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, 1999

                                       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 12, 1999 the Registrant had a total of 8,764,898 shares of Common
Stock, $.001 par value, outstanding.
<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.


                                       2
<PAGE>

                                      INDEX

PART I.       FINANCIAL INFORMATION                                         Page

      ITEM 1. Condensed Consolidated Financial Statements (unaudited)          4

              Condensed Consolidated Balance Sheets at September 30,
              1999 and December 31, 1998                                       4

              Condensed Consolidated Statements of Operations
              for the nine and three months ended September 30, 1999
              and 1998                                                         5

              Condensed Consolidated Statements of Cash Flows
              for the nine months ended September 30, 1999 and 1998            6

              Notes to Condensed Consolidated Financial Statements             8

      ITEM 2. Management's Discussion and Analysis of Financial
              Condition and Results of Operations                             15

PART II.      OTHER INFORMATION

      ITEM 4. Submission of Matters to Vote of Security Holders               20

      ITEM 6. Exhibits and Reports on Form 8-K                                20

SIGNATURES                                                                    21


                                       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
                                                       1999            1998
                                                    (unaudited)          *
                                                   ------------    ------------
                ASSETS

CURRENT ASSETS
   Cash and cash equivalents                       $    866,399    $    316,706
   Investments - treasury bills                         509,766       3,267,940
   Accounts receivable                                  151,498         430,907
   Inventories                                        1,857,127       1,255,262
   Prepaid expenses                                     192,175         127,263
                                                   ------------    ------------

      Total current assets                            3,576,965       5,398,078

PROPERTY AND EQUIPMENT, NET                           1,749,662       2,031,870
PATENTS, NET                                          1,552,863       1,736,275
OTHER ASSETS                                             10,318          29,997
                                                   ------------    ------------

                                                   $  6,889,808    $  9,196,220
                                                   ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Line of credit - bank                                      --    $    150,000
  Accounts payable                                      710,169         544,705
  Accrued expenses                                      227,792         165,302
                                                   ------------    ------------

      Total current liabilities                         937,961         860,007
                                                   ------------    ------------

SENIOR CONVERTIBLE NOTES                              2,250,000              --
                                                   ------------    ------------

STOCKHOLDERS' EQUITY
Common stock, par value $.001; authorized,
   25,000,000 shares; 8,864,898 issued as of
   September 30, 1999 and 8,817,822 issued
   as of December 31, 1998                                8,865           8,818
Additional paid-in capital                           30,146,125      30,111,734
Accumulated deficit                                 (25,541,627)    (20,872,823)
Treasury stock, at cost, 100,000 shares                (911,516)       (911,516)
                                                   ------------    ------------
      Total stockholders' equity                      3,701,847       8,336,213
                                                   ------------    ------------
      Total liabilities and stockholders' equity   $  6,889,808    $  9,196,220
                                                   ============    ============

*Derived from audited financial statements at December 31, 1998

The accompanying notes are an integral part of these 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
                                          1999           1998           1999           1998
                                          ----           ----           ----           ----
<S>                                   <C>            <C>            <C>            <C>
Net Sales                             $ 2,045,210    $ 7,621,046    $   511,056    $   506,744
Cost of sales                           1,044,489      5,615,244        227,718        622,618
                                      -----------    -----------    -----------    -----------

Gross profit (loss)                     1,000,721      2,005,802        283,338       (115,874)
                                      -----------    -----------    -----------    -----------

Selling, general and
    Administrative expenses             5,217,767      7,446,066      1,513,148      2,449,405
Research and development expenses         398,180        353,258        288,724        107,717
                                      -----------    -----------    -----------    -----------
                                        5,615,947      7,799,324      1,801,872      2,557,122
                                      -----------    -----------    -----------    -----------

      Loss from operations             (4,615,226)    (5,793,522)    (1,518,534)    (2,672,996)

Loss from termination of
   Wisdom product line                    (76,345)            --             --             --
Interest income (expense), net             22,767        367,224         (3,887)        85,933
                                      -----------    -----------    -----------    -----------

      Net loss                        $(4,668,804)   $(5,426,298)   $(1,522,421)   $(2,587,063)
                                      ===========    ===========    ===========    ===========

Loss per share - basic and diluted    $      (.54)   $      (.62)        $(. 18)   $      (.30)
                                      ===========    ===========    ===========    ===========

Weighted average shares outstanding     8,718,054      8,742,823      8,718,393      8,717,882
                                      ===========    ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of these statements


                                       5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                     For the nine months ended September 30,
                                   (unaudited)

<TABLE>
<CAPTION>
                                                               1999           1998
                                                               ----           ----
<S>                                                        <C>            <C>
Cash flows from operating activities
  Net loss                                                 $(4,668,804)   $(5,426,298)
  Adjustments to reconcile net loss
  to net cash used in operating activities
     Amortization                                              202,811        183,412
     Depreciation                                              352,389        336,010
     Compensation expense                                           --        221,452
     Changes in operating assets and liabilities
          Accounts receivable                                  279,409       (211,872)
          Inventories                                         (601,865)    (1,543,613)
          Prepaid expenses                                     (64,912)      (147,425)
          Other assets                                             280          2,803
          Accounts payable                                     165,464        139,567
          Accrued expenses                                      98,928        192,554
                                                           -----------    -----------
   Net cash used in operating activities                    (4,236,300)    (6,253,410)
                                                           -----------    -----------
Cash flows from investing activities
   Capital expenditures                                        (70,181)    (3,664,144)
   Sale and (purchase) of treasury bills, net                2,758,174      1,991,973
                                                           -----------    -----------
  Net cash provided by (used in) investing activities        2,687,993     (1,672,171)
                                                           -----------    -----------

Cash flows from financing activities
  Net proceeds from issuance of senior convertible notes     2,250,000             --
  Net proceeds from issuance of common stock                        --      1,204,955
  (Repayment)/borrowing under line of credit                  (150,000)        25,000
  Costs associated with registering shares                      (2,000)            --
  Treasury Stock Purchase                                           --       (911,516)
                                                           -----------    -----------
  Net cash provided by financing activities                  2,098,000        318,439
                                                           -----------    -----------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                         549,693     (7,607,142)

Cash and cash equivalents at beginning of period               316,706      9,775,019
                                                           -----------    -----------

Cash and cash equivalents at end of period                     866,399    $ 2,167,877
                                                           -----------    -----------
Supplemental disclosures of cash flow information:
  Cash paid during the period for interest                 $       316    $    10,739
                                                           ===========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     For the nine months ended September 30,
                                   (unaudited)

Supplemental schedule of noncash financing activities:

In September 1999, in making the first semi annual interest payment on the
Senior Convertible Notes and in accordance with the terms of the note
agreements, the Company elected to issue 47,016 shares of Milestone Common Stock
in lieu of cash of $38,438.

The accompanying notes are an integral part of these statements.


                                       7
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1999

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,
      1998 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, 1998 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, 1999 and the results of operations for the three month and
      nine month periods ended September 30, 1999 and September 30, 1998 and
      cash flows for the nine month periods ended September 30, 1999 and 1998,
      respectively.

      The results reported for the three and nine month periods ended September
      30, 1999 are not necessarily indicative of the results of operations which
      may be expected for a full year.

NOTE 2 - LIQUIDITY 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, subsequent to its
      first fiscal quarter in 1998, the Company has incurred substantial losses
      from operations. In addition, the Company has used, rather than provided,
      cash in its operations during the nine month period ended September 30,
      1999. These factors, among others, raise substantial doubt about the
      Company's ability to continue as a going concern.

      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


                                       8
<PAGE>

      continues to take steps 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) expanding the market overseas; b) visiting, obtaining feedback
      and providing further support to current Wand users; c) providing
      assistance to dental schools which include The Wand(TM) in their
      curriculum; d) distributing The Wand(TM) technique videos and technical
      bulletins to its current users; and e) maintaining a well trained service
      staff. Furthermore, on October 1, 1999, the Company began a new sales
      initiative, permitting dentists in the United States to order the Wand(TM)
      directly through Milestone and to avail themselves of certain quantity
      discounts when purchasing disposable handpieces. The Company believes the
      direct sale will allow Milestone to better educate dentists as to the
      benefits from use of "The Wand(TM)".

      As of September 30, 1999, the Company had approximately $1.4 million in
      aggregate cash, cash equivalents and treasury bills. Management believes
      that through the proper utilization of these existing funds, revenues
      generated from international distributors and from continued increases in
      domestic disposable handpiece sales, and the expense reductions achieved
      through cost containment programs, it will have sufficient cash to meet
      its needs over the next twelve months.

NOTE 3 - LOSS 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, 1999 and 1998, basic and
      diluted loss per share is based on the weighted average common shares
      outstanding without adjustment for shares underlying options and warrants
      since such adjustment would be anti-dilutive.

      Options and warrants, in aggregate, to purchase 152,000 shares of common
      stock at prices ranging from $1 to $3 per share, were issued in aggregate
      to three officers and certain key personnel during the nine months ended
      September 30, 1999 but were not included in the computation of diluted
      loss per share because their exercise price was greater than the average
      market price of the common shares.

      Options and warrants, in aggregate, to purchase 272,000 shares of common
      stock at prices ranging from $1.56 to $23 per share were issued during the
      nine months ended September 30, 1998 but were not included in the
      computation of diluted earnings per share because their exercise price was
      greater than the average market price of the common shares.

      During the nine months ended September 30, 1998 options and 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.


                                       9
<PAGE>

NOTE 4 - LITIGATION

      Spinello Lawsuits

      On March 26, 1997, Milestone and Spintech commenced legal action in the
      United States District Court of New Jersey against Ronald Spinello, DDS,
      former Chairman and Director of Research of Spintech. In the complaint,
      plaintiffs seek recovery of compensatory and punitive damages for
      extortion and tortuous interference with existing and prospective contract
      and business relationships, a declaratory judgment that Dr. Spinello has
      no personal rights to certain technology developed while he was employed
      as Director of Research of Spintech relating to the design and production
      of ancillary components of its computer controlled local anesthetic
      delivery system, a declaratory judgment that plaintiffs have not breached
      Dr. Spinello's employment agreement or the agreement for the initial
      purchase by Milestone of a 65% equity interest in Spintech and injunctive
      relief. On May 21, 1997, Dr. Spinello filed an answer and counterclaim
      which denies the material allegations of the complaint and seeks recovery
      for breach of the defendant's employment agreement, initiates a derivative
      action against Milestone with respect to various expenditures and actions
      for which Defendant, on behalf of Spintech, seeks an amount in excess of
      $75,000, alleges civil conspiracy against Milestone with respect to
      certain of those matters and the entry into the employment agreement with
      Defendant and seeks indemnification for expenses, including attorneys
      fees, in the pending action. On May 25, 1997, the Company filed a reply to
      counterclaims which denied all of the material allegations of the
      counterclaims. On December 30, 1997, Dr. Spinello made a motion for leave
      to join as an additional Defendant on Counterclaim the Company's Chairman,
      Leonard Osser, and to file an amended Answer and Counterclaim against the
      Company. Both the Company and Mr. Osser opposed the motion and in
      addition, the Company made a Cross-Motion to dismiss certain claims
      asserted in the initial Answer and Counterclaim. The additional claims
      which Dr. Spinello sought to assert against the Company include a fraud in
      the inducement claim based upon the alleged failure of the Plaintiffs to
      advise Dr. Spinello of the legal effects of his employment agreement; and
      a civil conspiracy claim. Dr. Spinello also sought to add a jury demand
      through his amended pleading. The Company's Cross-Motion sought to dismiss
      all of Dr. Spinello's claims, except his claim for unpaid salary, on the
      basis that his derivative claim is fatally defective because he did not
      make any demand upon Spintech, the entity on whose behalf he purports to
      bring suit, and his indemnification claim is fatally defective because the
      claims against him do not arise by reason of the fact that Dr. Spinello
      was an officer or director of Spintech.

      On May 5, 1998, 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 Chairman 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


                                       10
<PAGE>

      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. 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, which was not accepted by the
      Company, 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.

      On March 5, 1999, the parties completed discovery. On April 15, 1999, the
      parties made various dispositive motions for summary judgment on almost
      all of the issues remaining in the case. The motions were submitted to the
      Court on June 14, 1999. On August 20, 1999, the United States District
      Judge issued a Memorandum Opinion finding that there were disputed
      questions of fact requiring a trial with respect to Milestone's motion
      concerning Plaintiffs' entitlement to the patent rights to the disputed
      technologies. The Court also denied Spinello's Motion for Summary
      Judgment, finding that there were disputed questions of fact requiring a
      trial concerning, among other things, the intent and meaning of the
      contracts between the parties, except that the court dismissed Milestone's
      claim for damages as a result of Spinello's "extortionate conduct" since
      such conduct does not state a separate claim for civil liability and the
      conduct alleged already is encompassed by Plaintiffs' claims against
      Spinello for tortious interference with contracts and tortious
      interference with prospective economic advantage. In light of the denial
      of the respective Motions for Summary Judgment, the Court has set a trial
      date for January 2000. The Company believes that it has meritorious
      defenses to Dr. Spinello's claims and meritorious claims against Dr.
      Spinello. Moreover, Milestone has been advised by its patent counsel that
      all technology developed by Dr. Spinello while employed by Spintech is
      owned by Spintech. The Company believes that ownership of the technology
      relating to these ancillary components which are the subject of this
      litigation in no way prevents the manufacture and sale of its anesthetic
      delivery system at economically viable prices.

      On May 20, 1997, Glenn R. Spinello filed a Complaint in the Court of
      Common Pleas, York County, Pennsylvania seeking damages as a result of the
      alleged breach of his Employment Agreement. On June 20, 1997, the Company
      and Spintech filed a notice of Removal which


                                       11
<PAGE>

      transferred venue of Glenn Spinello's lawsuit to the United States
      District Court for the Middle District of Pennsylvania. On June 27, 1997,
      the Company and Spintech filed an Answer to Glenn Spinello's Complaint
      which denied the material allegations of the Complaint and asserted
      counterclaims based upon Glenn Spinello's breach of his Employment
      Agreement. On July 27, 1997, Glenn Spinello filed a reply to the
      counterclaims by the Company and Spintech, denying the material
      allegations of the counterclaims. On March 16, 1999, the parties completed
      discovery. On April 16, 1999, Glenn Spinello made a motion for summary
      judgment on his claims against the Company, and on May 3, 1999 the Company
      filed its opposition thereto. The motion has been submitted to the Court
      for decision. If the motion is denied, the case should be scheduled for
      trial in early 2000. The Company believes it has meritorious defenses to
      Glenn Spinello's claims and meritorious counterclaims against Glenn
      Spinello.

      Class Action Lawsuit

      In 1998, several class action lawsuits were 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 to 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. On March 28, 1999, the District Judge
      appointed lead counsel to represent the class. On April 28, 1999, the
      class filed a Consolidated and Amended Class Action Complaint, naming as
      defendants the Company and three present and former executive officer and
      director. The Consolidated Complaint alleges that the Company issued false
      and misleading statements concerning, among other things, certain studies
      and reports on the Company's products, the Company's backlog and the
      amount of reserve taken for returns. Milestone believes that the material
      allegations of the Consolidated Complaint does not state a cause of action
      under the Federal Securities Law and on May 21, 1999 served a motion to
      dismiss the Consolidated Complaint for failure to state a claim. The class
      has responded to the motion and the Company filed a reply. The Motion was
      submitted to the Court in September 1999, but no decision has yet been
      rendered by the Court. To the extent that the Court does not dismiss the
      Consolidated Complaint at this early stage, Milestone intends to
      vigorously defend against the Class Action. Specifically, Milestone
      believes that its financial statements presented fairly its results of
      operations, that the information which it has publicly disclosed did 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.


                                       12
<PAGE>

      Derivative Action Lawsuit

      In February 1999, a purported owner of Milestone stock, commenced a
      derivative action on behalf of the Company, in the Court of Chancery of
      the State of Delaware in Newcastle County, against certain present and
      former executive officers and directors. In the action, plaintiff alleges
      that, based on the same facts as the class actions described above, the
      defendants engaged in violations of the securities laws, committed fraud
      and securities fraud, wasted corporate assets and damaged the Company's
      reputation. As a derivative action, even if the plaintiff is successful,
      any award, after deduction of plaintiff's costs and disbursements, would
      be payable to the Company. Nevertheless, Milestone believes that the
      material allegations of the complaint lack merit and intends to provide a
      legal defense for its present and former officers and directors in
      accordance with the indemnification provisions of its Certificate of
      Incorporation. Because the allegations of the Derivative Complaint are so
      closely tied to the allegations of the Class Complaint, the Derivative
      Plaintiff's counsel has agreed with the Company that no response to the
      Derivative Complaint is due until 60 days after the Court in the Class
      Action decides the motion to dismiss.

      Insurance Broker and Carrier

      In January 1999, the Company filed a complaint against its insurance
      broker (Frank Crystal Financial Services) and the two excess insurers
      [American Alliance and St. Paul] in the United States District Court for
      the District of New Jersey. American Alliance and St. Paul were in dispute
      with the Company because they claim that the Company did not timely submit
      the appropriate application. As a result, American Alliance refused to
      issue a policy and St. Paul, which issued a policy, has refused to cover
      the class actions described above. In April 1999, the Company reached a
      settlement of this action, as a result of which American Alliance issued
      the Excess Director's and Officer's Insurance Policy; the Company agreed
      that claims arising prior to the date of the policy were not covered by
      the policy and the parties reserved all of their arguments and positions
      with respect to any other coverage issues including those that resulted
      from the Consolidated and Amended Class Action Complaint referred to
      above.

      On June 24, 1999 American Alliance filed a complaint in the United States
      District Court for the Southern District of New York seeking a declaratory
      judgment that it is not liable under its policy for the claim asserted in
      the amended class complaint as the derivative complaint. The Company
      intends to vigorously defend against the American Alliance action and
      intends to move to dismiss that action. On July 9, 1999 the Company filed
      its own declaratory judgment action against American Alliance and St. Paul
      in the United States District Court for the District of New Jersey seeking
      a declaration that the claims asserted in the Consolidated Complaint in
      the Class Action and in the Derivative Action are covered by the Excess
      Director's and Officer's Insurance Policies. On August 4, 1999, the
      District Judge in New Jersey administratively terminated the Company's
      action until the previously filed New York Action was resolved or
      dismissed. Thereafter, the Company filed an answer and counterclaim in the
      New York Action seeking the same relief as it sought in its complaint in
      the New Jersey Action. Both American Alliance and the Company each
      requested leave from the Judge in the New York Action to make a motion for
      summary judgment and to dismiss the complaint, respectively. Instead,
      since any decision on the scope of coverage of the excess policies will,
      in large part, depend upon whether the Class Action complaint is


                                       13
<PAGE>

      dismissed, in whole or in part, the District Judge in the New York Action
      decided to hold in abeyance any action on American Alliance's complaint
      and Milestone's answer and counterclaim until a decision is rendered by
      the District Court in New Jersey in the Class Action.

NOTE 5 - EMPLOYEE BENEFIT PLANS

      In January 1999, the Company offered to all full-time employees, a Board
      approved 401K plan. The plan allows eligible employees to contribute into
      specified investments vehicle 2% to 15% of their before tax salaries, (up
      to the IRS limit). Although the plan does not contain any mandatory
      matching provision, it allows the Company to contribute a discretionary
      contribution on a matching and/or profit sharing basis. The Company's
      contributions, if any, vest in increments of 20%, beginning upon the
      completion of 2 years of service. An employee will become fully vested
      after completing 6 years of service.

NOTE 6 - PRIVATE PLACEMENT AND ISSUANCE OF COMMON STOCK

      In March 1999, the Company concluded a $2 million institutional private
      placement with Cumberland Partners, other investment funds managed by or
      affiliated with Cumberland Associates and certain principals of Cumberland
      Associates. An additional $250,000 was raised from the Chairman and Chief
      Executive Officer of Milestone, on the same terms and conditions. The
      investors purchased, at face value, 3% Senior Convertible Notes Due 2003,
      convertible into Milestone Common Stock at prices increasing from $2.50
      per share in the first year to $6.00 per share in the fourth year, subject
      to antidilution protection in the event of stock dividends and certain
      capital changes. Purchasers of the Notes were granted rights to
      participate in certain future security offerings by Milestone.

      In September, the Company issued 47,016 shares of Milestone Common Stock
      in lieu of cash of $36,438 in making the first semi annual interest
      payment, on the Senior Convertible Notes as permitted by the terms of the
      purchase agreement.

NOTE 7 - WISDOM PRODUCT LINE

      In April 1999, the Company discontinued its selling effort with regards to
      the Wisdom product line excluding SplatrFree(TM) prophy angles. The
      discontinued products generated net sales of $174,086 and an operating
      loss of $52,911 for the nine months ended September 30, 1999. For the nine
      months ended September 30, 1998, these products generated $1,350,000 in
      net sales and operating income of $541,000. In terminating the product
      line the Company incurred $76,345 of expenses, including $19,291 for
      uncollectible receivables, $15,692 in aggregate termination compensation
      and employee benefits, $5,066 for a lease buyout, $18,793 in previously
      unamortized acquisition costs and $17,503 to write off inventory.

      The Company had a line of credit which had originally been secured by the
      assets associated with the Wisdom product line. In June 1999, the Company
      obtained a thirty-day extension of its $250,000 line of credit with some
      temporary modifications including a line reduction. On July 26, 1999, the
      Company notified its lender that the Company would no longer be utilizing
      the line and remitted the outstanding balance of $50,000.


                                       14
<PAGE>

NOTE 8 - MEDICAL DEVICE

      In September 1999, the Company received approval by the European Economic
      Community for the use of The Wand(TM) in the medical applications. The
      Company believes that this acceptance will pave the way for similar
      acceptance in the United States and other parts of the world.
      Additionally, in August of this year, the Company submitted an application
      to the FDA for approval to distribute a medical device, it has developed,
      that addresses the need of physician to deliver widely varying volumes of
      anesthetic and other medicaments for numerous medical disciplines.

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

      The Company launched The Wand(TM) (a computer controlled system that
      enables virtually "painless" injections) during the first quarter of 1998.
      The product's early success was then tempered by significant returns and
      declining sales during the last seven and a half months of 1998. Based on
      further research and development and user feedback, several product
      improvements were made. This has resulted in a significant decline in
      returns. Furthermore, in January 1999, the Company received approval to
      apply the CE mark to "The Wand" for European distribution. The Company
      began shipping "The Wand" to its international partners during the last
      week of March 1999.

Three months ended September 30, 1999 compared to three months ended September
30, 1998

Statement of Operations

      Net sales for the three months ended September 30, 1999 and September 30,
      1998 were $511,056 and $506,744 respectively. The $4,312 increase reflects
      a sharp decrease in returns and a lower return reserve partially offset by
      a decline in Wand sales volume (including disposable handpieces). The
      Wisdom product line which was terminated in April 1999, had generated
      approximately $494,000 in net sales for the three months ended September
      30, 1998. Domestic handpieces sales increased 26% as compared to the
      second quarter of 1999, generating approximately $250,000 in revenue.
      During the three months ended September 30, 1999, only $70,000 in revenue
      was generated from sales to international distributors, since these
      distributors, for the most part, utilized inventory purchased during the
      preceding quarter to initially penetrate their foreign markets.

      Cost of sales for the three months ended September 30, 1999 as compared to
      the three months ended September 30, 1998 declined from $622,618 to
      $227,718, a $394,900 reduction. The reduction is primarily attributable to
      lower sales volume and to lower returns for the Wand (including disposable
      handpieces). It also reflects a decrease in average product costs due to
      prior period inventory writedowns. Also, costs of sales attributable to
      the Wisdom product line were approximately $310,000 for the three months
      ended September 30, 1998.

      For the three months ended September 30, 1999, the Company generated a
      gross profit of $283,338 as compared to a gross loss of $115,874 for the
      three months ended September 30, 1998.

      Selling, general and administrative expenses for the three months ended
      September 30, 1999 and September 30, 1998 were $1,513,148 and $2,449,405
      respectively. The $936,257 or 38% decrease is primarily attributable to
      approximately $778,000 aggregate decrease in


                                       15
<PAGE>

      selling and marketing expenses associated with The Wand(TM), a $51,000
      reduction in corporate salaries, a $53,000 decrease in legal expenses, and
      a $138,000 reduction in selling and marketing expenses associated with the
      Wisdom product line. These expenses were offset by $101,000 increase in
      consulting fees.

      Research and development expenses for the three months ended September 30,
      1999 and September 30, 1998 were $288,724 and $107,717, respectively. The
      $181,007 increase is primarily attributable to the cost incurred in
      developing product improvements and a medical version of "The Wand(TM)".

      Loss from operations for the three months ended September 30, 1999 and
      1998 were $1,518,534 and $2,672,996, respectively.

      Net interest expense for the three months ended September 30, 1999 was
      $3,887. Net interest income for the three months ended September 30, 1998
      was $85,933. The $89,820 difference is primarily attributable to lower
      aggregate funds available for investing and the additional interest
      expenses associated with the senior convertible notes.

      The net loss for the three months ended September 30, 1999 was $1,522,421
      as compared to net loss of $2,587,063 for the three months ended September
      30, 1998. The decrease reflects sharp declines in product returns and in
      selling general and administrative expenses, and a decrease in the average
      product cost partially offset by a decline in Wand(TM) sales volume.

      Nine months ended September 30, 1999 compared to nine months ended
      September 30, 1998

Statement of Operations

      Net sales for the nine months ended September 30, 1999 and September 30,
      1998 were $2,045,210 and $7,621,046 respectively. The $5,575,836 or 73%
      decrease reflects a sharp decline in Wand sales volume (including
      disposable handpieces) partially offset by a decrease in returns and a
      lower return reserve. Furthermore, net sales from the Wisdom product line
      which was terminated in April, 1999 were $174,000 for the nine months
      ended September 30, 1999 as compared to $1,350,000 for the nine months
      ended September 30, 1998. Approximately, $756,000 in revenue was generated
      through sales to international distributors for the nine months ended
      September 30, 1999.

      Cost of sales for the nine months ended September 30, 1999 as compared to
      the nine months ended September 30, 1998 declined from $5,615,244 to
      $1,044,489, a $4,570,755 reduction. The reduction is primarily
      attributable to lower sales volume, a sharp decline in returns and a
      decrease in average product costs due to prior period inventory
      writedowns.

      For the nine months ended September 30, 1999, the Company generated a
      gross profit of $1,000,721 as compared to a gross profit of $2,005,802 for
      the nine months ended September 30, 1998.

      Selling, general and administrative expenses for the six months ended
      September 30, 1999 and September 30, 1998 were $5,217,767 and $7,446,066
      respectively. The $2,228,299 or 30% decrease is primarily attributable to
      approximately $1,563,000 aggregate decrease in selling


                                       16
<PAGE>

      and marketing expenses associated with The Wand(TM), a $234,000 reduction
      in corporate salaries, a $221,000 decrease in compensation expense related
      to 1998 option grants, and a $366,000 reduction in selling and marketing
      expenses associated with the Wisdom product line. These expenses were
      offset by $221,000 increase in legal expenses and $101,000 increase in
      consulting fees.

      Research and development expenses for the nine months ended September 30,
      1999 and September 30, 1998 were $398,180 and $353,258, respectively. The
      $44,922 increase is primarily attributable to the cost incurred in
      developing product improvements and a medical version of "The Wand(TM)".

      Loss from operations for the nine months ended September 30, 1999 and 1998
      were $4,615,226 and $5,793,522, respectively.

      In April 1999, the Company discontinued its selling effort with regards to
      the Wisdom product line excluding Splatrfree(TM) prophy angles. $76,345 in
      aggregate costs were incurred in terminating the product line. They
      included $19,291 for uncollectible receivables, $15,692 in aggregate
      termination compensation and employee benefits, $5,066 for a lease buyout,
      $18,793 in previously unamortized acquisition costs and $17,503 to write
      off inventory currently earmarked for distribution to charities and trade
      associations.

      Net interest income for the nine months ended September 30, 1999 and
      September 30, 1998 was $22,767 and $367,224 respectively. The $344,457
      decrease is primarily attributable to lower aggregate funds available for
      investing and the additional interest expenses associated with the senior
      convertible notes.

      The net loss for the nine months ended September 30, 1999 was $4,668,804
      as compared to net loss of $5,426,298 for the nine months ended September
      30, 1998. The decrease reflects sharp declines in product returns and in
      selling general and administrative expenses, and a decrease in the average
      product cost partially offset by a decline in Wand(TM) sales volume.

      Liquidity and Capital Resources

      At September 30, 1999, the Company's working capital was $2,639,004. It
      consisted primarily of inventories, investment in treasury bills and cash
      and cash equivalent.

      For the nine months ended September 30, 1999, the Company increased cash
      and cash equivalents by $549,693, providing $2,687,993 from investing
      activities and $2,098,000 from financing activities.

      For the nine months ended September 30, 1999, the Company's net cash used
      in operating activities was $4,236,300. This was primarily attributable to
      a net loss of $4,668,804 adjusted for non cash items of $202,811 for
      amortization and $352,389 for depreciation, a $279,409 decrease in
      accounts receivable, a $601,865 increase in inventory, a $64,912 increase
      in prepaid expenses, an increase in accrued expenses of $98,928 and a
      $165,464 increase in accounts payable.


                                       17
<PAGE>

      The $2,687,993 provided by investing activities for the nine months ended
      September 30, 1999 was attributable to the maturing of $2,758,174 in
      treasury bills, offset by $70,181 in capital expenditures. These
      expenditures covered retooling cost for product modifications.

      Financing activities provided $2,098,000 for the period. The Company, as
      described below, raised $2,000,000 from an institutional private placement
      and $250,000 from the sale of similar securities to its Chairman and CEO.
      Also, $150,000 was repaid under the Company's line of credit.

      As of September 30, 1999, the Company had approximately $1.4 million in
      aggregate cash, cash equivalents and treasury bills. Management believes
      that through the proper utilization of these existing funds, revenues
      generated from international distributors continued increases in domestic
      disposable handpiece sales, 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 continues to take steps 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) expanding its market overseas; b)
      visiting, obtaining feedback, and providing further support to current
      Wand users; c) providing assistance to dental schools which include The
      Wand(TM) in their curriculum; d) distributing Wand(TM) technique videos
      and technical bulletins to its current users; and e) maintaining a well
      trained service staff. Furthermore, on October 1, 1999 the Company began a
      new sales initiative permitting dentists in the United States to order The
      Wand(TM) directly through Milestone and to avail themselves to certain
      quantity discounts on disposable handpiece purchases.

      The Company's international marketing effort is ongoing. In January 1999,
      "The Wand(TM)" was approved under the Medical Device Directive 93/42/EEC,
      a requirement for all dental and medical devices distributed throughout
      the European Union. This authorized the Company to apply the CE mark to
      the product. In February 1999, the Company entered into an agreement for
      the international distribution of "The Wand(TM)" by AFP Imaging
      Corporation ("AFP") through AFP's international division, Dent-X. In
      September 1999, the Company received approval by the European Economic
      Community for the use of The Wand(TM) in the medical applications.

      Additionally, in August of this year, the Company submitted an application
      to the FDA for approval to distribute a medical device, it has developed,
      that addresses the need of physician to deliver widely varying volumes of
      anesthetic and other medicaments for numerous medical disciplines. Also,
      the Company will continue to develop product enhancements and
      improvements. The raising of additional capital to fund these efforts will
      continually be evaluated by management.

      Private Placement

      In March 1999, the Company received $2 million from an institutional
      private placement with Cumberland Partners, other investment funds managed
      by or affiliated with Cumberland


                                       18
<PAGE>

      Partners, other investment funds managed by or affiliated with Cumberland
      Associates and certain principals of Cumberland Associates. An additional
      $250,000 was raised from Leonard Osser, Chairman and Chief Executive
      Officer of Milestone, under the same terms and conditions. The investors
      purchased, at face value, 3% Senior Convertible Notes Due 2003,
      convertible into Milestone Common Stock at prices increasing from $2.50
      per share in the first year to $6.00 per share in the fourth year, subject
      to anti-dilution protection in the event of stock dividends and certain
      capital changes. The shares underlying the Notes have been registered by
      Milestone and the purchasers of the Notes have been granted rights to
      participate in certain future security offerings by Milestone.

      In September, in accordance with the terms of the purchase agreement, the
      Company elected and issued 47,016 shares of Milestone Common Stock in lieu
      of cash of $36,438 in making the first semi annual interest payment.

      Line of Credit

      In June 1999, the Company obtained a thirty day extension of its $250,000
      line of credit with some temporary modifications. This line had originally
      been secured by the assets associated with the Wisdom product line. On
      July 26, 1999, the Company notified its lender that the Company would no
      longer be utilizing the line and remitted the outstanding balance of
      $50,000.

      Year 2000 Compliance

      The Company has developed a plan to insure its operating systems are
      compliant with the requirements to process transactions in the year 2000.
      This plan includes the upgrade of its internal information systems which
      was completed and cost approximately $3,000. Also, the Company reviewed
      its own equipment and determined that the equipment is either Year 2000
      compliant or not affected by the Year 2000 issues.

      Vendors have been contacted to assure that their systems are or will be
      Year 2000 compliant. Critical vendors are Year 2000 compliant. Also, the
      Company has developed contingency plans to address the most likely worst
      case scenarios from potential Year 2000 disruptions.

      The Year 2000 compliance effort is ongoing and will continue to develop,
      as new information becomes available.


                                       19
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

      None

ITEM 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits:

            NONE

      (b)   Reports on Form 8-K:

            NONE


                                       20
<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

                                      MILESTONE SCIENTIFIC INC.
                                            Registrant


                                      /s/ Mitchell G. Kuhn
                                      ------------------------------------------
                                      Mitchell G. Kuhn
                                      President and Chief Operating Officer


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

Dated: November 12, 1999


                                       21