OPERATING EXPENSES:
Selling, general and administrative	6,521		5,878		12,742		11,748
Research and development	589		501		1,159		1,106
	7,110		6,379		13,901		12,854

INCOME FROM OPERATIONS	556		3,120		1,408		5,817

OTHER EXPENSE:
Interest expense	(5	)	(23	)	(11	)	(53)
Other expense	(62	)	(198	)	(246	)	(365)
	(67	)	(221	)	(257	)	(418)

INCOME BEFORE INCOME TAX EXPENSE	489		2,899		1,151		5,399

INCOME TAX EXPENSE	(178	)	(971	)	(420	)	(1,884)

NET INCOME	$ 311		$ 1,928		$ 731		$ 3,515

BASIC EARNINGS PER COMMON SHARE	$ 0.04		$ 0.23		$ 0.09		$ 0.42

DILUTED EARNINGS PER COMMON SHARE	$ 0.04		$ 0.22		$ 0.08		$ 0.39

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic	8,538,965		8,456,623		8,518,524		8,452,249
Diluted	8,816,645		8,956,351		8,759,333		8,962,728

See Notes to Consolidated Financial Statements (Unaudited).

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	June 30, 2009			December 31, 2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,260		$	4,069
Accounts receivable:
Trade, less allowance for doubtful accounts ($429 in 2009 and $362 in 2008)		14,761			13,304
Other		886			778
Total accounts receivable		15,647			14,082
Inventories		3,729			3,900
Prepaid expenses and other		1,162			1,353
Deferred income taxes		3,192			3,612
Total current assets		26,990			27,016
BUILDING, EQUIPMENT AND IMPROVEMENTS, net		28,889			29,204
GOODWILL		15,967			15,967
OTHER INTANGIBLE ASSETS, net		336			400
OTHER ASSETS		1,093			939
TOTAL ASSETS	$	73,275		$	73,526

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,516		$	3,712
Accrued expenses		4,560			5,235
Current portion of long-term debt		640			677
Total current liabilities		8,716			9,624
LONG-TERM DEBT, net of current portion		-			302
OTHER LONG-TERM LIABILITIES		2,431			2,057
DEFERRED INCOME TAXES, net		1,078			1,078

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,
8,648,508 in 2009 and 8,563,087 in 2008		1,297			1,284
Additional paid-in capital		88,268			88,017
Accumulated deficit		(23,491	)		(24,222	)
Common stock held in trust, at cost, 367,911 shares in 2009 and 307,267 shares in 2008		(4,024	)		(3,614	)
Treasury stock, at cost, 103,431 shares in 2009 and 2008		(1,000	)		(1,000	)
Total stockholders' equity		61,050			60,465
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	73,275		$	73,526

See Notes to Consolidated Financial Statements (Unaudited).

MEDTOX SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended
	June 30, 2009			June 30, 2008
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	731		$	3,515
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		2,641			2,323
Provision for losses on accounts receivable		310			209
Loss on sale of equipment		13			6
Deferred and stock-based compensation		378			246
Deferred income taxes		420			1,884
Changes in operating assets and liabilities:
Accounts receivable		(1,851	)		(1,681	)
Inventories		171			(158	)
Prepaid expenses and other current assets		191			65
Other assets		(153	)		(627	)
Accounts payable and accrued expenses		(1,003	)		(1,080	)
Net cash provided by operating activities		1,848			4,702

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of building, equipment and improvements		(2,144	)		(3,981	)
Net cash used in investing activities		(2,144	)		(3,981	)

CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on long-term debt		(339	)		(339	)
Purchase of common stock for incentive plan		(410	)		(1,003	)
Net proceeds from the exercise of stock options		236			-
Payment of taxes from traded shares		-			(225	)
Net cash used in financing activities		(513	)		(1,567	)

DECREASE IN CASH AND CASH EQUIVALENTS		(809	)		(846	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		4,069			2,220

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	3,260		$	1,374

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	12		$	55
Income taxes		31			183

Supplemental noncash activities:
Asset additions and related obligations in payables		656			774

See Notes to Consolidated Financial Statements (Unaudited).

MEDTOX SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2009

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 and six-month periods ended June 30, 2009 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, 2008.

New Accounting Standards: In November 2007, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (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. For the Company, SFAS No. 141R was effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring on or after January 1, 2009. The Company adopted SFAS No. 141R as of January 1, 2009. 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” (FSP 157-2) 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 adopted FSP 157-2 as of January 1, 2009. The adoption of FSP 157-2 did not have an impact on the Company’s financial position or results of operations.

In April 2009, the FASB issued Staff Position 107-1 and Accounting Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP 107-1 and APB 28-1). FSP 107-1 and APB 28-1 amend SFAS No. 107, “Disclosures about Fair Values of Financial Instruments,” to require disclosures about the fair value of financial instruments in interim financial statements as well as in annual financial statements. It also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. The Company adopted FSP 107-1 and APB 28-1 effective April 1, 2009. The adoption of FSP 157-2 did not have an impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS No. 165). SFAS No. 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS No. 165 is effective prospectively for interim and annual periods ending after June 15, 2009. The adoption of this Statement did not have an impact on the Company’s financial position or results of operations. Management has evaluated subsequent events through the date of this filing.

2. SEGMENTS

The Company has two reportable segments: Laboratory Services and Product Sales. The Laboratory Services segment consists of MEDTOX Laboratories and the New Brighton Business Center (NBBC). Services provided include drugs-of-abuse testing services and clinical & other laboratory services, which include clinical toxicology, clinical testing for the pharmaceutical industry, clinical testing for occupational health clinics, clinical testing for physician offices, 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, PROFILE®-IV, MEDTOXScan®, VERDICT®-II and SURE-SCREEN®, in addition to a variety of 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 June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Laboratory Services:
Revenues	$	16,587	$	16,781	$	32,745	$	32,300
Depreciation and amortization		1,172		1,041		2,323		2,015
Income (loss) from operations		(297)		1,854		(223)		3,265
Capital expenditures for segment assets		1,348		1,132		1,971		3,343

Product Sales:
Revenues	$	4,745	$	5,096	$	9,245	$	10,282
Depreciation and amortization		170		155		318		308
Income from operations		853		1,266		1,631		2,552
Capital expenditures for segment assets		76		356		173		638

Corporate (unallocated):
Other expense	$	(67)	$	(221)	$	(257)	$	(418)

(In thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Company:
Revenues	$	21,332	$	21,877	$	41,990	$	42,582
Depreciation and amortization		1,342		1,196		2,641		2,323
Income from operations		556		3,120		1,408		5,817
Other expense		(67)		(221)		(257)		(418)
Income before income tax expense		489		2,899		1,151		5,399
Capital expenditures for assets		1,424		1,488		2,144		3,981

(In thousands)	June 30, 2009		December 31, 2008
Assets:
Laboratory Services	$	58,315	$	59,812
Product Sales		11,768		10,102
Corporate (unallocated)		3,192		3,612
Company	$	73,275	$	73,526

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 June 30,				Six Months Ended June 30,
	2009		2008		2009		2008

POC on-site testing products	$	4,316	$	4,672	$	8,341	$	9,273
Contract manufacturing services		327		303		705		782
Other diagnostic products		102		121		199		227
	$	4,745	$	5,096	$	9,245	$	10,282

3. INVENTORIES

Inventories consisted of the following:

(In thousands)	June 30, 2009		December 31, 2008

Raw materials	$	657	$	958
Work in process		407		358
Finished goods		327		418
Supplies, including off-site inventory		2,338		2,166
	$	3,729	$	3,900

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 June 30,				Six Months Ended June 30,
	2009		2008		2009		2008

Net income (A)	$	311	$	1,928	$	731	$	3,515
Weighted average number of basic common shares outstanding (B)		8,538,965		8,456,623		8,518,524		8,452,249
Dilutive effect of stock options computed based on the treasury stock method		277,680		499,728		240,809		510,479
Weighted average number of diluted common shares outstanding (C)		8,816,645		8,956,351		8,759,333		8,962,728
Basic earnings per common share (A/B)	$	0.04	$	0.23	$	0.09	$	0.42
Diluted earnings per common share (A/C)	$	0.04	$	0.22	$	0.08	$	0.39

5. INCOME TAXES

At December 31, 2008, the Company had federal net operating loss carryforwards (NOLs) of approximately $7.8 million, which are available to offset future taxable income. The Company's federal NOLs expire in varying amounts each year from 2018 through 2028 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.

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. Examples of forward looking statements include, but are not limited to (i) projections of, or statements regarding, future revenues, income or loss, earnings or loss per share, capital expenditures, dividends, capital structure, margins and other financial items, (ii) statements regarding our plans and objectives and the impacts thereof, including planned introductions of new products and services, planned exiting of lines of business and planned regulatory filings, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) estimates of market sizes and market opportunities, (iv) statements regarding economic conditions, (v) statements relating to temporary curtailment of trial activity, (vi) statements regarding the sufficiency of our existing resources to fund our planned operations through 2009, and (vii) statements of assumptions underlying other statements and statements about our business.

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

•

failure to receive regulatory approvals and clearances

•

other factors, including those set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008

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. engages in drugs-of-abuse testing services, 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. MEDTOX Laboratories, Inc. also provides clinical and other laboratory services which 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 clinical & other laboratory services to include 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 New Brighton Business Center, LLC (NBBC) is 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.

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, PROFILE®-IV, MEDTOXScan® reader, VERDICT®-II, and SURE-SCREEN® products, in addition to 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 sought “prescription use” clearance for the new reader. We filed a 510(k) application in March 2008. The FDA requested additional data and studies as well as certain modifications to our product labeling and package insert which we completed. In February 2009, we received 510(k) clearance from the FDA to market our MEDTOXScan® electronic readers to be used with nine drugs. In May 2009, we filed a 510(k) application with the FDA for three more drugs to be added to the reader menu. On July 24, 2009, we received 510(k) clearance from the FDA to market our MEDTOXScan® electronic readers to be used with three additional drugs. The total number of drugs detectable on the system is now twelve. 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 first and second quarters of 2009, testing volume from our existing workplace drugs-of-abuse clients was lower than in the prior year periods, which we primarily attributed to lower new job creation and reduced employment levels and corresponding drops in hiring caused by economic uncertainties. 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, relative to our size, 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 three years, we have expanded our number of sales representatives from

23 to 45. The increase in sales representatives has increased our business from new accounts 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.

In 2008, we expanded our clinical laboratory capabilities to include clinical and anatomic pathology, microbiology, molecular diagnostics, and other specialized testing capabilities. This expansion leverages existing capabilities and opens up new revenue opportunities by offering full-service testing capabilities to the physician office market.

Our LEAN and Six-Sigma initiatives support our effort to leverage existing infrastructure 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 2009, we introduced the next generation PROFILE^®-V MEDTOXScan^® Drugs-of-Abuse Test System with added functionality for hospital laboratories and emergency rooms.

In 2008, we introduced ToxAssure^®, a comprehensive program for effective pain management testing.

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

There were no significant changes to our critical accounting policies during the three and six-month periods ended June 30, 2009 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

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 second quarter of 2009 and the first six months of this year, we were unable to fully achieve these goals due in part to challenging economic conditions.

Revenues

	Three Months Ended				Six Months Ended
(In thousands, except percentages)	June 30, 2009	June 30, 2008	$ Change	% Change	June 30, 2009	June 30, 2008	$ Change	% Change
Revenues:

Laboratory Services
Drugs-of abuse testing services	$ 9,618	$10,757	$ (1,139)	(11)%	$ 18,064	$ 20,591	$ (2,527)	(12)%
Clinical & other laboratory services	6,969	6,024	945	16%	14,681	11,709	2,972	25%

Product Sales	4,745	5,096	(351)	(7)%	9,245	10,282	(1,037)	(10)%

	$ 21,332	$ 21,877	$ (545)	(3)%	$ 41,990	$ 42,582	$ (592)	(1)%

Our Laboratory Services segment includes revenues from workplace drugs-of-abuse testing and revenues from clinical and other laboratory services. Our revenues from drugs-of-abuse testing decreased 11% to $9.6 million and 12% to $18.1 million for the three and six month periods ended June 30, 2009, respectively. The decrease in both periods was primarily a result of a 27% and 28% decline in revenues from our existing drugs-of-abuse clients for the three and six months periods ended June 30, 2009, respectively, due to challenging economic conditions affecting hiring decisions by those clients. This decrease was partially mitigated by a 16% and 15% increase in revenues from new drugs-of-abuse clients for the three and six months periods ended June 30, 2009, respectively. We expect a continuing negative impact on revenue from our drugs-of-abuse clients in 2009 caused by the negative economic conditions affecting hiring. Pricing for our workplace drugs-of-abuse testing services tends to be fairly 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 clinical and other laboratory services for the three and six months ended June 30, 2009, increased 16% to $7.0 million and 25% to $14.7 million, respectively. The improvement in both periods was driven primarily by growth generated by our expanded clinical laboratory capabilities. For the six months ended June 30, 2009, the improvement was also due to strong growth in testing for clinical trial services. For the three months ended June 30, 2009, the clinical and other laboratory services growth was dampened by lower growth in testing for clinical trial services as a result of a cancellation by the sponsor of one active trial and temporary curtailment of trial activity from one of our preferred client relationships. Revenues from clinical trial services can fluctuate from quarter-to-quarter based on the project nature, size, and the actual timing of clinical trials.

Our Product Sales segment includes revenues from point-of-collection on site testing products (POCT), contract manufacturing services and other diagnostic products.

Sales of POCT products, which consist of the PROFILE®-II, PROFILE®-II A, PROFILE-II ER®, PROFILE®-III ER, PROFILE®-III, PROFILE®-III A, PROFILE®-IV, VERDICT®-II and SURE-SCREEN® on-site test kits and other ancillary products for the detection of abused substances, decreased 8% to $4.3 million and 10% to $8.3 million for the three and six months ended June 30, 2009, respectively. The decrease in both periods was due primarily to a 29% and 28% decline in revenues from device sales in the workplace market for the three and six months ended June 30, 2009, respectively, attributable to tough economic conditions affecting hiring decisions. The decrease in both periods was partially offset by strong sales of SURE-SCREEN® devices in the hospital market. Overall, pricing for our POCT devices was slightly lower than the prior year periods.

Sales of contract manufacturing services increased 8% to $0.3 million for the three months ended June 30, 2009. For the six months ended June 30, 2009, sales of contract manufacturing services decreased 10% to $0.7 million. 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 12 to 18 months. 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.

Sales of other diagnostic products were flat at $0.1 million and $0.2 million for the three and six months ended June 30, 2009, respectively, compared to the same periods in 2008.

Cost of Revenues and Gross Margin

	Three Months Ended				Quarter-over-Quarter
(In thousands, except percentages)	June 30, 2009	% of Revenues	June 30, 2008	% of Revenues	$ Change	% Change
Cost of Revenues:

Cost of Services	$ 11,634	70.1%*	$ 10,320	61.5%*	$ 1,314	13%

Cost of Sales	2,032	42.8%**	2,058	40.4%**	(26)	(1)%

	$ 13,666	64.1%	$ 12,378	56.6%	$ 1,288	10%

	Six Months Ended				Year-over-Year
(In thousands, except percentages)	June 30, 2009	% of Revenues	June 30, 2008	% of Revenues	$ Change	% Change
Cost of Revenues:

Cost of Services	$ 22,751	69.5%*	$ 19,924	61.7%*	$ 2,827	14%

Cost of Sales	3,930	42.5%**	3,987	38.8%**	(57)	(1)%

	$ 26,681	63.5%	$ 23,911	56.2%	$ 2,770	12%

Cost of services as a percentage of Laboratory Services revenues

Cost of sales as a percentage of Product Sales revenues

Consolidated gross margin was 35.9% and 36.5% of revenues for the three and six months ended June 30, 2009, respectively, compared to 43.4% and 43.8% of revenues for the same periods in 2008.

Laboratory Services gross margin was 29.9% and 30.5% for the three and six months ended June 30, 2009, respectively, down from 38.5% and 38.3% for the same periods of 2008. The decrease in both periods in 2009 was due to the drop in drugs-of-abuse testing revenues over a highly fixed cost structure and increased costs associated with our clinical laboratory expansion.

Gross margin from Product Sales was 57.2% and 57.5% for the three and six months ended June 30, 2009, respectively, down from 59.6% and 61.2% for the same periods of 2008. The decrease in both periods in 2009 primarily reflects a shift in sales mix of point-of-collection testing devices, with a decrease in higher margin PROFILE® devices sold in the workplace market and an increase in sales of lower margin SURE-SCREEN® devices in the government market.

Operating Expenses

	Three Months Ended				Quarter-over-Quarter
(In thousands, except percentages)	June 30, 2009	% of Revenues	June 30, 2008	% of Revenues	$ Change	% Change
Operating Expenses:

Selling, general and administrative	$ 6,521	30.6%	$ 5,878	26.9%	$ 643	11%

Research and development	589	2.8%	501	2.3%	88	18%

	$ 7,110	33.3%	$ 6,379	29.2%	$ 731	12%

	Six Months Ended				Year-over-Year
(In thousands, except percentages)	June 30, 2009	% of Revenues	June 30, 2008	% of Revenues		$ Change	% Change
Operating Expenses:

Selling, general and administrative	$ 12,742	30.3%	$ 11,748	27.6%		$ 994	9%

Research and development	1,159	2.8%	1,106	2.6%		53	5%

	$ 13,901	33.1%	$ 12,854	30.2%		$ 1,047	8%

Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses increased to $6.5 million, or 30.6% of revenues for the three months ended June 30, 2009, compared to $5.9 million, or 26.9% of revenues for the same period in 2008. For the six months ended June 30, 2009, SG&A expenses increased to $12.7 million, or 30.3% of revenues, compared to $11.7 million, or 27.6% of revenues for the same period in 2008. Our increased spending in both periods of 2009 was primarily associated with an increase in sales and marketing expense as well as the reclassification of $150,000 from Other Expense which was determined to be more appropriately classified in SG&A expenses in the second quarter of 2009.

Research and Development Expenses. Research and development expenses increased 18% and 5%, respectively, to $0.6 million and $1.2 million for the three and six months ended June 30, 2009. The increase in spending in both periods of 2009 was primarily due to increased spending for on-going product development projects in our Product Sales segment.

Other Expense

Other expense consists primarily of interest expense, our investment gains/losses, and the net expenses associated with our building rental activities. These expenses decreased $154,000 and $161,000 respectively, to $67,000 and $257,000 for the three and six months ended June 30, 2009. The decrease in both periods was due to the reclassification of $150,000 from Other Expense which was determined to be more appropriately classified in SG&A expenses in the second quarter of 2009.

Income Taxes

We recorded a tax provision for the three and six months ended June 30, 2009 based upon an effective tax rate of 36.5% compared to an effective tax rate of 33.5% and 34.9% for the comparable periods in 2008. The lower rate in the three and six month periods ended June 30, 2008 was due to a research and development tax credit.

Liquidity and Capital Resources

Our working capital requirements have been funded primarily by profitable operations. Cash and cash equivalents at June 30, 2009 were $3.3 million, compared to $4.1 million at December 31, 2008.

Net cash provided by operating activities was $1.8 million for the six months ended June 30, 2009, compared to $4.7 million for the six months ended June 30, 2008. The decrease was primarily due to reduced operating results.

Net cash used in investing activities, consisting of capital expenditures, was $2.1 million for the six months ended June 30, 2009, compared to $4.0 million for the same period of 2008. The decrease in the first six months of 2009 was primarily due to the absence of costs incurred in the first six months of 2008 associated with the expansion of our regional clinical laboratory capabilities. In both periods, these expenditures included equipment purchased and costs incurred to upgrade equipment, improve efficiencies and increase service levels to our clients.

Net cash used in financing activities was $0.5 million for the six months ended June 30, 2009, compared to $1.6 million in the prior year period. The decrease was primarily due to a decrease in the repurchase of shares of our common stock. In the first six months of 2009, we repurchased 60,644 shares of our common stock in the open market for a cost of $0.4 million. In the first six months of 2008, we repurchased 63,140 shares of our common stock from officers of our Company for a cost of $1.0 million. 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”) maturing on November 1, 2009. We are currently in the process of negotiating the renewal of the Wells Fargo Credit Agreement. 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. At June 30, 2009, we had total borrowing capacity of $8.0 million on our Line of Credit. We did not have an outstanding balance on our Line of Credit at June 30, 2009.

In the short term, we believe that the aforementioned resources will be sufficient to fund our planned operations through 2009. While there can be no assurance that the available capital will be sufficient to fund our future operations beyond 2009, 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 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 June 30, 2009:

	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)	$ 650	$ 650	$ -	$ -	$ -

Operating leases	3,186	743	1,108	725	610

Total contractual obligations	$ 3,836	$ 1,393	$ 1,108	$ 725	$ 610

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

The table above excludes our obligation for future payments to participants under our Supplemental Executive Retirement Plan of approximately $0.4 million at June 30, 2009, 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 November 2007, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (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 was effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring on or after January 1, 2009. We adopted SFAS No. 141R as of January 1, 2009. 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” (FSP 157-2) 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 adopted FSP 157-2 as of January 1, 2009. The adoption of FSP 157-2 did not have an impact on our financial position or results of operations.

Instruments,” to require disclosures about the fair value of financial instruments in interim financial statements as well as in annual financial statements. It also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. We adopted FSP 107-1 and APB 28-1 effective April 1, 2009. The adoption of FSP 157-2 did not have an impact on our financial position or results of operations.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS No. 165). SFAS No. 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS No. 165 is effective prospectively for interim and annual periods ending after June 15, 2009. The adoption of this Statement did not have an impact on our financial position or results of operations. Management has evaluated subsequent events through the date of this filing.

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in our market risk during the quarter ended June 30, 2009. For additional information refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2008.

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 three and six months ended June 30, 2009. For additional information refer to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities

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

April 1 - 30	2,590	$8.03	-	-
May 1 - 31	-	-	-	-
June 1 - 30	-	-	-	-
Total	2,590	$8.03	-	-

(a) Represents the number of shares of the Company’s common stock repurchased 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.

In addition to shares repurchased to fund the Company’s LTIP, shares of common stock were surrendered by employees to satisfy the exercise price on stock option exercises.

ITEM 3

DEFAULTS UPON SENIOR SECURITIES. Inapplicable

ITEM 4

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Set forth below is information concerning each matter submitted to a vote at the Annual Meeting of Stockholders of the Company on May 26, 2009.

Proposal No. 1: The stockholders elected the following persons to serve on the Board of Directors of the Company for three year terms or until their respective successors are duly elected and qualified.

Director’s Name

Votes For

Votes Withheld

Samuel C. Powell

7,085,535

838,243

Robert A. Rudell

7,696,179

227,599

Proposal No. 2: The stockholders approved the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009, with the following votes:

For

Against

Abstentions

Broker Non-Votes

7,814,900

107,486

1,392

During the second quarter of 2009, no other matters were submitted to a vote of the securities holders of the Company.

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	July 30, 2009
Richard J. Braun	Chairman of the Board of Directors (Principal Executive Officer)

/s/ Kevin J. Wiersma	Vice President and Chief Financial Officer	July 30, 2009
Kevin J. Wiersma	(Principal Financial Officer)

/s/ Steven J. Schmidt	Vice President, Finance	July 30, 2009
Steven J. Schmidt	(Principal Accounting Officer)

EXHIBIT INDEX

MEDTOX SCIENTIFIC, INC.

FORM 10-Q FOR QUARTER ENDED JUNE 30, 2009

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.