10-Q

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, 2012

OR

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

For the transition period                                                        to                                      

Commission file number 1-11394

MEDTOX SCIENTIFIC, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-3863205
(State or other jurisdiction of	(I.R.S. Employer
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 [ 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 [  ]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 12, 2012
Common Stock, $0.15 par value per share	8,970,130

MEDTOX SCIENTIFIC, INC.

INDEX

			Page
Part I	Financial Information:
	Item 1:	Financial Statements (Unaudited)
		Consolidated Statements of Income – Three
		Months Ended March 31, 2012 and 2011	3
		Consolidated Balance Sheets – March 31, 2012
		and December 31, 2011	4
		Consolidated Statements of Cash Flows – Three
		Months Ended March 31, 2012 and 2011	5
		Notes to Consolidated Financial Statements	6
	Item 2:	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	11
	Item 3:	Quantitative and Qualitative Disclosures
		About Market Risk	21
	Item 4:	Controls and Procedures	21
Part II	Other Information		22
	Item 1A:	Risk Factors	22
	Item 5:	Other Information	22
	Item 6:	Exhibits	23
		Signatures	24
		Exhibit Index	25

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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
	March 31, 2012			March 31, 2011
REVENUES:
Laboratory services:
Drugs-of-abuse testing services	$	10,578		$	9,640
Clinical & other laboratory services:
Other clinical and laboratory services		5,486			4,740
Net patient services, less provision for bad debts of $738 in             2012 and $639 in 2011		3,699			2,596
		9,185			7,336
Clinical trial services		2,374			2,536
Product sales		6,443			5,585
		28,580			25,097
COST OF REVENUES:
Cost of services		14,050			12,952
Cost of sales		2,674			2,333
		16,724			15,285
GROSS PROFIT		11,856			9,812
OPERATING EXPENSES:
Selling, general and administrative		8,807			7,985
Research and development		689			594
		9,496			8,579
INCOME FROM OPERATIONS		2,360			1,233
OTHER (EXPENSE) INCOME:
Interest expense		-			(24	)
Other (expense) income		(4	)		16
		(4	)		(8	)
INCOME BEFORE INCOME TAX EXPENSE		2,356			1,225
INCOME TAX EXPENSE		(860	)		(447	)
NET INCOME	$	1,496		$	778
BASIC EARNINGS PER COMMON SHARE	$	0.17		$	0.09
DILUTED EARNINGS PER COMMON SHARE	$	0.17		$	0.09
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic		8,875,786			8,850,228
Diluted		9,065,565			9,043,757

See Notes to Consolidated Financial Statements (Unaudited).

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MEDTOX SCIENTIFIC, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	March 31, 2012			December 31, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,048		$	5,269
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,814 in 2012 and $1,945 in 2011		18,514			16,982
Other		341			227
Total accounts receivable		18,855			17,209
Inventories		4,728			4,568
Prepaid expenses		2,065			1,704
Deferred income taxes		1,975			2,776
Total current assets		34,671			31,526
BUILDING, EQUIPMENT AND IMPROVEMENTS, net		27,166			28,105
GOODWILL		15,967			15,967
OTHER INTANGIBLE ASSETS, net		305			313
OTHER ASSETS		888			943
TOTAL ASSETS	$	78,997		$	76,854
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,477		$	4,504
Accrued expenses		8,640			8,221
Total current liabilities		13,117			12,725
LONG-TERM LIABILITIES		2,047			1,885
DEFERRED INCOME TAXES, net		4,616			4,616
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, 9,047,450
in 2012 and 9,044,525 in 2011		1,357			1,357
Additional paid-in capital		78,885			78,792
Accumulated deficit		(13,958	)		(15,454	)
Common stock held in trust, at cost, 512,372 shares in 2012 and 2011		(6,067	)		(6,067	)
Treasury stock, at cost, 103,460 shares in 2012 and 2011		(1,000	)		(1,000	)
Total stockholders' equity		59,217			57,628
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	78,997		$	76,854

See Notes to Consolidated Financial Statements (Unaudited).

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MEDTOX SCIENTIFIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 31, 2012			March 31, 2011
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	1,496		$	778
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		1,544			1,496
Provision for losses on accounts receivable		821			678
Deferred and stock-based compensation		392			325
Deferred income taxes		801			417
Changes in operating assets and liabilities:
Accounts receivable		(2,467	)		(1,282	)
Inventories		(160	)		(179	)
Prepaid expenses		(361	)		(116	)
Other assets		13			17
Accounts payable and accrued expenses		665			(832	)
Other		(6	)		-
Net cash provided by operating activities		2,738			1,302
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of building, equipment and improvements		(988	)		(1,127	)
Net cash used in investing activities		(988	)		(1,127	)
CASH FLOWS PROVIDED BY(USED IN)  FINANCING ACTIVITIES:
Proceeds from line of credit		-			9,090
Payments on line of credit		-			(8,130	)
Purchase of common stock for incentive plan		-			(1,388	)
Net proceeds from the exercise of stock options		29			-
Net cash provided by (used in) financing activities		29			(428	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,779			(253	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		5,269			1,285
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,048		$	1,032
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	-		$	24
Income taxes		234			113
Supplemental noncash activities:
Asset additions and related obligations in payables	$	252		$	867

See Notes to Consolidated Financial Statements (Unaudited).

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MEDTOX SCIENTIFIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Period Ended March 31, 2012

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 U.S 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, 2012 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 audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

On January 1, 2012, the Company adopted new accounting guidance on the presentation and disclosure of patient service revenue, provision for bad debts, and the allowance for doubtful accounts for certain health care entities.  This guidance requires certain health care entities to change the presentation of their statement of income by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts).  Results for the three month period ended March 31, 2011 have been restated in accordance with this new guidance, which resulted in a $639,000 decrease in revenues and selling, general and administrative expenses.

Patient Service Revenue, Accounts Receivable and Allowance for Doubtful Accounts - Patient accounts receivable are reported at realizable value, net of allowance for doubtful accounts.  In evaluating the collectibility of accounts receivable, the Company analyzes its past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts.  Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts.  For receivables associated with services provided to patients who have third-party coverage, the Company analyzes contractually due amounts and provides an allowance for doubtful accounts and a provision for bad debts, if necessary.   For receivables associated with self-pay patients (which includes both patients without insurance and patients with deductible and copayment balances due for which third-party coverage exists for part of the bill), the Company records a provision for bad debts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.  The difference between the standard rates (or the discounted rates, if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts.

The Company’s allowance for doubtful accounts was 42% of net patient accounts receivable at March 31, 2012, compared to 44% of net patient accounts receivable at December 31, 2011.  The Company’s writeoffs, net of recoveries were $906,000 for the three months ended March 31, 2012, compared to $305,000 for the same period of 2011.  The increase in write-offs was the result of writing off claims earlier based on historical collection experience.

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The Company’s process for determining the appropriate level of the allowance for doubtful accounts involves judgment, and considers such factors as the age of the underlying receivables, specific account reviews, historical collection experience, and other external factors that could affect the collectability of its receivables.  Revisions to the allowance for doubtful accounts are recorded as an adjustment to bad debt expense within net revenues.   Accounts are written off against the allowance for doubtful accounts when they are deemed to be uncollectible.  Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts.

The Company recognizes net patient service revenue associated with services provided to patients who have third-party payor coverage on the basis of contractual rates for the services rendered.  For uninsured patients, the Company recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy).

Patient service revenue, net of contractual allowances and discounts (but before the provision for bad debts), recognized in the period from these major payor sources, is as follows:

(In thousands)	Three Months Ended
	March 31, 2012		March 31,  2011
Medicaid	$	1,578	$	1,009
Medicare		965		544
Blue Cross Blue Shield plans		556		585
Self-pay and other third party payors		1,338		1,097
Total net patient service revenue	$	4,437	$	3,235

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 (NBBC).  Services provided include drugs-of-abuse testing services; clinical & other laboratory services, which include clinical toxicology, clinical testing for occupational health clinics, clinical testing for physician offices, pediatric lead testing, heavy metals analyses, prescription management testing, courier delivery, and medical surveillance; and clinical trial services which include central laboratory services, assay development, bio-analytical, bio-equivalence and pharmacokinetic testing.  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 A, PROFILE-II ER®, PROFILE®-III ER,  PROFILE®-V, MEDTOXScan®, VERDICT®-II and SURE-SCREEN®, and EZ-SCREEN® Cup, 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.

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(In thousands)	Three Months Ended
	March 31, 2012		March 31,  2011
Laboratory Services:
Revenues	$	22,137	$	19,512
Depreciation and amortization		1,314		1,296
Income from operations		982		102
Capital expenditures for segment assets		509		793
Product Sales:
Revenues	$	6,443	$	5,585
Depreciation and amortization		230		200
Income from operations		1,378		1,131
Capital expenditures for segment assets		90		334
Corporate (unallocated):
Other income (expense)	$	(4)	$	(8)
Company:
Revenues	$	28,580	$	25,097
Depreciation and amortization		1,544		1,496
Income from operations		2,360		1,233
Other income (expense)		(4)		(8)
Income before income tax expense		2,356		1,225
Capital expenditures for assets		599		1,127

(In thousands)	March 31, 2012		December 31, 2011
Assets:
Laboratory Services	$	67,480	$	65,739
Product Sales		9,542		8,339
Corporate (unallocated)		1,975		2,776
Company	$	78,997	$	76,854

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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, 2012		March 31, 2011
POC on site testing products	$	5,598	$	4,859
Contract manufacturing services		641		536
Other diagnostic products		204		190
	$	6,443	$	5,585

3.  INVENTORIES

Inventories consisted of the following:

(In thousands)	March 31, 2012		December 31, 2011
Raw materials	$	864	$	986
Work in process		605		479
Finished goods		441		389
Supplies, including off-site inventory		2,818		2,714
	$	4,728	$	4,568

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, 2012		March 31, 2011
Net income (A)	$	1,496	$	778
Weighted average number of basic common shares outstanding (B)		8,875,786		8,850,228
Dilutive effect of stock options and awards computed based on the treasury stock method using average market price		189,779		193,529
Weighted average number of diluted common shares outstanding (C)		9,065,565		9,043,757
Basic earnings per common share (A/B)	$	0.17	$	0.09
Diluted earnings per common share (A/C)	$	0.17	$	0.09

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5.  INCOME TAXES

At December 31, 2011, the Company had federal net operating loss carryforwards (NOLs) of approximately $1.1 million, which are available to offset future taxable income.  The Company's federal NOLs expire in varying amounts each year from 2029 through 2030 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.  The Company anticipates fully utilizing its NOLs and expects an increase in income tax payments in 2012.

6.  CONTINGENCIES

Leases - The Company leases offices and facilities and office equipment under certain operating leases, which expire on various dates through October 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.

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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, capital structure, pricing, income tax payments and usage of NOLs, margins and other financial items, (ii) statements regarding our plans and objectives and the impacts thereof, including planned introductions of new products and services, estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, controlling costs, and pursuing synergistic acquisitions, (iii) estimates of market sizes and market opportunities, (iv) statements regarding economic conditions, (v) statements regarding our reliance on expected positive cash flow from operations and our Line of Credit to fund future working capital and asset purchases, the sufficiency of our capital resources to fund our planned operations through 2012, and our belief 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, and (vi) 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:

·   changes in federal, state, local and third party payer regulations or policies or other future reforms in the health care system (or in the interpretation of current regulations), affecting governmental and third-party coverage or reimbursement for laboratory testing

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·   loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of, the law or regulations of the Clinical Laboratory Improvement Act of 1967, the Clinical Laboratory Improvement Amendments of 1988, the Substance Abuse and Mental Health Services Administration (SAMHSA), or those of Medicare, Medicaid, the False Claims Act or other federal, state or local agencies

·   failure to comply with HIPAA (Health Insurance Portability and Accountability Act), including changes to federal and state privacy and security obligations and changes to HIPAA, including those changes included within HITECH (Health Information Technology for Economic and Clinical Health) and any subsequent amendments, which could result in increased costs, denial of claims and/or significant penalties

·   failure to maintain the security of customer-related information could damage the Company’s reputation with customers, cause it to incur substantial additional costs and become subject to litigation

·   changes in FDA (Food and Drug Administration) regulations or policies (or in the interpretation of current regulations) affecting laboratory developed tests and the 510(k) clearance process

·   increased competition, including price competition

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

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

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

·   our ability to attract and retain experienced and qualified personnel

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

o   other companies challenging our patents

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

o   other companies designing around technologies we have developed

o   our inability to obtain appropriate licenses from third parties

o   our inability to protect our trade secrets

o   risk of infringement upon the proprietary rights of others

o   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

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·   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, 2011

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 (unaudited).

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 occupational health clinics, and heavy metal, trace element and solvent analyses.  We provide these services to hospitals, clinics, HMOs 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 include 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.

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MEDTOX Laboratories, Inc. also provides clinical trial services which includes central laboratory services, assay (test) development, bio-analytical, bio-equivalence and pharmacokinetic testing.  Central laboratory services include tests that are used to monitor the safety and efficacy of a drug.  These tests or “safety labs” include tests that are performed in our general clinical laboratory and pathology laboratory such as clinical chemistries (liver function, kidney function, cardiac and bone), hematology (blood count), immunology (immune status), and flow cytometry (cell identification).  Assay development, bio-analytical and bio-equivalence studies are performed in our bio-analytical laboratory.  These tests are conducted using methodologies such as immunoassay, gas chromatography, high performance liquid chromatography, gas chromatography/mass spectrometry and tandem mass spectrometry.  Clients for our clinical testing services include clinical trial sponsors (pharmaceutical and biotech companies), clinical research organizations (CROs), research organizations, and investigators with trial management, patient recruitment/enrollment and site management.

The 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 A, PROFILE-II ER®, PROFILE®-III ER, PROFILE®-IV, PROFILE®-V, MEDTOXScan®, VERDICT®-II and SURE-SCREEN®, and EZ-SCREEN® Cup, 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.

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 Drugs-of-Abuse Business

In the first quarter of 2012, testing volume from our existing workplace drugs-of-abuse clients was lower than in the prior year period, 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.  We have continued to experience increased price competition for certain diagnostic testing devices, particularly in the probation, parole and rehabilitation market.

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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 few years, we have expanded our number of sales representatives which has increased our business from new accounts and helps offset risks from uncertain economic conditions that may cause 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.

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 continuously introduced a number of innovative products and services, including:

In 2011, we introduced a new “self-contained” rapid drug testing device, the EZ-SCREEN® Cup.  This cup can be used in both the government and workplace markets.  Designed to meet the needs of non-laboratory personnel in order to easily run a drug test with minimal urine handling, the new cup also reduces the chance of specimens leaking during transit to the laboratory due to a new lid design.

We have also continued the expansion of our prescription management business.  We offer a comprehensive testing program serving this market under the name ToxAssure®.

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Critical Accounting Policies

There were no significant changes to our critical accounting policies during the quarter ended March 31, 2012 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

Results of Operations

In evaluating our financial performance, our management has primarily focused on the following objectives: revenue growth, maximizing operating income, increasing our cash flows and strengthening our balance sheet.  The first two of these objectives are 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 margin and reduced selling, general and administrative (SG&A) expense as a percentage of revenues.  As discussed below, during the first quarter of 2012, we made positive strides on all three fronts.

Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011

Revenues

	Three Months Ended		Quarter-over-Quarter
(In thousands, except percentages)	March 31, 2012	March 31, 2011	$ Change	% Change
Revenues:
Laboratory Services
Drugs-of-abuse testing  services	$    10,578	$    9,640	$         938	10%
Clinical & other laboratory services	9,185	7,336	1,849	25%
Clinical trial services	2,374	2,536	(162)	(6)%
Product Sales	6,443	5,585	858	15%
	$    28,580	$  25,097	$      3,483	14%

Our Laboratory Services segment includes revenues from drugs-of-abuse testing services, clinical & other laboratory services and clinical trial services.  Revenues for the three months ended March 31, 2011 reflect the adjustment of $639,000 for the adoption of new accounting guidance for patient service bad debt.  See Note 1 of Notes to Consolidated Financial Statements (unaudited).

Our revenues from drugs-of-abuse testing increased 10% to $10.6 million in the first quarter of 2012 due to strong revenue growth from new clients of 14%, partially offset by a 4% decline in revenues from existing clients.  Revenues from our existing client base continue to be negatively impacted by economic conditions.  While economic conditions may continue to have a negative impact on laboratory drugs-of-abuse testing volumes from our existing client base, we have demonstrated a consistent ability to add new business year over year.  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.

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Revenues in our clinical and other laboratory services increased 25% to $9.2 million in the first quarter of 2012 due to continued strong growth generated by our expanded clinical laboratory capabilities and diversification initiatives, including testing for prescription management.

Revenues in clinical trial services decreased 6% to $2.4 million in the first quarter of 2012 compared to a very strong first quarter of 2011.  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®-V, VERDICT®-II and SURE-SCREEN®, and EZ-SCREEN® Cup on-site test kits and other ancillary products for the detection of abused substances, increased 15% to $5.6 million in the first quarter of 2012.  The increase was due to an increase in revenues in the workplace drugs-of-abuse and government markets with our newly introduced EZ-SCREEN® cup device and increased sales of Profile®-V sold into the hospital market with our MEDTOXScan® Reader.    Overall, pricing for our POCT devices was slightly higher than the prior year period.

Sales of contract manufacturing services increased 20% to $0.6 million in the first quarter of 2012.  We have been phasing out of this business.  However, our one remaining customer was unable to convert to internal manufacturing at December 31, 2011 and purchased $0.6 million of product in the first quarter of 2012 to have inventory while they convert internally.  The equipment related to this product line has now been sold and shipped to the customer and we have finally exited this business in April 2012.

Cost of Revenues and Gross Margin

	Three Months Ended				Quarter-over-Quarter
	March 31, 2012	% of Revenues	March 31, 2011	% of Revenues	$ Change	% Change
Cost of Revenues:
Cost of Services	$    14,050	63.5%*	$    12,952	66.4%*	$    1,098	9%
Cost of Sales	2,674	41.5%**	2,333	41.8%**	341	15%
	$    16,724	58.5%	$    15,285	60.9%	$   1,439	9%

*      Cost of services as a percentage of Laboratory Services revenues

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

Consolidated gross margin increased to 41.5% of revenues in the first quarter of 2012, compared to 39.1% of revenues for the same period in 2011.

Laboratory Services gross margin was 36.5% in the first quarter of 2012, up from 33.6% in the first quarter of 2011.  The increase in gross margin was due to a change in test mix and an increase in volume.   Gross margin from Product Sales increased to 58.5% in the first quarter of 2012, up slightly from 58.2% in the same period of 2011.

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Operating Expenses

	Three Months Ended				Quarter-over-Quarter
	March 31, 2012	% of Revenues	March 31, 2011	% of Revenues	$ Change	% Change
Operating Expenses:
Selling, general and    administrative	$   8,807	30.8%	$   7,985	31.8%	$      822	10%
Research and    development	689	2.4%	594	2.4%	95	16%
	$   9,496	33.2%	$   8,579	34.2%	$      917	11%

Selling, General and Administrative Expenses.  Selling, general and administrative (SG&A) expenses increased to $8.8 million, or 30.8% of revenues in the first quarter of 2012, compared to $8.0 million, or 31.8% of revenues in the first quarter of 2011.  The increase was primarily due to increased sales and marketing expenses and increased incentive-based compensation.  SG&A expenses for the three months ended March 31, 2011 reflect the adjustment of $639,000 for the adoption of new accounting guidance for patient service bad debt.  See Note 1 of Notes to Consolidated Financial Statements (unaudited).

Research and Development Expenses.  Research and development expenses increased 16% to $689,000 in the first quarter of 2012 and were held constant at 2.4% of revenues.  The increase was  due to increased spending for on-going projects in both our Product Sales and Laboratory Services segments.

Liquidity and Capital Resources

Our working capital requirements have been funded primarily by various combinations of profitable operations and cash received from our revolving credit facility.  Cash and cash equivalents at March 31, 2012 were $7.0 million, compared to $5.3 million at December 31, 2011.

Net cash provided by operating activities was $2.7 million for the three months ended March 31, 2012 compared to $1.3 million for the same period of 2011.  The increase in the first quarter of 2012 was attributable to an increase in net earnings, excluding non-cash charges such as depreciation and amortization, deferred compensation, deferred income taxes and provision for losses on accounts receivable.

Net cash used in investing activities, consisting of capital expenditures, was $1.0 million for the three months ended March 31, 2012 compared to $1.1 million for the same period of 2011.  In both periods, these expenditures included equipment purchased and costs incurred to upgrade equipment, improve efficiencies and increase service levels to our clients.

We anticipate fully utilizing our net operating loss carryforwards and expect an increase in income tax payments in 2012.

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Net cash provided by financing activities was $29,000 for the three months ended March 31, 2012 compared to net cash used in financing activities of $428,000 in the prior year period.  In the first three months of 2011, we repurchased 88,975 shares of our common stock in the open market for $1.4 million which were placed in trust to fund our Long-Term Incentive Plan.  In the first three months of 2011, we also received net proceeds from our line of credit of $1.0 million.

We are a party to a credit security agreement (the "Wells Fargo Credit Agreement") with Wells Fargo Bank, National Association (the “Bank”) maturing on August 31, 2013.  The Wells Fargo Credit Agreement, as amended, consists of a revolving line of credit ("Line of Credit") of up to $12.0 million bearing interest at a fluctuating rate of 1.95% above the daily three month LIBOR, as defined and calculated by the Bank.

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 0.25% 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 of not less than $35,000,000 at each month end, with “Tangible Net Worth” defined as the aggregate of total stockholders’ equity plus subordinated debt less any intangible assets.

·   Current Ratio of not less than 1.45 to 1.0 at each month end, with “Current Ratio” defined as total current assets divided by total current liabilities.

·   Pre-tax profit of not less than $1,500,000 on a rolling four-quarter basis, determined as of each fiscal quarter-end.

We were in compliance with all of the financial covenants under the Wells Fargo Credit Agreement at March 31, 2012.

We are relying on expected positive cash flow from operations and our Line of Credit to fund our future working capital and asset purchases.  At March 31, 2012, we had total borrowing capacity of $12.0 million on our Line of Credit.  We did not have an outstanding balance on our Line of Credit at March 31, 2012.

In the short term, we believe that the aforementioned resources will be sufficient to fund our planned operations through 2012.  While there can be no assurance that the available capital will be sufficient to fund our future operations beyond 2012, 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.

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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, fuel charges 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.

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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, 2012.  For additional information refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4:  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and 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.

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.

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PART II       OTHER INFORMATION

ITEM 1A:     RISK FACTORS.  There have been no material changes to our risk factors during the quarter ended March 31, 2012.  For additional information refer to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 5: OTHER INFORMATION.

Executive Salaries for 2012

On February 13, 2012, the Compensation Committee of the Board of Directors of the Company (the “Committee”) approved 2012 base salaries for the executive officers, effective April 1, 2012, as set forth below:

Executive Officer	Title	Salary
Richard J. Braun	President and Chief Executive Officer	$390,000
Kevin J. Wiersma	Vice President, Chief Administrative Officer, and Chief Financial Officer of MEDTOX Scientific, Inc. and Chief Operating Officer – Forensic Laboratory Operations	$235,800
James A. Schoonover	Vice President, Sales and Marketing and Chief Marketing Officer	$235,800
B. Mitchell Owens	Vice President and Chief Operating Officer of MEDTOX Diagnostics, Inc.	$235,800
Susan E. Puskas	Vice President, Quality Assurance, Regulatory Affairs, and Chief Operating Officer – Clinical  Laboratory Operations	$235,800

Target Financial Objectives for Fiscal Year 2012 under the Annual Incentive Plan and Long Term Incentive Plan

On February 13, 2012, the Committee approved weighted target financial objectives for the Company’s 2012 Annual Incentive Plan and Long-Term Incentive Plan (LTIP). Awards will be based on the target payouts set forth below, which are expressed as a percentage of base salary. Specific payments to individuals could exceed the following targets if the Company achieves more than 100% of its target financial objectives, but in no event will the Annual Incentive Payment or LTIP individually exceed two times base salary.

Title	Target Payout %
President and Chief Executive Officer	100	%
Vice President, Chief Administrative Officer, and Chief Financial Officer of MEDTOX Scientific, Inc. and Chief Operating Officer – Forensic Laboratory Operations	75	%
Vice President, Sales and Marketing and Chief Marketing Officer	75	%
Vice President and Chief Operating Officer of MEDTOX Diagnostics, Inc.	75	%
Vice President, Quality Assurance, Regulatory Affairs, and Chief Operating Officer – Clinical Laboratory Operations	75	%

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Employees must be employed by the Company as of December 31, 2012, and at the time of the awards in order to participate in the Plans, and awards may be adjusted on a pro rata basis to the extent any employee is employed for only a portion of the year 2012. The Chief Executive Officer will recommend individual awards for all participating employees (except for the Chief Executive Officer) for approval by the Committee based on an assessment of each individual’s performance. The Committee may approve or disapprove any recommended awards in whole or in part in its sole discretion. The Committee shall determine the award for the Chief Executive Officer based on an assessment of his performance for 2012.

ITEM 6: EXHIBITS.  See Exhibit Index on page following signature page

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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	April 26, 2012
Richard J. Braun	Chairman of the Board of Directors (Principal Executive Officer)
/s/ Kevin J. Wiersma	Vice President and Chief Financial Officer	April 26, 2012
Kevin J. Wiersma	(Principal Financial Officer)
/s/ Angela M. Lacis	Corporate Controller	April 26, 2012
Angela M. Lacis	(Principal Accounting Officer)

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EXHIBIT INDEX

MEDTOX SCIENTIFIC, INC.

FORM 10-Q FOR QUARTER ENDED MARCH 31, 2012

Exhibit

Number                   Description

10.1 Executive Salaries for 2012.**

10.2 Target Financial Objectives for Fiscal Year 2012 under the Annual Incentive Plan and Long Term Incentive Plan.**

10.3 Employment Agreement, dated January 1, 2007, between the Registrant and Richard J. Braun (inadvertently not filed previously).**

31.1   Certification

31.2   Certification

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.

101 Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended March 31, 2012, formatted in XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements.

 **  Denotes a management contract or compensatory plan or arrangement

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EX-10.1

Exhibit 10.1

Executive Salaries for 2012

On February 13, 2012, the Compensation Committee of the Board of Directors of the Company (the “Committee”) approved 2012 base salaries for the executive officers, effective April 1, 2012, as set forth below:

Executive Officer	Title	Salary
Richard J. Braun	President and Chief Executive Officer	$390,000
Kevin J. Wiersma	Vice President, Chief Administrative Officer, and Chief Financial Officer of MEDTOX Scientific, Inc. and Chief Operating Officer – Forensic Laboratory Operations	$235,800
James A. Schoonover	Vice President, Sales and Marketing and Chief Marketing Officer	$235,800
B. Mitchell Owens	Vice President and Chief Operating Officer of MEDTOX Diagnostics, Inc.	$235,800
Susan E. Puskas	Vice President, Quality Assurance, Regulatory Affairs, and Chief Operating Officer – Clinical  Laboratory Operations	$235,800
Angela M. Lacis	Corporate Controller	$142,872

EX-10.2

Exhibit 10.2

Target Financial Objectives for Fiscal Year 2012 under the Annual Incentive Plan and Long Term Incentive Plan

On February 13, 2012, the Committee approved weighted target financial objectives for the Company’s 2012 Annual Incentive Plan and Long-Term Incentive Plan (LTIP). Awards will be based on the target payouts set forth below, which are expressed as a percentage of base salary. Specific payments to individuals could exceed the following targets if the Company achieves more than 100% of its target financial objectives, but in no event will the Annual Incentive Payment or LTIP individually exceed two times base salary.

Title	Target Payout %
President and Chief Executive Officer	100	%
Vice President, Chief Administrative Officer, and Chief Financial Officer of MEDTOX Scientific, Inc. and Chief Operating Officer – Forensic Laboratory Operations	75	%
Vice President, Sales and Marketing and Chief Marketing Officer	75	%
Vice President and Chief Operating Officer of MEDTOX Diagnostics, Inc.	75	%
Vice President, Quality Assurance, Regulatory Affairs, and Chief Operating Officer – Clinical Laboratory Operations	75	%

Employees must be employed by the Company as of December 31, 2012, and at the time of the awards in order to participate in the Plans, and awards may be adjusted on a pro rata basis to the extent any employee is employed for only a portion of the year 2012. The Chief Executive Officer will recommend individual awards for all participating employees (except for the Chief Executive Officer) for approval by the Committee based on an assessment of each individual’s performance. The Committee may approve or disapprove any recommended awards in whole or in part in its sole discretion. The Committee shall determine the award for the Chief Executive Officer based on an assessment of his performance for 2012.

EX-10.3

Exhibit 10.3

CEO

EMPLOYMENT AGREEMENT

THIS AGREEMENT dated January 1, 2007 by and between MEDTOX Scientific, Inc., a corporation (the "Company") and Richard J. Braun a resident of Minnesota ("Executive").

WHEREAS, the Company desires to employ Executive upon and subject to the terms and conditions set forth in this agreement, and Executive desires to render services for the Company on such terms and conditions.

NOW, THEREFORE, in consideration of the premises and the respective undertakings of the Company and Executive set forth below, the Company and Executive agree as follows:

1. Definitions.  The following defined terms have the respective meanings described below:

1.1 Change in Control.  A "Change in Control" of the Company shall mean any of the following:

(a) a change in control of a nature that would be required to be reported in response to Item 6(c) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; or

(b) a merger or consolidation to which the Company is a party if, following the effective date of such merger or consolidation, the individuals and entities who were shareholders of the Company prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of less than fifty percent (50%) of the combined voting power of the surviving corporation following the effective date of such merger or consolidation; or

(c) when, during any period of twenty-four (24) consecutive months during the term of this Agreement, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof, provided, however, that a director who was not a director at the beginning of such twenty-four (24) month period shall be deemed to have satisfied such twenty-four (24) month requirement, and be an Incumbent Director, if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually, because they were directors at the beginning of such twenty-four (24) month period, or by prior operation of this Section.

1.2 Potential Change in Control.  A "Potential Change in Control" of the Company shall be deemed to have occurred if:

(a) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

(b) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control;

(c) any person becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or

(d) the Board adopts a resolution to the effect that, for the purposes of this Agreement, a "Potential Change in Control" of the Company has occurred.

1.3 Cause.  Termination by the Company of the Executive's employment for "Cause" shall mean termination upon:

(a) the willful and continued failure by the Executive to substantially perform an Executive's duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Executive by the Company's Board of Directors, which demand specifically identifies the manner in which the Company believes that Executive has not substantially performed Executive's duties; or

(b) the willful engaging by the Executive in conduct, which is demonstrably and materially injurious to the Company, monetarily or otherwise.

For purposes of this Section 1.3, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company.

1.4 Company.  The term "Company" means MEDTOX Scientific, Inc. and any successors and assigns of the Company.

2. Employment.  The Company hereby employs Executive as Chairman, Chief Executive Officer and President, and Executive accepts such employment and agrees to perform services for the Company, for the period and upon the other terms and conditions set forth in this agreement.

3. Term of Employment.  The term of Executive's employment hereunder ("Term of Employment") shall commence on the date hereof and shall continue for a one-year period ending on December 31, 2007 (unless earlier terminated in accordance with the provisions of Section 12 of this agreement). The Term of Employment shall be automatically extended by successive 12-month terms thereafter.

4.           Position and Duties

4.1 Service with Company.  During his Term of Employment, Executive agrees to perform such reasonable employment duties, consistent with the terms of this agreement, as the Board of Directors of the Company shall assign to him from time to time, such duties and employment responsibilities shall be performed in accordance with the Company's rules, regulations and instructions now in force or which may be adopted by the Company in the future. During the Executive's Term of Employment, the Board of Directors shall nominate and recommend to shareholders the election of, and vote all shareholder proxies in favor of, Executive's election to the Company's Board of Directors.

4.2 Performance of Duties.  During his Term of Employment, the Executive agrees to serve the Company exclusively and to the best of his ability. The Executive shall have active involvement and be fully committed to the business and affairs of the Company, and shall devote one hundred percent of his business time to the affairs of the Company, except for (i) vacations and excused leaves of absence as permitted in accordance with Company policy; (ii) service on the Boards of Directors of other companies at the discretion of the Company's Board of Directors; (iii) service on the Boards of Directors of not- for-profit entities without approval of the Company's Board of Directors; and (iv) a reasonable amount of time during the business day to handle his personal affairs. Executive hereby confirms that he is under no contractual commitments inconsistent with his obligations set forth in this agreement and that during his Term of Employment, except as provided herein, he will not render or perform services for any other corporation, entity or person, nor will he become involved in the operations or management of any other commercial corporation, firm, entity or person.

5.           Compensation.

5.1 Base Salary.  Initial base compensation for all services to be rendered by the Executive under this agreement during the Term of Employment, shall be an annual base salary of $300,000 per year, which salary shall be paid in accordance with the Company's normal payroll procedures and policies. This base salary will be reviewed annually.

5.2 Annual Bonus Plan and LTIP.  Executive shall participate in the MEDTOX Scientific, Inc. Executive Incentive Compensation Plan and Long Term Incentive Plan (LTIP).

5.3 Benefits.  Executive shall be entitled to such Company-sponsored benefits as are provided to executive employees of the Company, subject to the terms and conditions of the applicable policies and/or plans.

5.4 SERP.  Executive may be entitled to participate in the MEDTOX Supplemental Executive Retirement Plan (SERP), as determined by the Compensation Committee of the Board of Directors.

6. Executive's Agreement to Continue Employment for Six (6) Months.  The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control of the Company occurring during the Term of Employment, if so requested by the Company, Executive will remain in the employ of the Company for a period of six (6) months after the occurrence of such Potential Change in Control of the Company. If more than one "Potential Change in Control" occurs during the Term of Employment, the provisions of this Section 6 shall be applicable to each "Potential Change of Control" occurring prior to the occurrence of a Change in Control.

7. Severance Payments.  If during the Term of Employment, (i) whether or not a Change in Control or Potential Change in Control has occurred, the Company terminates the employment of Executive other than for Cause, (ii) a Change in Control or Potential Change in Control has occurred and Executive has complied with Section 6 of this Agreement, or (iii) the Executive's duties, responsibilities or authority (including status, office, title, reporting relationships or working conditions) have been materially altered from those in effect on the date of this Agreement, (iv) the Executive has been required to relocate to an office or related entity more than fifty (50) miles from the office where Executive was located on the date hereof, or (v) the Company has breached any of its obligations under this Agreement, then, in any such event (at the Executive's option in the case of any event described in clause (ii) through (v) above), the Executive's employment hereunder shall cease and Executive shall be entitled to the following benefits:

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(a)   the Company will pay to Executive the Executive's then current base salary for the twelve (12) month period following the date of such termination subject to applicable withholdings and in accordance with the regular payroll practices of the Company and the Company will also pay one times the annual target bonus described in the Executive Incentive Compensation Plan  In the case of a Change in Control, Potential Change in Control, or termination under Section 12.1(b) the payment period for salary continuation will be twenty-four (24) months, and in addition a payment of two times the target annual bonus currently in effect. Payments under this section do not include the LTIP; and

(b)   continuous coverage, at the Company's expense, under any group health plan and other benefits described in Section 5.3 maintained by or on behalf of the Company, in which Executive participated as of the Date of Termination, for the twelve (12) month period following the date of termination, except that in the case of Change in Control, Potential Change in Control or termination under Section 12.1(b) coverage will be for twenty-four (24) months following the date of termination; and

(c)   continued participation in the Annual Bonus Plan referenced in Section 5.2, on a pro rata basis for the calendar year in which termination under Sections 7 or 12.1(b) occurs; and

(d)   if Executive is terminated for cause, no payments are due under this section.

Executive's right to continued coverage under this section shall in no way reduce or limit any continuation coverage under such group health plan to which Executive or any of Executive's qualified beneficiaries are entitled under the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or Minnesota Statutes §§ 61A.092 and 62A.17 et seq. This extension of coverage, however, shall be coordinated with, and shall be provided concurrently with, any benefits or continuation rights otherwise available to Executive and Executive's eligible dependents under state or federal continuation of coverage statutes, including but not limited to, Minnesota Statutes §§ 61A.092 and 62A.17 et seq. and the federal Consolidated Omnibus Budget Reconciliation Act ("COBRA"). Accordingly, within ten (10) days after the date of termination, Executive and Executive's dependents who are eligible for such statutory continuation rights shall complete all forms and papers necessary and customary to elect such continuation coverage. The Parties expressly agree that the extension of benefits provided for by this Agreement is not intended to create a retiree health plan covering any other employees. In all other respects, the payment of benefits, including the amounts and timing thereof, to Executive and Executive's eligible dependents will be governed by the terms of applicable employee benefit plans for which Executive and Executive's dependents are eligible. The Company will answer any reasonable questions that Executive may have from time to time and will offer him the same assistance given other participants in employee benefit plans so long as Executive is entitled to benefits as provided herein or under the terms of those plans.

Nothing in this Agreement, including the Severance Payments described in this Section 7, shall in any way be construed to extend the period of Executive's employment with the Company.

8. Confidential Information.  Except as permitted or directed by the Company's Board of Directors, during the term of this Agreement or at any time thereafter Executive shall not divulge, furnish or make accessible to anyone or use in any way (other than in the of the business of the Company) any confidential or secret knowledge or information of the Company which Executive has acquired or become acquainted with or will acquire or become acquainted with prior to the termination of the period of his employment by the Company (including employment by the Company or any affiliated companies prior to the date of this agreement), whether developed by himself or by others, concerning any trade secrets, confidential or secret designs, processes, formulae, plans, devices or material (whether or not patented or patentable) directly or indirectly useful in any aspect of the business of the Company, any customer or supplier lists of the Company, any confidential or secret development or research work of the Company, or any other confidential information or secret aspects of the business of the Company, Executive acknowledges that the above-described knowledge or information constitutes a unique and valuable asset of the Company and represents a substantial investment of time and expense by the Company and its predecessors, and that any disclosure or other use of such knowledge or information other than for the sole benefit of the Company would be wrongful and would cause irreparable harm to the Company. Both during and after the term of this agreement, Executive will refrain from any acts or omissions that would reduce the value of such knowledge or information to the Company. The foregoing obligations of confidentiality, however, shall not apply to any knowledge or information which is now published or which subsequently becomes generally publicly known in the form in which it was obtained from the Company, other than as a direct or indirect result of the breach of this agreement by Executive. It is hereby acknowledged that it is not the intention of the forgoing provisions to preclude the Executive from securing gainful employment with subsequent employers who are not competitors of the Company or who would otherwise have no reasonable commercial use of the above described knowledge or information, but only to protect the Company's legitimate proprietary information or knowledge.

9. Ventures.  If, during the term of this Agreement, Executive is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as formally approved by the Company's Board of Directors, Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder's fee or other compensation in connection therewith other than the salary or other compensation to be paid to Executive as provided in this Agreement.

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10.           Noncompetition Covenant.

10.1 Agreement Not to Compete.  Executive agrees that, during his Term of Employment with the Company and for a period of twelve (12) months after the termination of such employment (whether such termination is with or without Cause, or whether such termination is occasioned by Executive or the Company), he shall not, directly or indirectly, engage in competition with the Company in any manner or capacity (e.g., as an advisor, principal, agent, partner, officer, director, stockholder, employee, or otherwise) in any phase of the business which the Company is conducting during the term of this Agreement. In addition, during this same twelve (12) month period following Executive's Term of Employment, Executive shall not solicit or otherwise encourage any third party or representative thereof, who was at the end of Executive's Term of Employment, a customer of the Company, for the purpose of causing such customer or customers to purchase, lease or otherwise use any product or service offered by Executive or any organization with which Executive is affiliated. Nor during this same twelve (12) month period shall Executive solicit or otherwise encourage any employee of the Company to leave the employ of the Company for any reason.

10.2 Geographic Extent of Covenant.  The obligations of Executive under Section 10.1 shall apply to any geographic area in which the Company:

(a) has engaged in business during the term of this agreement through production, promotional, sales or marketing activity, or otherwise, or

(b) has otherwise established its goodwill, business reputation, or any customer or supplier relations.

10.3 Limitation on Covenant.  Ownership by Executive, as a passive investment, of less than five percent (5%) of the outstanding shares of capital stock of any corporation listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a breach of this Section 10.

10.4 Indirect Competition.  Executive further agrees that, during his Term of Employment and within twelve (12) months thereafter, he will not, directly or indirectly, assist or encourage any other person in carrying out, directly or indirectly, any activity that would be prohibited by the above provisions of this Section 10 if such activity were carried out by Executive, either directly or indirectly, and in particular Executive agrees that he will not, directly or indirectly, induce any employee of the Company to carry out, directly or indirectly, any such activity.

11.           Patent, Copyrights and Related Matters.

11.1 Disclosure and Assignment.  Executive will promptly disclose in writing to the Company complete information concerning each and every invention, discovery, improvement, device design, apparatus, practice, process, method or product, whether patentable or not, made, developed, perfected, devised, conceived or first reduced to practice by Executive, either solely or in collaboration with others, during the term of this agreement, or within six months thereafter, whether or not during regular working hours, relating to any phase of the business of the Company conducted at such time (hereinafter referred to as "Developments"). Executive, to the extent that he has the legal right to do so, hereby acknowledges that any and all of said Developments are the property of the Company and hereby assigns and agrees to assign to the Company and all of the Executive's right, title and interest in and to any and all of such Developments.

11.2 Future Developments.  As to any future Developments made by Executive and which are first conceived or reduced to practice during the term of Executive's employment, or within six months thereafter, but which are claimed for any reason to belong to an entity or person other than the Company, Executive will promptly disclose the same in writing to the Company and shall not disclose the same to others if the Company, within ninety (90) days thereafter, shall claim ownership of such Developments under the terms of this agreement. If the Company makes such claim, Executive agrees that, insofar as the rights (if any) of Executive are involved, it will be settled by arbitration in accordance with the rules of the American Arbitration Association. The locale of the arbitration shall be Minneapolis, Minnesota (or other locale convenient to the Company's principal executive offices). If the Company makes no such claim, Executive hereby acknowledges that the Company has made no promise to receive and hold in confidence any such information disclosed by Executive.

11.3 Limitation on Sections 11.1 and 11.2.  The provisions of sections 11.1 and 11.2 shall not apply to any Development meeting the following conditions:

(a)   such Development was developed entirely on Executive's own time; and

(b)   such Development was made without the use of any Company equipment, supplies, facility or trade secret information; and

(c)   such Development does not relate (i) directly to the business of the Company, or (ii) to the Company's actual or demonstrably anticipated research or development.

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11.4 Executive Assistance.  Executive agrees to assist Company in obtaining patents or copyrights on any Developments assigned to the Company that the Company, in its sole discretion, seeks to patent or copyright. Executive also agrees to sign all documents and do all things deemed necessary by Company to obtain and/or maintain such patents or copyrights, to assign them to Company, and to protect them against infringement. The obligations of this Section 11 are continuing and shall survive the termination of Executive's employment with Company.

11.5 Appointment of Agent.  Executive irrevocably appoints the Chief Financial Officer of the Company to act as Executive's agent and attorney in fact to perform all acts necessary to obtain and/or maintain patents or copyrights to any Developments assigned by Executive to the Company under this Agreement if (i) Executive refuses to perform those acts or (ii) is unavailable, within the meaning of the United States patent and copyright laws. Executive acknowledges that the grant of the foregoing power of attorney is coupled with an interest and shall survive the death or disability of Executive and the termination of Executive's employment with the Company,

11.6 Notice and Acknowledgment.  Executive acknowledges that this section of this Agreement does not apply to a Development for which there was no equipment, supplies, facilities or trade secret information of the Company used and which was developed entirely on Executive's own time, and which does not relate directly to the business of the Company or the Company's actual or demonstrably anticipated research or development, or which does not result from any work performed by Executive for the Company.

12.           Termination.

12.1 Grounds for Termination.  This agreement shall be terminated under the following circumstances:

(a)   By mutual agreement of Executive and the Company;

(b)   Immediately upon the death of Executive;

(c)   Upon delivery by Executive of a notice of termination to the Company, in which event this agreement shall be terminated sixty (60) days after receipt of such notice;

(d)   At Executive's option, upon the occurrence of any of the events set forth in clauses (ii) through (v) of the first paragraph of Section 7;

(e)   At Company’s option upon the occurrence of an event constituting "Cause" as defined in Section 1.3.

Notwithstanding any termination of this agreement, Executive, in consideration of his employment hereunder to the date of such termination, shall remain bound by the provisions of this agreement which specifically relate to periods, activities or obligations upon or subsequent to the termination of Executive's employment, and the Company shall remain bound by the provisions of Section 5 (to the extent that they relate to time periods prior to the date of such termination), and Section 7 except in the case of a termination for Cause pursuant to Section l2.1 (e) or a termination by Executive pursuant to Section 12.1(c).

12.2 Surrender of Records and Property.  Upon termination of his employment with the Company, Executive shall deliver promptly to the Company all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof, which are the property of the Company or which relate in any way to the business, products, practices or techniques of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company; which in any of these cases are in his possession or under his control. Provided, however, that Executive shall be entitled to retain items of sentimental value, copies of which shall be provided to the Company at the request of the Company and at the Company's expense.

13.           Miscellaneous.

13.1 Governing Law.  This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of Minnesota.

13.2 Prior Agreements.  This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes all prior agreements and understandings with respect to such subject matter, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this agreement which are not set forth herein.

13.3 Withholding Taxes.  The Company may withhold from all salary, bonus, severance pay or other benefits payable under this agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.

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13.4 Amendments.  No amendment or modification of this agreement shall be deemed effective unless made in writing and signed by the parties hereto.

13.5 No Waiver.  No term or condition of this agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provisions of this agreement, except by a statement in writing signed by the party whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than specifically waived.

13.6 Severability.  To the extent any provision of this agreement shall be invalid or unenforceable, it shall be considered deleted here from and the remainder of such provision and of this agreement shall be unaffected and shall continue in full force and effect. In furtherance and not in limitation of the foregoing, should the duration or geographical extent of, or business activities covered by, any provision of this agreement be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, extent or activities which may validly and enforceably be covered. Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that this agreement be given the construction which renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.

13.7 Assignment.  This agreement shall not be assignable, in whole or in part, by either party without the written consent of the other party.

13.8 Injunctive Relief.  Executive agrees that it would be difficult to compensate the Company fully for damages for any violation of the provisions of this agreement, including without limitation the provisions of Sections 9, 10, 11 and 12.2. Accordingly, Executive specifically agrees that the Company shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this agreement and that such relief may be granted without the necessity of proving actual damages. This provision with respect to injunctive relief shall not, however, diminish the right of the Company to claim and recover damages in addition to injunctive relief.

MEDTOX SCIENTIFIC, INC.

By: /s/ Robert Rudell                                                                                     /s/ Richard J. Braun

Robert Rudell, Compensation Committee Chairman                                                 Richard J. Braun

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EX-31.1

EXHIBIT 31.1

Certification

       I, Richard J. Braun, certify that:

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

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

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

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

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

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Dated:   April 26, 2012	By:   /s/ Richard J. Braun
	Richard J. Braun Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification

       I, Kevin J. Wiersma, certify that:

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

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

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

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

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

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Dated:   April 26, 2012	By:   /s/ Kevin J. Wiersma
	Kevin J. Wiersma Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MEDTOX Scientific, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2012, as filed with the Securities and Exchange Commission (the “Report”), I, Richard J. Braun, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Dated:   April 26, 2012	By:   /s/ Richard J. Braun
	Richard J. Braun Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MEDTOX Scientific, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2012, as filed with the Securities and Exchange Commission (the “Report”), I, Kevin J. Wiersma, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Dated:   April 26, 2012	By:   /s/ Kevin J. Wiersma
	Kevin J. Wiersma Chief Financial Officer

XML

Inventories

3 Months Ended

Mar. 31, 2012

Inventory Disclosure [Abstract]

Inventories

3.  INVENTORIES

Inventories consisted of the following:

(In thousands)	March 31, 2012		December 31, 2011
Raw materials	$	864	$	986
Work in process		605		479
Finished goods		441		389
Supplies, including off-site inventory		2,818		2,714
	$	4,728	$	4,568

XML

Segments

3 Months Ended

Mar. 31, 2012

Segment Reporting [Abstract]

Segments

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 (NBBC).  Services provided include drugs-of-abuse testing services; clinical & other laboratory services, which include clinical toxicology, clinical testing for occupational health clinics, clinical testing for physician offices, pediatric lead testing, heavy metals analyses, prescription management testing, courier delivery, and medical surveillance; and clinical trial services which include central laboratory services, assay development, bio-analytical, bio-equivalence and pharmacokinetic testing.  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 A, PROFILE-II ER®, PROFILE®-III ER,  PROFILE®-V, MEDTOXScan®, VERDICT®-II and SURE-SCREEN®, and EZ-SCREEN® Cup, 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
	March 31, 2012		March 31,  2011
Laboratory Services:
Revenues	$	22,137	$	19,512
Depreciation and amortization		1,314		1,296
Income from operations		982		102
Capital expenditures for segment assets		509		793
Product Sales:
Revenues	$	6,443	$	5,585
Depreciation and amortization		230		200
Income from operations		1,378		1,131
Capital expenditures for segment assets		90		334
Corporate (unallocated):
Other income (expense)	$	(4)	$	(8)
Company:
Revenues	$	28,580	$	25,097
Depreciation and amortization		1,544		1,496
Income from operations		2,360		1,233
Other income (expense)		(4)		(8)
Income before income tax expense		2,356		1,225
Capital expenditures for assets		599		1,127

(In thousands)	March 31, 2012		December 31, 2011
Assets:
Laboratory Services	$	67,480	$	65,739
Product Sales		9,542		8,339
Corporate (unallocated)		1,975		2,776
Company	$	78,997	$	76,854

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, 2012		March 31, 2011
POC on site testing products	$	5,598	$	4,859
Contract manufacturing services		641		536
Other diagnostic products		204		190
	$	6,443	$	5,585

XML

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Laboratory services:
Drugs-of-abuse testing services	$ 10,578	$ 9,640
Clinical & other laboratory services:
Other clinical and laboratory services	5,486	4,740
Net patient services, less provision for bad debts of $738 in 2012 and $639 in 2011	3,699	2,596
Total Clinical & other laboratory services	9,185	7,336
Clinical trial services	2,374	2,536
Product sales	6,443	5,585
Total revenues	28,580	25,097
COST OF REVENUES:
Cost of services	14,050	12,952
Cost of sales	2,674	2,333
Total cost of revenues	16,724	15,285
GROSS PROFIT	11,856	9,812
OPERATING EXPENSES:
Selling, general and administrative	8,807	7,985
Research and development	689	594
Total operating expenses	9,496	8,579
INCOME FROM OPERATIONS	2,360	1,233
OTHER INCOME (EXPENSE):
Interest expense	0	(24)
Other (expense) income	(4)	16
Total other (expense) income	(4)	(8)
INCOME BEFORE INCOME TAX EXPENSE	2,356	1,225
INCOME TAX EXPENSE	(860)	(447)
NET INCOME	$ 1,496	$ 778
BASIC EARNINGS PER COMMON SHARE	$ 0.17	$ 0.09
DILUTED EARNINGS PER COMMON SHARE	$ 0.17	$ 0.09
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic	8,875,786	8,850,228
Diluted	9,065,565	9,043,757

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$ 1,496	$ 778
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,544	1,496
Provision for losses on accounts receivable	821	678
Deferred and stock-based compensation	392	325
Deferred income taxes	801	417
Changes in operating assets and liabilities:
Accounts receivable	(2,467)	(1,282)
Inventories	(160)	(179)
Prepaid expenses	(361)	(116)
Other assets	13	17
Accounts payable and accrued expenses	665	(832)
Other	(6)	0
Net cash provided by operating activities	2,738	1,302
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of building, equipment and improvements	(988)	(1,127)
Net cash used in investing activities	(988)	(1,127)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from line of credit	0	9,090
Payments on line of credit	0	(8,130)
Purchase of common stock for incentive plan	0	(1,388)
Net proceeds from the exercise of stock options	29	0
Net cash provided by (used in) financing activities	29	(428)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,779	(253)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	5,269	1,285
CASH AND CASH EQUIVALENTS AT END OF PERIOD	7,048	1,032
Cash paid for:
Interest	0	24
Income taxes	234	113
Supplemental noncash activities:
Asset additions and related obligations in payables	$ 252	$ 867

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

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 U.S 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, 2012 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 audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

On January 1, 2012, the Company adopted new accounting guidance on the presentation and disclosure of patient service revenue, provision for bad debts, and the allowance for doubtful accounts for certain health care entities.  This guidance requires certain health care entities to change the presentation of their statement of income by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts).  Results for the three month period ended March 31, 2011 have been restated in accordance with this new guidance, which resulted in a $639,000 decrease in revenues and selling, general and administrative expenses.

Patient Service Revenue, Accounts Receivable and Allowance for Doubtful Accounts - Patient accounts receivable are reported at realizable value, net of allowance for doubtful accounts.  In evaluating the collectibility of accounts receivable, the Company analyzes its past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts.  Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts.  For receivables associated with services provided to patients who have third-party coverage, the Company analyzes contractually due amounts and provides an allowance for doubtful accounts and a provision for bad debts, if necessary.   For receivables associated with self-pay patients (which includes both patients without insurance and patients with deductible and copayment balances due for which third-party coverage exists for part of the bill), the Company records a provision for bad debts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.  The difference between the standard rates (or the discounted rates, if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts.

The Company's allowance for doubtful accounts was 42% of net patient accounts receivable at March 31, 2012, compared to 44% of net patient accounts receivable at December 31, 2011.  The Company's writeoffs, net of recoveries were $906,000 for the three months ended March 31, 2012, compared to $305,000 for the same period of 2011.  The increase in write-offs was the result of writing off claims earlier based on historical collection experience.

The Company's process for determining the appropriate level of the allowance for doubtful accounts involves judgment, and considers such factors as the age of the underlying receivables, specific account reviews, historical collection experience, and other external factors that could affect the collectability of its receivables.  Revisions to the allowance for doubtful accounts are recorded as an adjustment to bad debt expense within net revenues.   Accounts are written off against the allowance for doubtful accounts when they are deemed to be uncollectible.  Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts.

The Company recognizes net patient service revenue associated with services provided to patients who have third-party payor coverage on the basis of contractual rates for the services rendered.  For uninsured patients, the Company recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy).

Patient service revenue, net of contractual allowances and discounts (but before the provision for bad debts), recognized in the period from these major payor sources, is as follows:

(In thousands)	Three Months Ended
	March 31, 2012		March 31,  2011
Medicaid	$	1,578	$	1,009
Medicare		965		544
Blue Cross Blue Shield plans		556		585
Self-pay and other third party payors		1,338		1,097
Total net patient service revenue	$	4,437	$	3,235

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Provision for bad debts	$ 738	$ 639

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Document And Entity Information (USD $)	3 Months Ended
	Mar. 31, 2012	Apr. 12, 2012	Jun. 30, 2011
Entity Registrant Name	MEDTOX Scientific Inc
Entity Central Index Key	0000739944
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 129,769,414
Entity Common Stock, Shares Outstanding		8,970,130
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012

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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
CURRENT ASSETS:
Cash and cash equivalents	$ 7,048	$ 5,269
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,814 in 2012 and $1,945 in 2011	18,514	16,982
Other	341	227
Total accounts receivable	18,855	17,209
Inventories	4,728	4,568
Prepaid expenses	2,065	1,704
Deferred income taxes	1,975	2,776
Total current assets	34,671	31,526
BUILDING, EQUIPMENT AND IMPROVEMENTS, net	27,166	28,105
GOODWILL	15,967	15,967
OTHER INTANGIBLE ASSETS, net	305	313
OTHER ASSETS	888	943
TOTAL ASSETS	78,997	76,854
CURRENT LIABILITIES:
Accounts payable	4,477	4,504
Accrued expenses	8,640	8,221
Total current liabilities	13,117	12,725
LONG-TERM LIABILITIES	2,047	1,885
DEFERRED INCOME TAXES, net	4,616	4,616
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; authorized shares, 50,000; none issued and outstanding	0	0
Common stock, $0.15 par value; authorized shares, 28,000,000; issued shares, 9,047,450 in 2012 and 9,044,525 in 2011	1,357	1,357
Additional paid-in capital	78,885	78,792
Accumulated deficit	(13,958)	(15,454)
Common stock held in trust, at cost, 512,372 shares in 2012 and 2011	(6,067)	(6,067)
Treasury stock, at cost, 103,460 shares in 2012 and 2011	(1,000)	(1,000)
Total stockholders' equity	59,217	57,628
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 78,997	$ 76,854

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Contingencies

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Contingencies

6.  CONTINGENCIES

Leases - The Company leases offices and facilities and office equipment under certain operating leases, which expire on various dates through October 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.

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Income Taxes

3 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Abstract]

Income Taxes

5.  INCOME TAXES

At December 31, 2011, the Company had federal net operating loss carryforwards (NOLs) of approximately $1.1 million, which are available to offset future taxable income.  The Company's federal NOLs expire in varying amounts each year from 2029 through 2030 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.  The Company anticipates fully utilizing its NOLs and expects an increase in income tax payments in 2012.

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Accounts receivable:
Trade, allowance for doubtful accounts	$ 1,814	$ 1,945
STOCKHOLDERS' EQUITY:
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock, authorized shares (in shares)	50,000	50,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.15	$ 0.15
Common stock, authorized shares (in shares)	28,000,000	28,000,000
Common stock, issued shares (in shares)	9,047,450	9,044,525
Common stock held in trust, at cost (in shares)	512,372	512,372
Treasury stock, at cost (in shares)	103,460	103,460

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Earnings Per Share

3 Months Ended

Mar. 31, 2012

Earnings Per Share

Earnings Per Share

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, 2012		March 31, 2011
Net income (A)	$	1,496	$	778
Weighted average number of basic common shares outstanding (B)		8,875,786		8,850,228
Dilutive effect of stock options and awards computed based on the treasury stock method using average market price		189,779		193,529
Weighted average number of diluted common shares outstanding (C)		9,065,565		9,043,757
Basic earnings per common share (A/B)	$	0.17	$	0.09
Diluted earnings per common share (A/C)	$	0.17	$	0.09