SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

Mark One

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

For the Quarterly Period ended September 30, 1998

                                       OR

|_|   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 0-26284
                       -------

                            MILESTONE SCIENTIFIC INC.
                            -------------------------
             (Exact name of Registrant as specified in its charter)

    Delaware                                                   13-3545623
    -------------------------------------------------------------------------
    State or other jurisdiction                             (I.R.S. Employer
    of organization)                                       Identification No.)

              220 South Orange Avenue, Livingston, New Jersey 07039
              -----------------------------------------------------
               (Address of principal executive office) (Zip Code)

                                 (973) 535-2717
                                 --------------
              (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 such
filing requirements for the past 90 days. Yes |X| No |_|

As of November 5, 1998 the Registrant had a total of 8,817,882 shares of Common
Stock, $.001 par value, outstanding.


                                       1
<PAGE>

Forward looking statements

When used in this Quarterly Report on Form 10-Q, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect the Company's future plans of operations, business strategy, results
of operations and financial condition. The Company wishes to ensure that such
statements are accompanied by meaningful cautionary statements pursuant to the
safe harbor established in the Private Securities Litigation Reform Act of 1995.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth herein and others set forth from time to time
in the Company's reports and registration statements files with the Securities
and Exchange Commission (the "Commission"). The Company disclaims any intent or
obligation to update such forward-looking statements.


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<PAGE>

                                      INDEX

PART I.     FINANCIAL INFORMATION                                           Page

   ITEM 1.  Condensed Consolidated Financial Statements

            Condensed Consolidated Balance Sheets at September 30,
            1998 (unaudited) and December 31, 1997                           4

            Condensed Consolidated Statements of Operations
            (unaudited) for the nine and three months
            ended September 30, 1998 and 1997                                5

            Condensed Consolidated Statements of Cash Flows
            (unaudited) for the nine months ended
            September 30, 1998 and 1997                                      6

            Notes to Condensed Consolidated Financial Statements             7

   ITEM 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                             11

PART II.    OTHER INFORMATION

   ITEM 1.  Legal Proceedings                                               15

   ITEM 4.  Submission of Matters to Vote of Security Holders               17

   ITEM 6.  Exhibits and Reports on Form 8-K                                17


SIGNATURES                                                                  18


                                       3
<PAGE>

                          Part 1. Financial Information

ITEM 1.  Condensed Consolidated Financial Statements

                   Milestone Scientific Inc. and Subsidiaries

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                                   September 30    December 31
                                                      1998            1997
                                                   (unaudited)          *
                                                   ------------    ------------
                   ASSETS

CURRENT ASSETS
  Cash and cash equivalents                        $  2,167,877    $  9,775,019
  Investments - treasury bills                        3,786,396       5,778,369
  Accounts receivable                                   530,019         318,147
  Inventories                                         2,793,241       1,249,628
  Prepaid expenses                                      245,204          97,779
                                                   ------------    ------------

      Total current assets                            9,522,737      17,218,942

PROPERTY AND EQUIPMENT, NET                           4,091,024         762,882
PATENTS                                               1,797,414       1,980,834
OTHER ASSETS                                             30,603          33,406
                                                   ------------    ------------
                                                   $ 15,441,778    $ 19,996,064
                                                   ============    ============

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Line of credit - bank                            $    200,000    $    175,000
  Accounts payable                                    1,193,522       1,053,955
  Accrued expenses                                      439,987         247,433
                                                   ------------    ------------
      Total current liabilities                       1,833,509       1,476,388
                                                   ------------    ------------
STOCKHOLDERS' EQUITY
  Common stock, par value $.001; authorized,
  25,000,000 shares; issued and outstanding,
  8,817,882 and 8,661,866 shares, respectively            8,818           8,662
  Additional paid-in capital                         30,111,734      28,685,483
  Treasury stock                                       (911,516)             --
  Accumulated deficit                               (15,600,767)    (10,174,469)
                                                   ------------    ------------

      Total stockholders' equity                     13,608,269      18,519,676
                                                   ------------    ------------

      Total liabilities and stockholders' equity   $ 15,441,778    $ 19,996,064
                                                   ============    ============

* Derived from audited financial statements at December 31, 1997

See notes to condensed consolidated financial statements


                                       4
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               For the nine and three months ended September 30,
                                   (unaudited)

<TABLE>
<CAPTION>
                                            Nine Months Ended            Three Months Ended
                                              September 30                  September 30
                                          1998           1997           1998           1997
                                       -----------    -----------    -----------    -----------
<S>                                    <C>            <C>            <C>            <C>        
Revenues                               $ 7,621,046    $ 2,305,460    $   506,744    $   670,896
Cost of sales                            5,615,244      1,461,252        622,618        463,389
                                       -----------    -----------    -----------    -----------
Gross profit (loss)                      2,005,802        844,208       (115,874)       207,507
                                       -----------    -----------    -----------    -----------

Selling, general and
  administrative expenses                7,446,066      3,634,957      2,449,405      1,384,425
Research and development expenses          353,258        418,344        107,717        144,581
                                       -----------    -----------    -----------    -----------

                                         7,799,324      4,053,301      2,557,122      1,529,006
                                       -----------    -----------    -----------    -----------

    Loss from operations                (5,793,522)    (3,209,093)    (2,672,996)    (1,321,499)
                                       -----------    -----------    -----------    -----------

Other income and expense                   
  Interest income (net)                    367,224         39,503         85,933          6,937
  Other income (net)                            --          5,067             --          2,467
                                       -----------    -----------    -----------    -----------

                                           367,224         44,570         85,933          9,404
                                       -----------    -----------    -----------    -----------

    NET LOSS                           $(5,426,298)   $(3,164,523)   $(2,587,063)    (1,312,095)
                                       ===========    ===========    ===========    ===========

Loss per  share - basic  and diluted   $     (0.62)   $     (0.59)   $     (0.30)   $     (0.23)
                                       ===========    ===========    ===========    ===========

Weighted average shares outstanding      8,742,823      5,406,024      8,717,882      5,797,931
                                       ===========    ===========    ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                       5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                    For the nine months ended September 30,
                                   (unaudited)

<TABLE>
<CAPTION>
                                                           1998            1997
                                                           ----            ----

<S>                                                    <C>             <C>          
Cash flows from operating activities
  Net loss                                             $ (5,426,298)   ($ 3,164,523)
  Adjustments to reconcile net loss to
  net cash used in operating activities
    Amortization and depreciation                           519,422         231,877
    Compensation expense                                    221,452         450,660
    Changes in assets and liabilities
      Other assets                                            2,803          (1,313)
      Accounts receivable                                  (211,872)        (71,923)
      Inventories                                        (1,543,613)        (42,592)
      Prepaid expenses                                     (147,425)        (89,152)
      Accounts payable                                      139,567         332,344
      Accrued expenses                                      192,554         (76,910)
      Deferred revenue                                           --         (38,517)
                                                       ------------    ------------

  Net cash used in operating activities                  (6,253,410)     (2,470,049)
                                                       ------------    ------------
Cash flows from investing activities
  Capital expenditures                                   (3,664,144)       (403,054)
  Acquisition costs of minority interest in Spintech             --          (9,532)
  Net proceeds from sale of treasury bills                1,991,973              --
                                                       ------------    ------------
  Net cash used in investing activities                  (1,672,171)       (412,586)
                                                       ------------    ------------

Cash flows from financing activities
  Treasury stock purchase                                  (911,516)             --
  Net proceeds from issuance of common stock              1,204,955      14,741,218
  Borrowing under line of credit                             25,000         100,000
                                                       ------------    ------------

  Net cash provided by financing activities            $    318,439    $ 14,841,218
                                                       ------------    ------------

NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS                                   $ (7,607,142)     11,958,583
Cash and cash equivalents at beginning of period          9,775,019         779,359
                                                       ------------    ------------
Cash and cash equivalents at end of period             $  2,167,877    $ 12,737,942
                                                       ============    ============

Supplemental disclosures of cash flow information:
Cash paid during the period for interest               $     10,739    $     16,644
                                                       ------------    ------------
</TABLE>

See notes to consolidated financial statements.


                                       6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1998

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

      The unaudited interim financial statements of Milestone Scientific Inc.
      and Subsidiaries (the "Company") have been prepared in accordance with
      generally accepted accounting principles for interim financial
      information. Accordingly, they do not include all of the information and
      footnotes required by generally accepted accounting principles for
      complete financial statements.

      These financial statements should be read in conjunction with the
      financial statements and notes thereto for the year ended December 31,
      1997 included in the Company's Annual Report on Form 10-KSB. The
      accounting policies used in preparing these financial statements are the
      same as those described in the December 31, 1997 financial statements.

      In the opinion of the Company, the accompanying unaudited financial
      statements contain all adjustments (consisting of normal recurring
      entries) necessary to present fairly the financial position as of
      September 30, 1998 and the results of operations for the three month and
      nine month periods ended September 30, 1998 and September 30, 1997 and
      cash flows for the nine-month periods ended September 30, 1998 and 1997,
      respectively.

      The results reported for the three and nine-month periods ended September
      30, 1998 are not necessarily indicative of the results of operations,
      which may be expected for a full year.

NOTE 2 - REALIZATION OF ASSETS

      The accompanying financial statements have been prepared in conformity
      with generally accepted accounting principles, which contemplate
      continuation of the company as a going concern. However, the Company has
      sustained substantial losses from operations after the introduction of its
      Wand(TM) product, and has experienced significant returns of this product
      subsequent to its first fiscal quarter in 1998. In addition, the Company
      has used, rather than provided, cash in its operations during the
      nine-month period ended September 30, 1998.

      In view of the matters described in the preceding paragraph,
      recoverability of a major portion of the recorded asset amounts shown in
      the accompanying balance sheet is dependent upon continued operations of
      the Company, which in turn is dependent upon the success of the Company's
      Wand(TM) product. The financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset
      amounts or amounts and classification of liabilities that might be
      necessary should the Company be unable to continue in existence.

      Based on management's belief that The Wand(TM), is a major advance in
      dentistry and may ultimately become the accepted method for delivering
      local dental anesthesia, the Company is taking steps that are aimed at
      growing and strengthening the end user base thereby gaining greater
      acceptance of The Wand(TM) and translating to increased revenue through
      higher 


                                       7
<PAGE>

      disposable handpiece usage. These steps include a) obtaining feedback and
      providing further support to current Wand users, b) increasing the number
      of dental schools which include The Wand(TM) in their curriculum, c)
      distributing new The Wand(TM) technique video and technical bulletins, d)
      conducting direct to patient advertising with specialized sales effort in
      test markets and e) maintaining a well trained service staff.

      As of September 30, 1998, the Company had approximately $6,000,000 in
      aggregate cash, cash equivalents and treasury bills. Management believes
      that through the proper utilization of these existing funds and the
      expense reductions achieved through cost containment programs, it will
      have sufficient cash to meet its needs over the next twelve months.

      The Company intends to submit a new application for a technologically
      similar device to The Wand(TM), specifically designed to address the need
      to deliver widely varying volumes of anesthetic and other medicaments for
      various medical disciplines. Milestone has already developed a working
      prototype device for delivery of multi-volume anesthetic and other
      medicaments. Also, the Company will continue to pursue CE Mark (European
      Agency approval) certification for international marketing purposes and to
      develop product enhancements and improvements. The raising of additional
      capital will continually be evaluated by management.

NOTE 3 - LOSS PER SHARE

      The Company applies Statement of Financial Accounting Standards ("SFAS")
      No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation of
      basic earnings per share and, for companies with complex capital
      structures or potentially dilutive securities, such as convertible debt,
      options, and warrants, diluted earnings per share.

      Basic loss per common share is computed using the weighted average number
      of common shares outstanding. Diluted loss per common share is computed
      using the weighted average common shares outstanding after giving effect
      to potential common stock from stock options based on the treasury stock
      method, plus any other potentially dilutive securities outstanding, unless
      the effect is anti-dilutive.

      For the three and nine months ended September 30, 1998 and 1997, the
      assumed exercise of certain dilutive options and warrants were
      anti-dilutive. Accordingly, basic and diluted loss per share is based on
      the weighted average common shares outstanding.

      Options and warrants, in aggregate, to purchase 257,000 shares of common
      stock at prices ranging from $1.56 to $23.69 per share were issued during
      nine months ended September 30, 1998 but were not included in the
      computation of diluted loss per share because effect would have been
      anti-dilutive.

      During the nine months ended September 30, 1998 warrants to purchase
      156,016 shares of common stock were exercised at prices ranging from $4.72
      to $9 for which the company realized proceeds of $1,204,955.


                                       8
<PAGE>

NOTE 4 - LITIGATION

      Class Actions

      Several class action lawsuits have been commenced against the Company,
      certain present and former executive officers, one outside director and
      consultants in the United States District Court for the District of New
      Jersey. The District Judge before whom the cases are pending has entered
      an order consolidating all of the class actions into one consolidated
      action. The Complaints contain generally overlapping and similar
      allegations of violations of the Securities Exchange Act of 1934,
      including allegations that the Company and certain of the other defendants
      violated the Act by issuing false and misleading financial statements and
      disseminating misleading statements about, among other things, the demand
      for the Company's principal product, its expected sales growth, the
      acceptance of that product by dental professionals, shipments during
      certain time periods and misrepresentations as the third-party evaluations
      of the efficacy of the product through failure to disclose the issuance of
      stock options to certain consultants. On October 22, 1998, the District
      Judge entered an order appointing lead plaintiff to represent the
      interests of all class members.

      Milestone believes that material allegations of the complaints lack merit
      and intends to vigorously defend the above actions. Specifically,
      Milestone believes that its financial statements fairly present its
      results of operations, that the information which it has publicly
      disclosed does not contain any material misstatements or
      misrepresentations and that stock options issued to persons who published
      research reports were issued for other services for the Company,
      principally service as spokespersons and demonstrators of the Company's
      product. Further, the Company continues to believe that The Wand(TM)
      embodies superior technology, is a major advance in dentistry and may
      ultimately become the accepted method for delivering local dental
      anesthesia.

      Spinello Lawsuits

      In May 1998, the Company received a favorable decision on motions filed by
      plaintiffs and defendant in the action brought in the United States
      District Court of the District of New Jersey by Milestone Scientific, Inc.
      and its subsidiary, Spintech Inc. against Ronald P. Spinello, Spintech's
      former Chairman and Director of Research. The United States Magistrate
      Judge issued a Report recommending that the Court grant Milestone's
      motions to dismiss the counterclaims brought by defendant Spinello for a
      shareholder's derivative action and civil conspiracy, finding that
      defendant Spinello had failed "to state a claim upon which relief may be
      granted." The Report also recommended that the Court dismiss defendant
      Spinello's counterclaim for indemnification against Milestone and a
      portion of the indemnification claim against Spintech. In a second
      decision, the Magistrate Judge denied defendant Spinello's motion to join
      Milestone's Chief Executive Officer as an additional party and to file an
      amended answer asserting revised and additional counterclaims against
      Milestone and Spintech. The Magistrate Judge determined that defendant
      Spinello's proposed amended counterclaims "are futile and could not
      withstand a motion to dismiss under federal rule of civil procedure
      12(b)(6)". Defendant Spinello timely filed an appeal from the May 5, 1998
      Order and objections to the Report. On August 24, 1998, a United States
      District Judge for 


                                       9
<PAGE>

      the District of New Jersey issued a memorandum opinion and signed an Order
      denying Dr. Spinello's appeal of the May 5, 1998 Order and affirming the
      May 5, 1998 Order in its entirety. The Judge further denied in its
      entirety Dr. Spinello's objections to the Report and granted the Company's
      motion to dismiss counts one, two, three and four of Dr. Spinello's
      initial Counterclaim.

      As a result of the affirmance of the May 1998 Order and the adoption of
      the Report granting the Company's motion to dismiss, the only claims
      remaining in the litigation with Dr. Spinello are Milestone's claims
      against Dr. Spinello and Dr. Spinello's counterclaim for unpaid salary for
      the period subsequent to his alleged wrongful termination, and a portion
      of his indemnification claim against Spintech.

      In October 1998, the Company received a settlement demand from Counsel for
      Dr. Spinello and Glenn Spinello which stated that, notwithstanding the
      United States District Judge's decision, substantial claims remain to be
      litigated and that there are substantial risks to Milestone from this
      litigation. The settlement demand letter does not describe the nature of
      any claims that Dr. Spinello could assert against the Company, but it does
      allude to potential litigation in other forums and the possibility of
      future litigation brought by minority stockholders of the Company. If Dr.
      Spinello does seek to assert additional claims, or if minority
      stockholders should assert claims, against the Company, the Company
      intends to vigorously defend such claims and believes that it has
      meritorious defenses thereto.

NOTE 5 - TREASURY STOCK

      Pursuant to its stock purchase program covering the purchase of up to
      500,000 shares of Common Stock, the Company purchased 100,000 shares of
      its Common Stock during June 1998 at an aggregate price, including
      commission and fees of $911,515.

NOTE 6 - STOCK OPTION PLAN

      On June 30, 1998 at the annual meeting of stockholders, approval was given
      to an amendment to the Company's Stock Option Plan increasing the number
      of shares of Company's Common Stock which may be issued thereunder from
      500,000 to 1,000,000 shares.


                                       10
<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operation

      Coinciding with the initial launch of The Wand(TM), (a computer controlled
      "painless" injection system) during the first quarter and through the next
      month and a half of the second quarter, the Company maintained high levels
      of production and committed capital to increase production capacity. The
      product's early success was then tempered by significant returns and
      declining sales through the remainder of the second quarter and the third
      quarter. In combination with the filing of class action lawsuits, these
      conditions have resulted in higher levels of inventory and production
      capacity that exceed current demand. Therefore, the Company, as explained
      below, has provided reserves against sales sufficient to cover possible
      product returns and has reduced the carrying value of its inventory to
      reflect their value under the current market conditions.

      Three Months Ended September 30, 1998 as compared to the Three Months
      Ended September 30, 1997.

Statement of Operations

      Net sales for the three months ended September 30, 1998 and September 30,
      1997 were $506,744 and $670,896, respectively. The $164,152 or 24%
      decrease is attributable to a $214,000 decline in net sales from the
      Company's Wisdom product line offset by $50,000 in net sales for The
      Wand(TM), (a computer controlled "painless" injection system) including
      disposable handpieces.

      Cost of sales for the three months ended September 30, 1998 and September
      30, 1997 were $622,618 and $463,389 respectively. The $159,229 or 34%
      increase is mainly attributable to the cost of sales for The Wand(TM),
      offset by a $155,000 decrease in the cost of sales from the Company's
      Wisdom product line. The increase includes inventory reserves adjustments
      totaling $363,000. The adjustments relate to The Wand(TM) units and
      disposable handpieces deemed slow moving.

      For the three months ended September 30, 1998, the Company recorded a
      gross loss of $115,874. The $323,381 decrease when compared to the
      $207,507 gross profit for the three months ended September 30, 1997, is
      primarily attributable to the aforementioned inventory reserve.

      In conjunction with the launch of The Wand(TM) during the first quarter of
      1998, the Company established a $528,000 reserve against sales. This
      reserve was established to cover expected returns attributable to first
      quarter sales. For the second and third quarter, actual returns
      attributable to those quarters were recorded upon receipt. Additional
      reserves were established to cover expected returns attributable to prior
      quarter sales. On September 30, 1998, the reserve was $70,000.

      Selling, general and administrative expenses for the three months ended
      September 30, 1998 and September 30, 1997 were $2,449,405 and $1,384,425
      respectively. The $1,064,980 


                                       11
<PAGE>

      increase is primarily attributable to approximately $1,377,000 aggregate
      increase in selling and marketing expenses associated with The Wand(TM),
      an increase in legal and professional fees of $225,000. This was partially
      offset by a $192,000 decrease in expenses associated with the Wisdom
      product line and a decrease of $321,000 in compensation expense related to
      option grants issued during the third quarter of 1997.

      Research and development costs for the three months ended September 30,
      1998 and September 30, 1997 were $107,117 and $144,581, respectively.

      Net interest income for the three months ended September 30, 1998 and
      September 30, 1997 were $85,933 and $6,937, respectively. The $78,996
      increase was mainly attributable to investment income from the net
      proceeds of two private placements in 1997.

      The net loss of $2,587,063 for the quarter ended September 30, 1998 was
      primarily the result of increased SG&A expenses and the inventory reserve.
      The loss represents a $1,274,968 increase when compared to the net loss of
      $1,312,095 for the third quarter of 1997.

      Nine Months Ended September 30, 1998 as compared to the Nine Months Ended
      September 30, 1997.

Statement of Operations

      Net sales for the nine months ended September 30, 1998 and September 30,
      1997 were $7,621,046 and $2,305,460 respectively. The $5,315,586 or 231%
      increase is mainly attributable to approximately $6,225,000 in net sales
      for The Wand(TM), including disposable handpieces, offset by a decrease in
      net sales from the company's Wisdom product line of approximately
      $909,000.

      Cost of sales for the nine months ended September 30, 1998 and September
      30, 1997 were $5,615,244 and $1,461,252, respectively. The $4,153,922
      increase is mainly attributable to the cost of sales for The Wand(TM),
      offset by a $535,000 decrease in the cost of sales from the Company's
      Wisdom product line. It includes an inventory reserve of $1,392,000 which
      relates to The Wand(TM) units and disposable handpieces deemed slow moving
      because of new improved products.

      Gross profit for the nine months ended September 30, 1998 and September
      30, 1997 were $2,005,802 and $844,208, respectively. The 1,161,594 or 138%
      increase is primarily attributable to The Wand(TM) sales, partially offset
      by the aforementioned inventory reserve and a decrease in Wisdom sales.

      In conjunction with the launch of The Wand(TM) during the first quarter of
      1998, the Company established a $528,000 reserve against sales. This
      reserve was established to cover expected returns attributable to first
      quarter sales. For the second and third quarter, actual returns
      attributable to those quarters were recorded upon receipt. Additional
      reserves were established to cover expected returns attributable to prior
      quarter sales. On September 30, 1998, the reserve was $70,000.


                                       12
<PAGE>

      Selling, general and administrative expenses for the nine months ended
      September 30, 1998 and September 30, 1997 were $7,446,066 and $3,634,957
      respectively. The $3,811,109 or 105% increase is primarily attributable to
      approximately $3,938,000 aggregate increase in selling and marketing
      expenses associated with The Wand(TM), an increase in legal and
      professional fees of approximately $405,000, and a $174,000 increase in
      corporate salaries. This was partially offset by a $775,000 decrease in
      expenses associated with the Wisdom product line and a decrease of
      $229,208 in compensation expense related to option grants.

      Research and development costs for the nine months ended September 30,
      1998 and September 30, 1997 were $353,258 and $418,344, respectively.

      Net interest income for the nine months ended September 30, 1998 and
      September 30, 1997 were $367,224 and $39,503, respectively. The $327,721
      increase was mainly attributable to investment income from the net
      proceeds of two private placements in 1997 and aggregate lower borrowings
      under the Company's line of credit.

      The net loss of $5,426,298 for the nine months ended September 30, 1998
      was primarily the result of increased SG&A expenses and the inventory
      reserve partially offset by sales of The Wand(TM). The loss represents a
      $2,261,775 increase as compared to the net loss of $3,164,523 for the nine
      months ended September 30, 1997.

Liquidity and Capital Resources

      At September 30, 1998, the Company's working capital was $7,689,228. It
      consisted primarily of cash generated from two private placements in 1997
      and from exercised warrants.

      For the nine months ended September 30, 1998, the Company decreased cash
      and cash equivalents by $7,607,142 using $6,253,410 in operating
      activities and $3,664,144 in capital expenditures.

      For the nine months ended September 30, 1998 the Company's net cash used
      in operating activities was $6,253,410. This was primarily attributable to
      a net loss of $5,426,298 (adjusted for non cash items of $519,422 for
      amortization and depreciation and $221,452 for compensation expense), a
      $211,872 increase in accounts receivable, a $1,543,613 increase in
      inventory and a $147,425 increase in prepaid expenses. This was primarily
      offset by increases in accounts payable and accrued expenses of $139,567
      and $192,554, respectively.

      The $1,672,171 used in investing activities for the nine months ended
      September 30, 1998 was attributable to $3,664,144 in capital expenditures,
      offset by the maturing of $1,991,973 in treasury bills. Also, the company
      negotiated and received over $230,000 in aggregate cash and credit from
      prior equipment purchases.

      Financing activities provided $318,439 for the period. The Company
      received $1,204,955 as 156,016 warrants were exercised. The Company used
      $911,516 to repurchase 100,000 shares 


                                       13
<PAGE>

      of its stock. The Company's Wisdom subsidiary increased its borrowing
      under its line of credit by $25,000.

      As of September 30, 1998, the Company had approximately $6 million in
      aggregate cash, cash equivalents and treasury bills. Management believes
      that through the proper utilization of these existing funds and the
      expense reductions achieved through cost containment programs, the Company
      will have sufficient cash to meet its needs for the next twelve months.

      Also, the Company is taking steps that are aimed at growing and
      strengthening the end user base thereby gaining greater acceptance of The
      Wand(TM) and translating to increased revenue through higher disposable
      handpiece usage. These steps include a) obtaining feedback and providing
      further support to current Wand users, b) increasing the number of dental
      schools which include The Wand(TM) in their curriculum, c) distributing a
      new Wand(TM) technique video and technical bulletins, d) conducting direct
      to patient advertising with specialized sales effort in test markets and
      e) maintaining a well trained service staff.

      The Company intends to submit a new application for a technologically
      similar device to The Wand(TM), specifically designed to address the need
      to deliver widely varying volumes of anesthetic and other medicaments for
      various medical disciplines. Milestone has already developed a working
      prototype device for delivery of multi-volume anesthetic and other
      medicaments. Also, the Company will continue to pursue CE Mark (European
      Agency approval) certification for international marketing purposes and to
      develop product enhancements and improvements. The raising of additional
      capital will continually be evaluated by management.

      The implementation of changes in the Company's selling and marketing of
      The Wand(TM) has continued. During the third quarter, the company added
      additional dealers, added part time commission sales people, initiated new
      product based promotions, increased its presence in dental schools and
      forwarded technical bulletins to its known end users. Also, the Company
      began a campaign to gain a better understanding of its end user base, to
      obtain feedback regarding The Wand(TM), to better gauge disposable
      handpiece usage and to offer additional support when necessary.


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<PAGE>

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      Several class action lawsuits have been commenced against the Company,
      certain present and former executive officers, one outside director and
      consultants in the United States District Court for the District of New
      Jersey. The District Judge before whom the cases are pending has entered
      an order consolidating all of the class actions into one consolidated
      action. The Complaints contain generally overlapping and similar
      allegations of violations of the Securities Exchange Act of 1934,
      including allegations that the Company and certain of the other defendants
      violated the Act by issuing false and misleading financial statements and
      disseminating misleading statements about, among other things, the demand
      for the Company's principal product, its expected sales growth, the
      acceptance of that product by dental professionals, shipments during
      certain time periods and misrepresentations as the third-party evaluations
      of the efficacy of the product through failure to disclose the issuance of
      stock options to certain consultants. On October 22, 1998, the District
      Judge entered an order appointing lead plaintiff to represent interests of
      all class members.

      Milestone believes that material allegations of the Complaints lack merit
      and intends to vigorously defend the above actions. Specifically,
      Milestone believes that its financial statements fairly present its
      results of operations, that the information which it has publicly
      disclosed does not contain any material misstatements or
      misrepresentations and that stock options issued to persons who published
      research reports were issued for other services for the Company,
      principally service as spokespersons and demonstrators of the Company's
      product. Further, the Company continues to believe that The Wand(TM)
      embodies superior technology, is a major advance in dentistry and may
      ultimately become the accepted method for delivering local dental
      anesthesia.

      In May 1998, the Company received a favorable decision on motions filed by
      plaintiffs and defendant in the actions brought in the United States
      District Court of the District of New Jersey by Milestone Scientific, Inc.
      and its subsidiary, Spintech Inc. against Ronald P. Spinello, Spintech's
      former Chairman and Director of Research. The United States Magistrate
      Judge issued a Report recommending that the Court grant Milestone's
      motions to dismiss the counterclaims brought by defendant Spinello for a
      shareholder's derivative action and civil conspiracy, finding that
      defendant Spinello had failed "to state a claim upon which relief may be
      granted." The Report also recommended that the Court dismiss defendant
      Spinello's counterclaim for indemnification against Milestone and a
      portion of the indemnification claim against Spintech. In a second
      decision, the Magistrate Judge denied defendant Spinello's motion to join
      Milestone's Chief Executive Officer as an additional party and to file an
      amended answer asserting revised and additional counterclaims against
      Milestone and Spintech. The Magistrate Judge determined that defendant
      Spinello's proposed amended counterclaims "are futile and could not
      withstand a motion to dismiss under federal rule of civil procedure
      12(b)(6)". Defendant Spinello timely filed an appeal from the May 5, 1998
      Order and objections to the Report. On August 24, 1998, a United States
      District Judge for the District of New Jersey issued a memorandum opinion
      and signed an Order denying Dr. 


                                       15
<PAGE>

      Spinello's appeal of the May 5, 1998 Order and affirming the May 5, 1998
      Order in its entirety. The Judge further denied in its entirety Dr.
      Spinello's objections to the Report and granted the Company's motion to
      dismiss counts one, two, three and four of Dr. Spinello's initial
      Counterclaim.

      As a result of the affirmance of the May 1998 Order and the adoption of
      the Report granting the Company's motion to dismiss, the only claims
      remaining in the litigation with Dr. Spinello are Milestone's claims
      against Dr. Spinello and Dr. Spinello's counterclaim for unpaid salary for
      the period subsequent to his alleged wrongful termination, and a portion
      of his indemnification claim against Spintech.

      In October 1998, the Company received a settlement demand from Counsel for
      Dr. Spinello and Glenn Spinello which stated that, notwithstanding the
      United States District Judge's decision, substantial claims remain to be
      litigated and that there are substantial risks to Milestone from this
      litigation. The settlement demand letter does not describe the nature of
      any claims that Dr. Spinello could assert against the Company, but it does
      allude to potential litigation in other forums and the possibility of
      future litigation brought by minority stockholders of the Company. If Dr.
      Spinello does seek to assert additional claims, or if minority
      stockholders should assert claims, against the Company, the Company
      intends to vigorously defend such claims and believes that it has
      meritorious defenses thereto.


                                       16
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

      NONE

ITEM 5. OTHER

      During the quarter ended September 30, 1998, the Company received and
      accepted the resignations of Gregory Volok as Executive Vice-President and
      Chief Operating Officer-Dental Division and Michael McGeehan as Executive
      Vice-President. Pursuant to its program to reduce corporate overhead, the
      Company has no immediate plans to fill these vacancies. Msssrs. Volok and
      Montoncello also resigned as directors.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits:

      NONE

(b)   Reports on Form 8-K:

      NONE


                                       17
<PAGE>

                                   Signatures

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned

                                       /s/ Leonard Osser
                                       -----------------------------------------
                                       Leonard Osser, Chairman and
                                       Chief Executive Officer


                                       /s/ Thomas M. Stuckey
                                       -----------------------------------------
                                       Thomas M. Stuckey, Vice President and
                                       Chief Financial Officer

Dated: November 5, 1998


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