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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
     JUNE 30, 1998

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______


                         COMMISSION FILE NUMBER: 0-28420


                               Integ Incorporated
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


          Minnesota                                   41-1670176
------------------------------           ------------------------------------
   (State of Incorporation)              (I.R.S. Employer Identification No.)

    2800 Patton Road, St. Paul, MN                       55113
---------------------------------------                ---------
(Address of principal executive offices)              (Zip Code)


                        Telephone Number: (651) 639-8816
               ---------------------------------------------------
              (Registrant's telephone number, including area code)



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 the filing
requirements for at least the past 90 days. Yes[X] No [ ]

As of August 11, 1998, the registrant had 9,526,267 shares of $.01 par value
common stock issued and outstanding.

================================================================================
<PAGE>
 
                               INTEG INCORPORATED

                                      INDEX
                                      -----



PART I.           FINANCIAL INFORMATION                                     Page

    Item 1.       Financial Statements


                  Balance Sheets as of June 30, 1998 and December 31, 1997     3

                  Statements of Operations for the three and six months ended
                  June 30, 1998 and 1997 and for the period from April 3, 1990
                  (inception) through June 30, 1998                            4

                  Statements of Cash Flows for the three and six months ended
                  June 30, 1998 and 1997 and for the period from
                  April 3, 1990 (inception) through June 30, 1998              5

                  Notes to Financial Statements                                6

     Item 2.      Management's Discussion and Analysis of
                  Financial Condition and Results of Operations                7


PART II.          OTHER INFORMATION

     Item 2.      Changes in Securities (Use of proceeds from public
                  offering)                                                   10

     Item 4.      Submission of Matters to a Vote of Security Holders         10

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


SIGNATURES                                                                    13



                                       2
<PAGE>
 
                               INTEG INCORPORATED
                         (A Development Stage Company]
                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                              JUNE 30        December 31
                                                               1998             1997
                                                           --------------   -------------
                                                            (UNAUDITED)
<S>                                                         <C>             <C>         
ASSETS
Current assets:
   Cash and cash equivalents                                $ 15,186,396    $ 21,776,757
   Prepaid expenses                                              120,125         137,037
                                                            ------------    ------------
Total current assets                                          15,306,521      21,913,794
                                                            ------------    ------------


Furniture and equipment                                        9,626,794       8,464,943
Less accumulated depreciation                                 (2,169,489)     (1,644,051)
                                                            ------------    ------------
                                                               7,457,305       6,820,892

Other assets                                                     252,610         481,607
                                                            ------------    ------------

TOTAL ASSETS                                                $ 23,016,436    $ 29,216,293
                                                            ============    ============


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                    $  1,364,768    $  1,384,551
   Current portion of capital lease obligations                  163,599         155,901
   Current portion of long-term debt                           1,036,061         799,913
                                                            ------------    ------------
Total current liabilities                                      2,564,428       2,340,365
                                                            ------------    ------------


Long-term liabilities:
   Capital lease obligations, less current portion                76,094         159,673
   Long-term debt, less current portion                        2,983,910       2,870,061
                                                            ------------    ------------
Total long-term liabilities                                    3,060,004       3,029,734
                                                            ------------    ------------


Shareholders' equity:
   Common Stock                                                   94,645          93,667
   Additional paid-in capital                                 54,489,348      54,518,671
   Deficit accumulated during the development stage          (37,026,965)    (30,438,348)
                                                            ------------    ------------
                                                              17,557,028      24,173,990
   Deferred compensation                                        (165,024)       (327,796)
                                                            ------------    ------------
Total shareholders' equity                                    17,392,004      23,846,194
                                                            ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $ 23,016,436    $ 29,216,293
                                                            ============    ============

</TABLE>


                                       3
<PAGE>
 
                               INTEG INCORPORATED
                         (A development State Company)
                            STATEMENT OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                              
                                                                                                              Period from   
                                        Three Months Ended                     Six Months Ended              April 3, 1990 
                                            June 30                                June 30                   (Inception) to 
                                 ---------------------------------     --------------------------------          June 30
                                      1998               1997               1998               1997               1998
                                 --------------     --------------     --------------      ------------       -------------   
<S>                               <C>                <C>                <C>                <C>                <C>         
OPERATING EXPENSES:
  Research and development        $  1,597,242       $  1,154,369       $  3,303,144       $  2,296,072       $ 19,389,293
  Manufacturing development            602,899            585,703          1,283,171          1,138,941          6,280,360
  Clinical and regulatory              295,030            304,944            623,198            575,770          2,992,572
  General and administrative           552,861            520,306          1,051,304          1,052,094          7,855,488
  Sales and marketing                  259,892            225,001            342,348            448,519          2,538,198
                                  ------------       ------------       ------------       ------------       ------------

OPERATING LOSS                      (3,307,924)        (2,790,323)        (6,603,165)        (5,511,396)       (39,055,911)
                                  ------------       ------------       ------------       ------------       ------------

OTHER INCOME (EXPENSE):
  Interest income                      241,849            416,099            525,510            839,093          4,064,388
  Interest expense                    (309,531)          (149,469)          (605,610)          (312,927)        (1,904,190)
  Other (net)                           91,873                 --             94,648                 --           (131,252)
                                  ------------       ------------       ------------       ------------       ------------
                                        24,191            266,630             14,548            526,166          2,028,946
                                  ------------       ------------       ------------       ------------       ------------

NET LOSS FOR THE PERIOD AND
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE             $ (3,283,733)      $ (2,523,693)      $ (6,588,617)      $ (4,985,230)      $(37,026,965)
                                  ============       ============       ============       ============       ============


NET LOSS PER SHARE:
  Basic and diluted               ($      0.35)      ($      0.27)      ($      0.70)      ($      0.54)      ($     14.85)
                                  ============       ============       ============       ============       ============

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
  Basic and diluted                  9,462,297          9,293,020          9,430,701          9,231,907          2,493,079
                                  ============       ============       ============       ============       ============
</TABLE>


                                       4
<PAGE>
 
                               INTEG INCORPORATED
                         (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                       Period from  
                                                           Three Months Ended               Six Months Ended          April 3, 1990 
                                                                June 30                         June 30               (Inception) to
                                                      -----------------------------   ------------------------------      June 30  
                                                           1998           1997             1998            1997            1998
                                                      -----------------------------   ------------------------------  -------------
<S>                                                   <C>             <C>             <C>             <C>             <C>          
OPERATING ACTIVITIES:
  Net loss                                            $ (3,293,733)   $ (2,523,693)   $ (6,598,617)   $ (4,985,230)   $(37,036,965)
  Adjustments to reconcile net loss to cash used
  in operating activities:
      Depreciation                                         269,264         185,813         525,438         340,759       2,205,654
      Deferred compensation amortization                    22,423          73,926          52,227         147,853       1,049,756
      Amortization of loan committment fee                  96,207              --         196,822          77,463         446,896
      Loss on sale of equipment and deposit write-off           --              --              --              --          95,645
      Value of options and warrants related to debt
        financing, lease guarantee, extension of
        options and consulting services                      4,586           5,751           9,212          11,501         380,348
      Changes in operating assets and liabilities:
            Receivables                                         --          46,085              --          82,297         (28,829)
            Prepaid expenses and other assets               23,465         (54,970)         17,846           2,290        (212,161)
            Accounts payable and accrued expenses          158,584          11,602          (9,783)       (351,875)      1,374,768
                                                      ------------    ------------    ------------    ------------    ------------
               Net cash used in operating activities    (2,719,204)     (2,255,486)     (5,806,855)     (4,674,942)    (31,724,888)
                                                      ------------    ------------    ------------    ------------    ------------

INVESTING ACTIVITIES:
  Purchase of furniture and equipment                     (992,042)     (1,770,109)     (1,161,851)     (3,006,170)     (8,956,566)
  Proceeds from sale of furniture and equipment                 --              --              --              --          46,829
                                                      ------------    ------------    ------------    ------------    ------------
      Net cash used in investing activities               (992,042)     (1,770,109)     (1,161,851)     (3,006,170)     (8,909,737)
                                                      ------------    ------------    ------------    ------------    ------------

FINANCING ACTIVITIES:
  Proceeds from sale of Convertible Preferred Stock             --              --              --              --      22,789,732
  Proceeds from bridge loan debt                                --              --              --              --       2,900,000
  Proceeds from borrowings under loan agreement                 --              --         754,989       1,749,594       5,103,142
  Payments on long-term debt                              (198,250)        (28,665)       (382,962)       (131,844)       (913,825)
  Payments on capital lease obligations                    (38,258)        (35,618)        (75,881)        (70,109)       (454,372)
  Proceeds from sale of Common Stock                         4,687          13,062          82,199          21,312      26,396,344
                                                      ------------    ------------    ------------    ------------    ------------
      Net cash provided by financing activities           (231,821)        (51,221)        378,345       1,568,953      55,821,021
                                                      ------------    ------------    ------------    ------------    ------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS        (3,943,067)     (4,076,816)     (6,590,361)     (6,112,159)     15,186,396

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD        19,129,463      31,844,265      21,776,757      33,879,608              --
                                                      ------------    ------------    ------------    ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD            $ 15,186,396    $ 27,767,449    $ 15,186,396    $ 27,767,449    $ 15,186,396
                                                      ============    ============    ============    ============    ============

</TABLE>



                                       5
<PAGE>
 
                               INTEG INCORPORATED
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

(1) BASIS OF PRESENTATION

The accompanying financial statements, which are unaudited except for the
balance sheet as of December 31, 1997, have been prepared in accordance with
instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements and accompanying notes from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 filed with the Securities and
Exchange Commission.

(2) NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the periods presented. In 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earnings per Share.
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements.

(3) EQUIPMENT LOAN AGREEMENT

During 1996, the Company entered into an equipment loan agreement which provides
for borrowings up to $12.5 million to finance the purchase of equipment and
fixtures including automated manufacturing equipment and tooling. Loans are paid
back monthly over a four year period. The obligation of the lender to make
additional loans expires December 31, 1998. The Company has borrowed a total of
$5.1 million under this agreement as of June 30, 1998.


                                       6
<PAGE>
 
ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this Form 10-Q and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "believes," "anticipates," "expects," "intends," "will likely
result," "estimates," "projects" or similar expressions are intended to identify
such forward-looking statements, but are not the exclusive means of identifying
such statements. These forward-looking statements involve risks and
uncertainties that may cause the Company's actual results to differ materially
from the results discussed in the forward-looking statements. Factors that might
cause such differences include, but are not limited to, the following: risks
associated with the development of a new technology; dependence on the LifeGuide
System and the uncertainty of market acceptance; history of operating losses and
expectation of future losses; limited clinical testing and sales and marketing
experience; uncertainty of obtaining Food and Drug Administration clearances;
heightened competition and risk of technological obsolescence; risks associated
with the lack of manufacturing capability and dependence on contract
manufacturers and suppliers; risks associated with the company's dependence on
proprietary technology, including those related to adequacy of patent and trade
secret protection; risks associated with retaining key personnel and attracting
additional qualified skilled personnel; and the risks associated with raising
additional funds.

The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances after the date of such statements. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. Such
forward-looking statements are qualified in their entirety by the cautions and
risk factors set forth under "Cautionary Statement" filed as Exhibit 99.1 to
this Form 10-Q.

GENERAL

Integ, a development stage company, was incorporated on April 3, 1990 to develop
the LifeGuide System, a next generation, hand-held glucose monitoring product
for use by people with diabetes that avoids the pain and blood associated with
conventional "finger-stick" technologies. Utilizing the Company's proprietary
interstitial fluid sampling technology, the LifeGuide System will allow people
with diabetes to frequently self-monitor their glucose levels without repeatedly
enduring the pain of lancing their fingers to obtain a blood sample.

From inception through June 30, 1998, the Company has incurred losses totaling
$37 million, consisting of $19.4 million of research and development expenses,
$7.9 million of general and administrative expenses, $6.3 million of
manufacturing development expenses and $3.4 million of other expenses net of
interest income. The Company's activities have consisted primarily of research
and product development, product design, and development of the manufacturing
equipment and processes and marketing strategies needed for the introduction of
the LifeGuide System. The Company 


                                       7
<PAGE>
 
has generated no revenue and has sustained significant operating losses each
year since inception. The Company expects such losses to continue for the next
several years.

The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the LifeGuide System,
the development of which is ongoing and the complete efficacy of which has not
yet been demonstrated. The Company is currently focused on the research and
development activities necessary to modify the current design in order for the
LifeGuide System to meet the Company's product specifications.

RESULTS OF OPERATIONS

Comparison of Three and Six Months Ended June 30, 1998 and 1997

General: The Company's net loss totaled $3,283,733 and $6,588,617 during the
three and six months ended June 30, 1998, up from $2,523,693 and $4,985,230
during the same periods in 1997. The Company expects net losses to continue for
the next several years.

Research and development expenses: Research and development expenses increased
38% to $1,597,242 during the three months ended June 30, 1998 from $1,154,369
during the same period in 1997. This increase was primarily due to increases in
consulting and contractor expenses ($258,000), pilot plant costs allocated to
research and development ($240,000), increased staffing costs ($62,000) as well
as the one-time charge for the workforce reduction ($96,000). The impact of
these expense increases was partially offset by reductions in prototype expenses
($146,000) and recruitment ($50,000). For the first half of 1998, research and
development expenses increased 44% to $3,303,144, up from $2,296,072 during the
first half of 1997. The year-to-date increase in research and development
expenses is the result of pilot plant costs allocated to research and
development ($519,000), increases in consulting and contractor expenses
($417,000), higher staffing costs ($191,000) and the one-time charge for the
workforce reduction ($96,000). These increases were partially offset by lower
prototype expenses ($204,000).

Manufacturing development expenses: Manufacturing development expenses increased
3% to $602,899 during the three months ended June 30, 1998 from $585,703 during
the same period in 1997. The increase in manufacturing development expenses is
primarily attributable to increases in samples and prototype expense ($119,000),
depreciation ($99,000) and the one-time charge for the workforce reduction
($78,000). These increases were partially offset by pilot plant costs allocated
to research and development ($240,000) and a decrease in staffing costs
($55,000). Manufacturing development expenses increased 13% to $1,283,171 during
the six months ended June 30, 1998 from $1,138,941 during the same period in
1997. This increase is a combination of higher samples and prototype expenses
($384,000), depreciation expense ($197,000) and the one-time charge for the
workforce reduction ($78,000), partially offset by pilot plant costs allocated
to research and development ($519,000).

Clinical and regulatory expenses: Clinical and regulatory expenses decreased 3%
to $295,030 during the three months ended June 30, 1998 from $304,944 during the
same period in 1997. This decrease is primarily due to decreases in recruitment
expenses ($25,000) and lower staffing costs ($14,000), offset by the one-time
charge for the workforce reduction ($39,000). For the first half of 1998,
clinical and regulatory expenses increased 8% to $623,198 as compared to
$575,770 during the first half of 1997. This increase is largely due to higher
staffing costs ($48,000), the one-time charge for the workforce reduction
($39,000) and increased occupancy charges ($14,000). These increases were
partially offset by lower recruitment expenses ($32,000) and lower travel
expenses ($20,000).

                                       8
<PAGE>
 
General and administrative expenses: General and administrative expenses
increased 6% to $552,861 during the three months ended June 30, 1998 from
$520,306 during the same period in 1997. This increase is primarily attributable
to increases in legal fees ($34,000), recruitment expenses ($26,000), directors
fees and expenses ($18,000) as well as the one-time charge for the workforce
reduction ($16,000). These increases were partially offset by lower staffing
costs ($48,000) and deferred compensation charges ($11,000). For the first half
of 1998, general and administrative expenses totaled $1,051,304 as compared to
$1,052,094 for the same period in 1997. Although there was not a large
fluctuation in total expenses, there were large changes in individual expenses.
Increases in recruitment expenses ($68,000), legal and audit fees ($33,000), as
well as the one-time charge for the workforce reduction ($16,000) were offset by
lower staffing costs ($100,000) and deferred compensation ($22,000).

Sales and marketing expenses: Sales and marketing expenses increased 16% to
$259,892 during the three months ended June 30, 1998 from $225,001 during the
same period in 1997. This increase was due to the one-time charge for the
workforce reduction ($173,000) which was partially offset by decreases in
staffing costs ($50,000), deferred compensation charges ($28,000), advertising
and promotion expenses ($25,000), consulting expenses ($18,000) and investor and
public relations expenses ($14,000). For the first half of 1998, sales and
marketing expenses decreased 31% to $342,348 from $448,519 during the first half
of 1997. This decrease was due to decreases in staffing costs ($87,000),
advertising and promotion ($70,000), deferred compensation charges ($52,000),
website expenses ($47,000) and consulting expenses ($22,000) which were
partially offset by the one-time charge for the workforce reduction ($173,000).

Interest Income: Interest income decreased to $241,849 and $525,510 for the
three and six month periods ended June 30, 1998, compared to $416,099 and
$839,093 during the comparable 1997 periods. The decrease resulted from lower
average balances of cash and cash equivalents.

Interest expense: Interest expense increased to $309,531 and $605,610 for the
three and six month periods ended June 30, 1998, compared to $149,469 and
$312,927 for the same periods in 1997. The increase in interest expense is
attributable to increased borrowings against the equipment loan agreement signed
in 1996. Approximately $5.1 million was borrowed as of June 30, 1998 as compared
to $3.1 million as of June 30, 1997.

Other income: Other income totaled $91,873 and $94,648 for the three and six
month periods ended June 30, 1998. These amounts primarily consisted of a
receivable written off in a prior year which was paid in full ($26,000) and
money received from the state of Minnesota for a sales tax refund claim filed
for prior years ($66,000).

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations since inception have been funded by net proceeds from
the sale of Common and Preferred Stock totaling approximately $52 million and
proceeds from borrowing under an equipment loan agreement totaling approximately
$5.1 million. As of June 30, 1998 the Company had cash and cash equivalents of
approximately $15.2 million and working capital of $12.7 million.

The Company believes that its current cash balances, when the impact of the
reduction in headcount implemented in April is taken into account, will be
sufficient to fund its operations until sometime during the second half of 1999.
The Company's future liquidity and capital requirements will depend on numerous
factors, including when or if the performance of the LifeGuide System meets the
required 
                                       9
<PAGE>
 
performance specifications, the extent to which the Company's LifeGuide System
gains market acceptance, the timing of regulatory actions regarding the
LifeGuide System, the costs and timing of expansion of sales, marketing and
manufacturing activities, the results of clinical trials and competition. See
Exhibit 99.1 to this Form 10-Q for a more detailed description of the factors
that may affect the Company's future liquidity and capital requirements.

                              II. OTHER INFORMATION

Item 2:     Changes in Securities (Use of proceeds from public offering)

The net offering proceeds to the Company from its initial public offering in
1996, after deducting expenses, were approximately $26.1 million. The Company
has used the net offering proceeds to the Company for the following purposes in
the approximate amounts set forth below:

    Investment in short-term, interest bearing securities
        primarily investment grade commercial paper             $15,150,000
        and money market funds
     Capital expenditures                                         2,475,000
     Research and development and clinical and regulatory
         preparation                                              5,340,000
     Manufacturing scale-up and marketing activities              2,310,000
     Working capital and other general corporate purposes           825,000
                                                                -----------
            Total use of proceeds                               $26,100,000
                                                                -----------

Except for officer compensation and relocation payments totaling $1,082,499 in
the aggregate, director compensation totaling $113,000 in the aggregate, and
consulting fees paid to a director totaling $70,875, none of such payments were
paid directly or indirectly to (i) officers or directors of the Company or their
affiliates, (ii) persons owning 10% or more of the Company's equity securities
or (iii) affiliates of the Company.


Item 4: Submission of Matters to a Vote of Security Holders

On June 17, 1998, the Company held a regular meeting of its shareholders, at
which the shareholders voted on the following matters:

1.       To elect Frank B. Bennett, Robert R. Momsen and Walter L. Sembrowich,
         Ph.D., to the Board of Directors of the Company to serve for three year
         terms that will expire at the Company's annual shareholder meeting in
         2001. The vote on this resolution was as follows:

         Frank B. Bennett:   8,403,203 For;   0 Against;  273,807 Abstain
         Robert R. Momsen:   8,108,340 For;   0 Against;   339,769 Abstain
         Walter L. Sembrowich, Ph.D.: 8,403,222 For;  0 Against; 273,608 Abstain

         The terms of the following directors also continued after the meeting:
         Mark B. Knudson, Ph.D. and Terrance G. McGuire (terms expiring at the
         Company's annual shareholder meeting in 2000) and Robert S. Nickoloff
         and Winston R. Wallin (terms expiring at the Company's annual
         shareholder meeting in 1999).


                                       10
<PAGE>
 
2.       To approve the following amendments to the Company's 1996 Directors'
         Stock Option Plan (the "Directors' Plan"):

          (i) increase from 15,000 shares to 20,000 shares the initial grant to
              new non-employee directors pursuant to Section 4(b)(ii) of the
              Directors' Plan;

         (ii) modify the vesting schedule of such initial option grants to
              become vested and thereby exercisable with respect to 6,666 shares
              on the 12 month anniversary date of such grants and with respect
              to 6,667 shares on each of the 24 month and 36 month anniversary
              dates of such grants;

        (iii) increase from 5,000 shares to 6,000 shares the annual option
              grants to non-employee directors pursuant to Section 4(b)(iii) of
              the Directors' Plan; and,

         (iv) change the vesting schedule of such annual grants to become vested
              and thereby exercisable with respect to 2,000 shares on each of
              the 12, 24 and 36 month anniversary dates of such grants.

         The vote on this resolution was as follows:

         8,301,571 For;  344,173 Against;   31,086 Abstain;   0  Broker non-vote


3.       To approve the following amendments to the Company's 1994 Long-Term
         Incentive and Stock Option Plan:

          (i) increase the number of shares of Common Stock available for
              issuance thereunder from 1,733,333 shares to 2,733,333 shares; and

         (ii) add the following new Section 4(c):

              (c)  Award Limitations Under the Plan. No person who is an
                   employee of the Company at the time of grant may be granted
                   any Option, Stock Appreciation Right or performance award,
                   the value of which option, right or award is based solely on
                   an increase in the value of the Common Shares after the date
                   of grant of such option, right or award, for more than
                   500,000 Common Shares (subject to adjustment as provided for
                   in Section 15 relating to stock splits, etc.), in the
                   aggregate, in any calendar year period beginning with the
                   period commencing January 1, 1998 and ending December 31,
                   1998. The foregoing annual limitation specifically includes
                   the grant of any awards representing "qualified
                   performance-based compensation" within the meaning of Section
                   162(m) of the Code.

         The vote on this resolution was as follows:

         5,846,018 For; 633,717 Against; 36,101 Abstain; 2,160,994 Broker
         non-vote



                                       11
<PAGE>
 
4.       To ratify the appointment of Ernst & Young LLP as the Company's
         independent auditors for the fiscal year ending December 31, 1998. The
         vote on this resolution was as follows:

         8,640,053  For;  14,097 Against;   22,860 Abstain;   0  Broker non-vote



Item 6. Exhibits and Reports on Form 8-K


        (a)   Exhibits filed herewith.

              3.1  Amended and Restated Articles of Incorporation of the Company
                   (incorporated by reference to Exhibit 3.2 to the Company's
                   Registration Statement on Form S-1 (SEC File No. 333-4352)).

              3.2  Amended Bylaws of the Company (incorporated by reference to
                   Exhibit 3.3 to the Company's Registration Statement of Form
                   S-1 (SEC File No. 333-4352)).

              10.1 Form of Employment Agreement dated April of 1998 between the
                   Company and its Vice Presidents. (Exhibit I previously filed
                   as Exhibit 10.14 to the Company's Registration Statement on
                   Form S-1 (SEC File No. 333-4352)).

              27   Financial Data Schedule.

              99.1 Cautionary Statement.

         (b)  No reports on Form 8-K were filed during the quarter ended 
June 30, 1998.

                                       12
<PAGE>
 
                                   SIGNATURES


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




                                      INTEG INCORPORATED
                                         (Registrant)




Date:  August 13, 1998                  By:  /s/ Susan L. Critzer
                                             --------------------
                                             Susan L. Critzer
                                             Interim President and
                                             Interim Chief Financial Officer
                                             (principal executive officer, 
                                             principal financial and accounting
                                             officer)


                                       13
<PAGE>
 
                                  EXHIBIT INDEX


Exhibit       Description
-------       -----------

10.1          Form of Employment Agreement dated April of 1998 between the
              Company and its Vice Presidents. (Exhibit I previously filed as
              Exhibit 10.14 to the Company's Registration Statement on Form S-1
              (SEC File No. 333-4352)).


27.           Financial Data Schedule (Electronically Filed).

99.1          Cautionary Statement.
[{"type": "10-Q", "sequence": "1", "description": "FORM 10-Q", "secsgml_size_bytes": 39516}]
{"company-data": {"conformed-name": "INTEG INCORP", "cik": "0000920645", "assigned-sic": "3823", "irs-number": "411670176", "state-of-incorporation": "MN", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-28420", "film-number": "98688030"}, "business-address": {"street1": "2800 PATTON RD", "street2": "2800 PATTON RD", "city": "ST PAUL", "state": "MN", "zip": "55113"}, "mail-address": {"street1": "2800 PATTON ROAD", "street2": "2800 PATTON ROAD", "city": "ROSEVILLE", "state": "MN", "zip": "55113"}, "former-company": {"former-conformed-name": "INOMET INC", "date-changed": "19960417"}}
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
     JUNE 30, 1998

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

                         COMMISSION FILE NUMBER: 0-28420

                               Integ Incorporated
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          Minnesota                                   41-1670176
------------------------------           ------------------------------------
   (State of Incorporation)              (I.R.S. Employer Identification No.)

    2800 Patton Road, St. Paul, MN                       55113
---------------------------------------                ---------
(Address of principal executive offices)              (Zip Code)

                        Telephone Number: (651) 639-8816
               ---------------------------------------------------
              (Registrant's telephone number, including area code)

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 the filing
requirements for at least the past 90 days. Yes[X] No [ ]

As of August 11, 1998, the registrant had 9,526,267 shares of $.01 par value
common stock issued and outstanding.

================================================================================
INTEG INCORPORATED

                                      INDEX
                                      -----

PART I.           FINANCIAL INFORMATION                                     Page

    Item 1.       Financial Statements

                  Balance Sheets as of June 30, 1998 and December 31, 1997     3

                  Statements of Operations for the three and six months ended
                  June 30, 1998 and 1997 and for the period from April 3, 1990
                  (inception) through June 30, 1998                            4

                  Statements of Cash Flows for the three and six months ended
                  June 30, 1998 and 1997 and for the period from
                  April 3, 1990 (inception) through June 30, 1998              5

                  Notes to Financial Statements                                6

     Item 2.      Management's Discussion and Analysis of
                  Financial Condition and Results of Operations                7

PART II.          OTHER INFORMATION

     Item 2.      Changes in Securities (Use of proceeds from public
                  offering)                                                   10

     Item 4.      Submission of Matters to a Vote of Security Holders         10

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

SIGNATURES                                                                    13

                                       2
INTEG INCORPORATED
                         (A Development Stage Company]
                                 BALANCE SHEETS
JUNE 30        December 31
                                                               1998             1997
                                                           --------------   -------------
                                                            (UNAUDITED)
ASSETS
Current assets:
   Cash and cash equivalents                                $ 15,186,396    $ 21,776,757
   Prepaid expenses                                              120,125         137,037
                                                            ------------    ------------
Total current assets                                          15,306,521      21,913,794
                                                            ------------    ------------

Furniture and equipment                                        9,626,794       8,464,943
Less accumulated depreciation                                 (2,169,489)     (1,644,051)
                                                            ------------    ------------
                                                               7,457,305       6,820,892

Other assets                                                     252,610         481,607
                                                            ------------    ------------

TOTAL ASSETS                                                $ 23,016,436    $ 29,216,293
                                                            ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                    $  1,364,768    $  1,384,551
   Current portion of capital lease obligations                  163,599         155,901
   Current portion of long-term debt                           1,036,061         799,913
                                                            ------------    ------------
Total current liabilities                                      2,564,428       2,340,365
                                                            ------------    ------------

Long-term liabilities:
   Capital lease obligations, less current portion                76,094         159,673
   Long-term debt, less current portion                        2,983,910       2,870,061
                                                            ------------    ------------
Total long-term liabilities                                    3,060,004       3,029,734
                                                            ------------    ------------

Shareholders' equity:
   Common Stock                                                   94,645          93,667
   Additional paid-in capital                                 54,489,348      54,518,671
   Deficit accumulated during the development stage          (37,026,965)    (30,438,348)
                                                            ------------    ------------
                                                              17,557,028      24,173,990
   Deferred compensation                                        (165,024)       (327,796)
                                                            ------------    ------------
Total shareholders' equity                                    17,392,004      23,846,194
                                                            ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $ 23,016,436    $ 29,216,293
                                                            ============    ============
3
INTEG INCORPORATED
                         (A development State Company)
                            STATEMENT OF OPERATIONS
                                   (UNAUDITED)
Period from   
                                        Three Months Ended                     Six Months Ended              April 3, 1990 
                                            June 30                                June 30                   (Inception) to 
                                 ---------------------------------     --------------------------------          June 30
                                      1998               1997               1998               1997               1998
                                 --------------     --------------     --------------      ------------       -------------
OPERATING EXPENSES:
  Research and development        $  1,597,242       $  1,154,369       $  3,303,144       $  2,296,072       $ 19,389,293
  Manufacturing development            602,899            585,703          1,283,171          1,138,941          6,280,360
  Clinical and regulatory              295,030            304,944            623,198            575,770          2,992,572
  General and administrative           552,861            520,306          1,051,304          1,052,094          7,855,488
  Sales and marketing                  259,892            225,001            342,348            448,519          2,538,198
                                  ------------       ------------       ------------       ------------       ------------

OPERATING LOSS                      (3,307,924)        (2,790,323)        (6,603,165)        (5,511,396)       (39,055,911)
                                  ------------       ------------       ------------       ------------       ------------

OTHER INCOME (EXPENSE):
  Interest income                      241,849            416,099            525,510            839,093          4,064,388
  Interest expense                    (309,531)          (149,469)          (605,610)          (312,927)        (1,904,190)
  Other (net)                           91,873                 --             94,648                 --           (131,252)
                                  ------------       ------------       ------------       ------------       ------------
                                        24,191            266,630             14,548            526,166          2,028,946
                                  ------------       ------------       ------------       ------------       ------------

NET LOSS FOR THE PERIOD AND
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE             $ (3,283,733)      $ (2,523,693)      $ (6,588,617)      $ (4,985,230)      $(37,026,965)
                                  ============       ============       ============       ============       ============

NET LOSS PER SHARE:
  Basic and diluted               ($      0.35)      ($      0.27)      ($      0.70)      ($      0.54)      ($     14.85)
                                  ============       ============       ============       ============       ============

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
  Basic and diluted                  9,462,297          9,293,020          9,430,701          9,231,907          2,493,079
                                  ============       ============       ============       ============       ============
4
INTEG INCORPORATED
                         (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
Period from  
                                                           Three Months Ended               Six Months Ended          April 3, 1990 
                                                                June 30                         June 30               (Inception) to
                                                      -----------------------------   ------------------------------      June 30  
                                                           1998           1997             1998            1997            1998
                                                      -----------------------------   ------------------------------  -------------
OPERATING ACTIVITIES:
  Net loss                                            $ (3,293,733)   $ (2,523,693)   $ (6,598,617)   $ (4,985,230)   $(37,036,965)
  Adjustments to reconcile net loss to cash used
  in operating activities:
      Depreciation                                         269,264         185,813         525,438         340,759       2,205,654
      Deferred compensation amortization                    22,423          73,926          52,227         147,853       1,049,756
      Amortization of loan committment fee                  96,207              --         196,822          77,463         446,896
      Loss on sale of equipment and deposit write-off           --              --              --              --          95,645
      Value of options and warrants related to debt
        financing, lease guarantee, extension of
        options and consulting services                      4,586           5,751           9,212          11,501         380,348
      Changes in operating assets and liabilities:
            Receivables                                         --          46,085              --          82,297         (28,829)
            Prepaid expenses and other assets               23,465         (54,970)         17,846           2,290        (212,161)
            Accounts payable and accrued expenses          158,584          11,602          (9,783)       (351,875)      1,374,768
                                                      ------------    ------------    ------------    ------------    ------------
               Net cash used in operating activities    (2,719,204)     (2,255,486)     (5,806,855)     (4,674,942)    (31,724,888)
                                                      ------------    ------------    ------------    ------------    ------------

INVESTING ACTIVITIES:
  Purchase of furniture and equipment                     (992,042)     (1,770,109)     (1,161,851)     (3,006,170)     (8,956,566)
  Proceeds from sale of furniture and equipment                 --              --              --              --          46,829
                                                      ------------    ------------    ------------    ------------    ------------
      Net cash used in investing activities               (992,042)     (1,770,109)     (1,161,851)     (3,006,170)     (8,909,737)
                                                      ------------    ------------    ------------    ------------    ------------

FINANCING ACTIVITIES:
  Proceeds from sale of Convertible Preferred Stock             --              --              --              --      22,789,732
  Proceeds from bridge loan debt                                --              --              --              --       2,900,000
  Proceeds from borrowings under loan agreement                 --              --         754,989       1,749,594       5,103,142
  Payments on long-term debt                              (198,250)        (28,665)       (382,962)       (131,844)       (913,825)
  Payments on capital lease obligations                    (38,258)        (35,618)        (75,881)        (70,109)       (454,372)
  Proceeds from sale of Common Stock                         4,687          13,062          82,199          21,312      26,396,344
                                                      ------------    ------------    ------------    ------------    ------------
      Net cash provided by financing activities           (231,821)        (51,221)        378,345       1,568,953      55,821,021
                                                      ------------    ------------    ------------    ------------    ------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS        (3,943,067)     (4,076,816)     (6,590,361)     (6,112,159)     15,186,396

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD        19,129,463      31,844,265      21,776,757      33,879,608              --
                                                      ------------    ------------    ------------    ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD            $ 15,186,396    $ 27,767,449    $ 15,186,396    $ 27,767,449    $ 15,186,396
                                                      ============    ============    ============    ============    ============
5
INTEG INCORPORATED
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

(1) BASIS OF PRESENTATION

The accompanying financial statements, which are unaudited except for the
balance sheet as of December 31, 1997, have been prepared in accordance with
instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements and accompanying notes from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 filed with the Securities and
Exchange Commission.

(2) NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the periods presented. In 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earnings per Share.
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements.

(3) EQUIPMENT LOAN AGREEMENT

During 1996, the Company entered into an equipment loan agreement which provides
for borrowings up to $12.5 million to finance the purchase of equipment and
fixtures including automated manufacturing equipment and tooling. Loans are paid
back monthly over a four year period. The obligation of the lender to make
additional loans expires December 31, 1998. The Company has borrowed a total of
$5.1 million under this agreement as of June 30, 1998.

                                       6
ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this Form 10-Q and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "believes," "anticipates," "expects," "intends," "will likely
result," "estimates," "projects" or similar expressions are intended to identify
such forward-looking statements, but are not the exclusive means of identifying
such statements. These forward-looking statements involve risks and
uncertainties that may cause the Company's actual results to differ materially
from the results discussed in the forward-looking statements. Factors that might
cause such differences include, but are not limited to, the following: risks
associated with the development of a new technology; dependence on the LifeGuide
System and the uncertainty of market acceptance; history of operating losses and
expectation of future losses; limited clinical testing and sales and marketing
experience; uncertainty of obtaining Food and Drug Administration clearances;
heightened competition and risk of technological obsolescence; risks associated
with the lack of manufacturing capability and dependence on contract
manufacturers and suppliers; risks associated with the company's dependence on
proprietary technology, including those related to adequacy of patent and trade
secret protection; risks associated with retaining key personnel and attracting
additional qualified skilled personnel; and the risks associated with raising
additional funds.

The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances after the date of such statements. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. Such
forward-looking statements are qualified in their entirety by the cautions and
risk factors set forth under "Cautionary Statement" filed as Exhibit 99.1 to
this Form 10-Q.

GENERAL

Integ, a development stage company, was incorporated on April 3, 1990 to develop
the LifeGuide System, a next generation, hand-held glucose monitoring product
for use by people with diabetes that avoids the pain and blood associated with
conventional "finger-stick" technologies. Utilizing the Company's proprietary
interstitial fluid sampling technology, the LifeGuide System will allow people
with diabetes to frequently self-monitor their glucose levels without repeatedly
enduring the pain of lancing their fingers to obtain a blood sample.

From inception through June 30, 1998, the Company has incurred losses totaling
$37 million, consisting of $19.4 million of research and development expenses,
$7.9 million of general and administrative expenses, $6.3 million of
manufacturing development expenses and $3.4 million of other expenses net of
interest income. The Company's activities have consisted primarily of research
and product development, product design, and development of the manufacturing
equipment and processes and marketing strategies needed for the introduction of
the LifeGuide System. The Company 

                                       7
has generated no revenue and has sustained significant operating losses each
year since inception. The Company expects such losses to continue for the next
several years.

The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the LifeGuide System,
the development of which is ongoing and the complete efficacy of which has not
yet been demonstrated. The Company is currently focused on the research and
development activities necessary to modify the current design in order for the
LifeGuide System to meet the Company's product specifications.

RESULTS OF OPERATIONS

Comparison of Three and Six Months Ended June 30, 1998 and 1997

General: The Company's net loss totaled $3,283,733 and $6,588,617 during the
three and six months ended June 30, 1998, up from $2,523,693 and $4,985,230
during the same periods in 1997. The Company expects net losses to continue for
the next several years.

Research and development expenses: Research and development expenses increased
38% to $1,597,242 during the three months ended June 30, 1998 from $1,154,369
during the same period in 1997. This increase was primarily due to increases in
consulting and contractor expenses ($258,000), pilot plant costs allocated to
research and development ($240,000), increased staffing costs ($62,000) as well
as the one-time charge for the workforce reduction ($96,000). The impact of
these expense increases was partially offset by reductions in prototype expenses
($146,000) and recruitment ($50,000). For the first half of 1998, research and
development expenses increased 44% to $3,303,144, up from $2,296,072 during the
first half of 1997. The year-to-date increase in research and development
expenses is the result of pilot plant costs allocated to research and
development ($519,000), increases in consulting and contractor expenses
($417,000), higher staffing costs ($191,000) and the one-time charge for the
workforce reduction ($96,000). These increases were partially offset by lower
prototype expenses ($204,000).

Manufacturing development expenses: Manufacturing development expenses increased
3% to $602,899 during the three months ended June 30, 1998 from $585,703 during
the same period in 1997. The increase in manufacturing development expenses is
primarily attributable to increases in samples and prototype expense ($119,000),
depreciation ($99,000) and the one-time charge for the workforce reduction
($78,000). These increases were partially offset by pilot plant costs allocated
to research and development ($240,000) and a decrease in staffing costs
($55,000). Manufacturing development expenses increased 13% to $1,283,171 during
the six months ended June 30, 1998 from $1,138,941 during the same period in
1997. This increase is a combination of higher samples and prototype expenses
($384,000), depreciation expense ($197,000) and the one-time charge for the
workforce reduction ($78,000), partially offset by pilot plant costs allocated
to research and development ($519,000).

Clinical and regulatory expenses: Clinical and regulatory expenses decreased 3%
to $295,030 during the three months ended June 30, 1998 from $304,944 during the
same period in 1997. This decrease is primarily due to decreases in recruitment
expenses ($25,000) and lower staffing costs ($14,000), offset by the one-time
charge for the workforce reduction ($39,000). For the first half of 1998,
clinical and regulatory expenses increased 8% to $623,198 as compared to
$575,770 during the first half of 1997. This increase is largely due to higher
staffing costs ($48,000), the one-time charge for the workforce reduction
($39,000) and increased occupancy charges ($14,000). These increases were
partially offset by lower recruitment expenses ($32,000) and lower travel
expenses ($20,000).

                                       8
General and administrative expenses: General and administrative expenses
increased 6% to $552,861 during the three months ended June 30, 1998 from
$520,306 during the same period in 1997. This increase is primarily attributable
to increases in legal fees ($34,000), recruitment expenses ($26,000), directors
fees and expenses ($18,000) as well as the one-time charge for the workforce
reduction ($16,000). These increases were partially offset by lower staffing
costs ($48,000) and deferred compensation charges ($11,000). For the first half
of 1998, general and administrative expenses totaled $1,051,304 as compared to
$1,052,094 for the same period in 1997. Although there was not a large
fluctuation in total expenses, there were large changes in individual expenses.
Increases in recruitment expenses ($68,000), legal and audit fees ($33,000), as
well as the one-time charge for the workforce reduction ($16,000) were offset by
lower staffing costs ($100,000) and deferred compensation ($22,000).

Sales and marketing expenses: Sales and marketing expenses increased 16% to
$259,892 during the three months ended June 30, 1998 from $225,001 during the
same period in 1997. This increase was due to the one-time charge for the
workforce reduction ($173,000) which was partially offset by decreases in
staffing costs ($50,000), deferred compensation charges ($28,000), advertising
and promotion expenses ($25,000), consulting expenses ($18,000) and investor and
public relations expenses ($14,000). For the first half of 1998, sales and
marketing expenses decreased 31% to $342,348 from $448,519 during the first half
of 1997. This decrease was due to decreases in staffing costs ($87,000),
advertising and promotion ($70,000), deferred compensation charges ($52,000),
website expenses ($47,000) and consulting expenses ($22,000) which were
partially offset by the one-time charge for the workforce reduction ($173,000).

Interest Income: Interest income decreased to $241,849 and $525,510 for the
three and six month periods ended June 30, 1998, compared to $416,099 and
$839,093 during the comparable 1997 periods. The decrease resulted from lower
average balances of cash and cash equivalents.

Interest expense: Interest expense increased to $309,531 and $605,610 for the
three and six month periods ended June 30, 1998, compared to $149,469 and
$312,927 for the same periods in 1997. The increase in interest expense is
attributable to increased borrowings against the equipment loan agreement signed
in 1996. Approximately $5.1 million was borrowed as of June 30, 1998 as compared
to $3.1 million as of June 30, 1997.

Other income: Other income totaled $91,873 and $94,648 for the three and six
month periods ended June 30, 1998. These amounts primarily consisted of a
receivable written off in a prior year which was paid in full ($26,000) and
money received from the state of Minnesota for a sales tax refund claim filed
for prior years ($66,000).

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations since inception have been funded by net proceeds from
the sale of Common and Preferred Stock totaling approximately $52 million and
proceeds from borrowing under an equipment loan agreement totaling approximately
$5.1 million. As of June 30, 1998 the Company had cash and cash equivalents of
approximately $15.2 million and working capital of $12.7 million.

The Company believes that its current cash balances, when the impact of the
reduction in headcount implemented in April is taken into account, will be
sufficient to fund its operations until sometime during the second half of 1999.
The Company's future liquidity and capital requirements will depend on numerous
factors, including when or if the performance of the LifeGuide System meets the
required 
                                       9
performance specifications, the extent to which the Company's LifeGuide System
gains market acceptance, the timing of regulatory actions regarding the
LifeGuide System, the costs and timing of expansion of sales, marketing and
manufacturing activities, the results of clinical trials and competition. See
Exhibit 99.1 to this Form 10-Q for a more detailed description of the factors
that may affect the Company's future liquidity and capital requirements.

                              II. OTHER INFORMATION

Item 2:     Changes in Securities (Use of proceeds from public offering)

The net offering proceeds to the Company from its initial public offering in
1996, after deducting expenses, were approximately $26.1 million. The Company
has used the net offering proceeds to the Company for the following purposes in
the approximate amounts set forth below:

    Investment in short-term, interest bearing securities
        primarily investment grade commercial paper             $15,150,000
        and money market funds
     Capital expenditures                                         2,475,000
     Research and development and clinical and regulatory
         preparation                                              5,340,000
     Manufacturing scale-up and marketing activities              2,310,000
     Working capital and other general corporate purposes           825,000
                                                                -----------
            Total use of proceeds                               $26,100,000
                                                                -----------

Except for officer compensation and relocation payments totaling $1,082,499 in
the aggregate, director compensation totaling $113,000 in the aggregate, and
consulting fees paid to a director totaling $70,875, none of such payments were
paid directly or indirectly to (i) officers or directors of the Company or their
affiliates, (ii) persons owning 10% or more of the Company's equity securities
or (iii) affiliates of the Company.

Item 4: Submission of Matters to a Vote of Security Holders

On June 17, 1998, the Company held a regular meeting of its shareholders, at
which the shareholders voted on the following matters:

1.       To elect Frank B. Bennett, Robert R. Momsen and Walter L. Sembrowich,
         Ph.D., to the Board of Directors of the Company to serve for three year
         terms that will expire at the Company's annual shareholder meeting in
         2001. The vote on this resolution was as follows:

         Frank B. Bennett:   8,403,203 For;   0 Against;  273,807 Abstain
         Robert R. Momsen:   8,108,340 For;   0 Against;   339,769 Abstain
         Walter L. Sembrowich, Ph.D.: 8,403,222 For;  0 Against; 273,608 Abstain

         The terms of the following directors also continued after the meeting:
         Mark B. Knudson, Ph.D. and Terrance G. McGuire (terms expiring at the
         Company's annual shareholder meeting in 2000) and Robert S. Nickoloff
         and Winston R. Wallin (terms expiring at the Company's annual
         shareholder meeting in 1999).

                                       10
2.       To approve the following amendments to the Company's 1996 Directors'
         Stock Option Plan (the "Directors' Plan"):

          (i) increase from 15,000 shares to 20,000 shares the initial grant to
              new non-employee directors pursuant to Section 4(b)(ii) of the
              Directors' Plan;

         (ii) modify the vesting schedule of such initial option grants to
              become vested and thereby exercisable with respect to 6,666 shares
              on the 12 month anniversary date of such grants and with respect
              to 6,667 shares on each of the 24 month and 36 month anniversary
              dates of such grants;

        (iii) increase from 5,000 shares to 6,000 shares the annual option
              grants to non-employee directors pursuant to Section 4(b)(iii) of
              the Directors' Plan; and,

         (iv) change the vesting schedule of such annual grants to become vested
              and thereby exercisable with respect to 2,000 shares on each of
              the 12, 24 and 36 month anniversary dates of such grants.

         The vote on this resolution was as follows:

         8,301,571 For;  344,173 Against;   31,086 Abstain;   0  Broker non-vote

3.       To approve the following amendments to the Company's 1994 Long-Term
         Incentive and Stock Option Plan:

          (i) increase the number of shares of Common Stock available for
              issuance thereunder from 1,733,333 shares to 2,733,333 shares; and

         (ii) add the following new Section 4(c):

              (c)  Award Limitations Under the Plan. No person who is an
                   employee of the Company at the time of grant may be granted
                   any Option, Stock Appreciation Right or performance award,
                   the value of which option, right or award is based solely on
                   an increase in the value of the Common Shares after the date
                   of grant of such option, right or award, for more than
                   500,000 Common Shares (subject to adjustment as provided for
                   in Section 15 relating to stock splits, etc.), in the
                   aggregate, in any calendar year period beginning with the
                   period commencing January 1, 1998 and ending December 31,
                   1998. The foregoing annual limitation specifically includes
                   the grant of any awards representing "qualified
                   performance-based compensation" within the meaning of Section
                   162(m) of the Code.

         The vote on this resolution was as follows:

         5,846,018 For; 633,717 Against; 36,101 Abstain; 2,160,994 Broker
         non-vote

                                       11
4.       To ratify the appointment of Ernst & Young LLP as the Company's
         independent auditors for the fiscal year ending December 31, 1998. The
         vote on this resolution was as follows:

         8,640,053  For;  14,097 Against;   22,860 Abstain;   0  Broker non-vote

Item 6. Exhibits and Reports on Form 8-K

        (a)   Exhibits filed herewith.

              3.1  Amended and Restated Articles of Incorporation of the Company
                   (incorporated by reference to Exhibit 3.2 to the Company's
                   Registration Statement on Form S-1 (SEC File No. 333-4352)).

              3.2  Amended Bylaws of the Company (incorporated by reference to
                   Exhibit 3.3 to the Company's Registration Statement of Form
                   S-1 (SEC File No. 333-4352)).

              10.1 Form of Employment Agreement dated April of 1998 between the
                   Company and its Vice Presidents. (Exhibit I previously filed
                   as Exhibit 10.14 to the Company's Registration Statement on
                   Form S-1 (SEC File No. 333-4352)).

              27   Financial Data Schedule.

              99.1 Cautionary Statement.

         (b)  No reports on Form 8-K were filed during the quarter ended 
June 30, 1998.

                                       12
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.

                                      INTEG INCORPORATED
                                         (Registrant)

Date:  August 13, 1998                  By:  /s/ Susan L. Critzer
                                             --------------------
                                             Susan L. Critzer
                                             Interim President and
                                             Interim Chief Financial Officer
                                             (principal executive officer, 
                                             principal financial and accounting
                                             officer)

                                       13
EXHIBIT INDEX

Exhibit       Description
-------       -----------

10.1          Form of Employment Agreement dated April of 1998 between the
              Company and its Vice Presidents. (Exhibit I previously filed as
              Exhibit 10.14 to the Company's Registration Statement on Form S-1
              (SEC File No. 333-4352)).

27.           Financial Data Schedule (Electronically Filed).

99.1          Cautionary Statement.