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, 2001

                                       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 13, 2001 the Registrant had a total of 11,272,847 shares of
Common Stock, $.001 par value, outstanding.


                                       1
<PAGE>

Forward looking statements

When used in this Quarterly Report on Form 10-QSB, 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)

             Condensed Consolidated Balance Sheets at September 30,
             2001 and December 31, 2000                                      4

             Condensed Consolidated Statements of Operations
             for the nine and three months ended September 30, 2001
             and 2000                                                        5

             Condensed Consolidated Statements of Cash Flows
             for the nine months ended September 30, 2001 and 2000           6

             Notes to Condensed Consolidated Financial Statements            8

     ITEM 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations                             13

PART II.     OTHER INFORMATION

     ITEM 6. Exhibits and Reports on Form 8-K                                19

SIGNATURES                                                                   20


                                       3
<PAGE>

                         Part 1. Financial Information

ITEM 1. Condensed Consolidated Financial Statements

                   Milestone Scientific Inc. and Subsidiaries

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         September 30,       December
                                                                             2001            31, 2000
                                                                         ------------      ------------
                                                                         (unaudited)
<S>                                                                      <C>               <C>
ASSETS
CURRENT ASSETS
    Cash                                                                 $     22,690      $    172,867
    Accounts receivable, net of allowance for
       doubtful accounts of $113,510 and
       $160,244 in 2001 and 2000, respectively                                186,604           529,544
    Inventories                                                             1,175,507         1,039,377
    Deferred financing costs, net                                              17,832            71,328
    Prepaid expenses                                                           63,964           152,712
                                                                         ------------      ------------

           Total current assets                                             1,466,597         1,965,828

PROPERTY AND EQUIPMENT, net                                                   223,668           273,141
ADVANCES TO CONTRACT MANUFACTURER                                                  --           304,530
OTHER ASSETS                                                                   12,362            10,318
                                                                         ------------      ------------

            Total assets                                                 $  1,702,627      $  2,553,817
                                                                         ============      ============

                 LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
    Account payable                                                      $  1,453,641      $  1,148,527
    Accrued expenses                                                          196,808           214,437
    Accrued interest ($195,160 payable in stock at the Company's
         option, 302,288 shares as of September 30, 2001)                     313,748           150,479
    Promissory notes-short term ($737,008 payable in stock at the
        Company's option, 1,113,228 shares as of September 30, 2001)        1,151,270                --
    Note payable-officer/stockholder                                          200,000           200,000
    Deferred compensation payable to officer/stockholder                      403,846           141,346
                                                                         ------------      ------------
           Total current liabilities                                        3,719,313         1,854,789

NOTES PAYABLE-LONG TERM ($1,179,686 payable in stock at
    the Company's option, 2,033,947 shares as of September 30, 2001)        2,016,235         2,401,363
                                                                         ------------      ------------
           Total liabilities                                                5,735,548         4,256,152
                                                                         ------------      ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
    Common stock, par value $.001; authorized,
       25,000,000 shares; 11,372,847 issued as of
       September 30, 2001 and 10,752,898 issued
       as of December 31, 2000                                                 11,373            10,753
    Additional paid in capital                                             35,795,399        34,584,473
    Accumulated deficit                                                   (38,609,830)      (35,354,990)
    Unearned advertising                                                     (302,820)               --
    Deferred Compensation directors                                           (15,527)          (31,055)
    Treasury stock, at cost, 100,000 shares                                  (911,516)         (911,516)
                                                                         ------------      ------------
           Total stockholders' deficit                                     (4,032,921)       (1,702,335)
                                                                         ------------      ------------

           Total liabilities and stockholders' deficit                   $  1,702,627      $  2,553,817
                                                                         ============      ============
</TABLE>

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,
                                             2001             2000              2001              2000
                                             ----             ----              ----              ----
<S>                                     <C>               <C>               <C>               <C>
Net sales                               $  2,979,588      $  4,465,876      $    798,776      $  1,532,079
Cost of sales                              1,433,807         2,163,252           377,250           891,696
                                        ------------      ------------      ------------      ------------

Gross profit                               1,545,781         2,302,624           421,526           640,383
                                        ------------      ------------      ------------      ------------

Selling, general and
 administrative expenses                   4,214,539         5,012,701         1,042,414         1,552,890
Research and development expenses             31,756           251,014             3,675            52,064
                                        ------------      ------------      ------------      ------------
                                           4,246,295         5,263,715         1,046,089         1,604,954
                                        ------------      ------------      ------------      ------------

      Loss from operations                (2,700,514)       (2,961,091)         (624,563)         (964,571)

Settlement cost - Spinello lawsuit                --          (228,500)               --                --
Interest expense                            (557,213)         (116,563)         (186,033)          (62,430)
Interest income                                2,887             5,068               279             1,524
                                        ------------      ------------      ------------      ------------

      Net loss                          $ (3,254,840)     $ (3,301,086)     $   (810,317)     $ (1,025,477)
                                        ============      ============      ============      ============

Loss per share - basic                  $       (.29)     $       (.32)     $       (.07)     $       (.10)
                                        ============      ============      ============      ============

Weighted average shares outstanding       11,101,738        10,435,286        11,272,847        10,652,898
                                        ============      ============      ============      ============
</TABLE>

See notes to condensed 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>
                                                                        2001            2000
                                                                        ----            ----
<S>                                                                <C>              <C>
Cash flows from operating activities
 Net loss                                                          $(3,254,840)     $(3,301,086)
 Adjustments to reconcile net loss to
 net cash used in operating activities
    Amortization of advertising costs                                   21,398               --
    Amortization of debt discount and deferred financing costs         196,312               --
    Amortization of patents                                                 --          194,417
    Amortization of unearned compensation                               15,528               --
    Depreciation                                                        58,486          353,707
    Common stock issued for services                                   150,000           95,000
    Stock options issued for services                                   97,649               --
    Settlement of Spinello lawsuit                                          --          203,500
 Changes in operating assets and liabilities:
    Accounts receivable                                                342,940         (422,727)
    Inventories                                                       (136,130)         583,976
    Prepaid expenses                                                    88,748          (40,429)
    Advances to contract manufacturer                                  304,530               --
    Other assets                                                        (2,044)              --
    Accounts payable                                                   305,114           27,578
    Accrued interest                                                   360,901           46,842
    Accrued expenses                                                   (17,629)         101,779
    Deferred compensation                                              262,500               --
                                                                   -----------      -----------
       Net cash used in operating activities                        (1,206,537)      (2,157,443)
                                                                   -----------      -----------

Cash flows from investing activities - capital expenditures             (9,013)         (31,830)
                                                                   -----------      -----------

Cash flows from financing activities
       Proceeds from sale of common stock                              500,000               --
       Net proceeds from issuance of notes and
          lines of credit                                              565,373        2,540,055
       Cost associated with registering shares                              --          (32,521)
                                                                   -----------      -----------
       Net cash provided by financing activities                     1,065,373        2,507,534
                                                                   -----------      -----------


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (150,177)         318,261

Cash and cash equivalents at beginning of period                       172,867          242,843
                                                                   -----------      -----------

Cash and cash equivalents at end of period                         $    22,690      $   561,104
                                                                   ===========      ===========

Supplemental disclosures of cash flow information:
 Cash paid during the period for interest                          $        --      $    58,727
                                                                   ===========      ===========
</TABLE>

See notes to condensed consolidated financial statements.


                                       6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the nine months ended September 30, 2001 and 2000
                                   (unaudited)

Supplemental schedule of noncash financing activities:

In January, April and July 2001, pursuant to the 20% promissory note agreements,
the Company converted $51,111, $53,472 and $56,770, respectively, of accrued
interest into additional principal.

In January 2001, the Company granted warrants to purchase 20,000 shares of
common stock (with an estimated fair value of $23,400) in connection with
$100,000 drawn from a $1,000,000 credit facility provided by a major existing
investor. This resulted in an initial increase to debt discount and to
additional paid in capital.

In February 2001, the Company issued 27,641 shares of common stock in exchange
for payment of accrued interest totaling $36,279.

In February 2001, the Company issued 92,308 shares of common stock with a value
of $150,000 for services rendered.

In March 2001, pursuant to a $500,000 line of credit agreement, the Company
granted warrants to purchase 100,000 shares of common stock (with an estimated
fair value of $80,000). This resulted in an initial increase to debt discount
and in additional paid in capital.

In March 2001, the Company granted warrants to purchase 390,625 shares of common
stock with an estimated fair value of $324,418 for advertising services. This
amount was recorded in stockholders' deficit as an increase to unearned
advertising and to additional paid in capital.

In July 2001, the Company granted options to purchase 155,000 shares of common
stock with an estimated value of $97,649 for services rendered.


                                       7
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

      The unaudited condensed consolidated financial statements of Milestone
      Scientific Inc. and Subsidiaries (the "Company") have been prepared in
      accordance with accounting principles generally accepted in the United
      States of America for interim financial information. Accordingly, they do
      not include all of the information and footnotes required by accounting
      principles generally accepted in the United States of America 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,
      2000 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, 2000 financial statements.

      In the opinion of the Company, the accompanying unaudited condensed
      consolidated financial statements contain all adjustments (consisting of
      normal recurring entries) necessary to present fairly the financial
      position as of September 30, 2001 and the results of operations for the
      three and nine months ended September 30, 2001 and 2000 and cash flows for
      nine months ended September 30, 2001 and 2000.

      The results reported for the three and nine months ended September 30,
      2001 are not necessarily indicative of the results of operations, which
      may be expected for a full year.

NOTE 2 - BASIS OF PRESENTATION

      The accompanying financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of
      America. The Company has incurred substantial losses from operations. In
      addition, at September 30, 2001 the Company has a working capital
      deficiency of $2,252,716 and a stockholders' deficit of $4,032,921. The
      Company has used cash from operations of $1,206,537 for the nine months
      ended September 30, 2001. These matters raise substantial doubt about the
      Company's ability to continue as a going concern.

      The Company believes that The Wand(R) technology is a major advance in the
      delivery of local anesthesia and that potential applications of this
      technology extend beyond dentistry to include podiatry, hair restoration,
      plastic surgery, dermatology and procedures in orthopedics, OB-GYN and
      ophthalmology. Based on scientific and anecdotal support, the Company
      contends that The Wand(R) could enhance the practices of the estimated
      90,000 physicians included in the aforementioned non-dental disciplines.

      Despite limited resources, the Company has continued its efforts to
      realize the market potential of The Wand(R) and become profitable. These
      steps include (i) relaunching of The Wand Plus(R) drive unit domestically,
      under the name CompuDent(TM), (ii) distributing CompuDent(TM) through a
      host of channels (i.e. independent sales representatives and an inside
      sales group), (iii) advertising to increase the awareness of the product,
      (iv) implementing cost reduction programs, and (vi) launching of The Wand
      Plus(R) drive unit for


                                       8
<PAGE>

      medical purposes and marketing it as CompuMed(TM). In March 2001,
      Milestone signed an agreement with News USA, Inc. and Vested Media
      Partners, Inc. to increase the awareness of healthcare professionals and
      the public to the benefits of The Wand(R) and Compuflo(TM) technologies.
      The cost reduction programs included the elimination of a key executive
      position and the Chief Executive Officer has voluntarily agreed to a
      deferral of his salary.

      Management believes that the above steps are critical to the realization
      of the Company's long-term business strategy; however, substantial funding
      is still required to execute the Company's business plan and there can be
      no assurance that the successful execution of such business plan will
      actually improve the Company's operating results.

      Due to the Company's history of generating losses on sales of its
      principal product, The Wand(R), and uncertainty with respect to the
      predictability of future cash flows on product sales, the recoverability
      of a major portion of the recorded asset amounts shown in the accompanying
      condensed consolidated balance sheets is in doubt. As a result of
      continued losses from operations, the Company determined that an
      impairment of certain assets has occurred. Accordingly, the Company
      recorded noncash charges of $2,203,721 for the year ended December 31,
      2000, representing the write-down of tooling equipment in the amount of
      $956,546 and the unamortized portion of patents in the amount of
      $1,247,175.

      At September 30, 2001, Milestone had $22,690 in cash, and working capital
      deficiency of $2,252,716. Several steps have been taken to improve
      liquidity and meet Milestone's working capital needs. As further described
      in Note 4, the Company (i) restructured its obligations to the holders of
      its 10% Secured Promissory Notes, which has had the effect of reducing the
      Company's immediate cash needs relating to the repayment of principal and
      gives the Company the option of paying the entire amount due under each
      note in shares of common stock, valued at 85% of the then market price,
      (ii) borrowed the remaining $100,000 from the $1,000,000 line of credit,
      (iii) borrowed $465,373 on a newly obtained $500,000 line of credit at an
      interest rate of 10% per annum, with such interest being payable at the
      Company's option in cash or in shares of common stock and (iv) received
      $500,000 from the sale of 500,000 shares of common stock. In January 2001,
      Milestone entered into a three-year private equity line agreement with
      Hillgreen Investments Limited ("Hillgreen"), a British Virgin Islands
      corporation, pursuant to which Hillgreen is obligated to purchase, subject
      to the fulfillment of specified conditions, up to 2,100,000 shares of
      Milestone common stock over the next 36 months. Hillgreen has allocated
      $20,000,000 to fund its purchase obligations. Furthermore in October 2001,
      the Company borrowed $75,000 form an existing investor with such interest
      being payable at the Company's option in cash at the rate of 10% per annum
      or in shares common stock at the rate of 12% per annum.

NOTE 3 - LOSS PER SHARE

      Basic loss per common share is computed using the weighted average number
      of common shares outstanding.

      For the three and nine months ended September 30, 2001 and 2000, the
      assumed exercise of certain dilutive options and warrants were
      anti-dilutive.

      Options and warrants, in aggregate, to purchase 805,625 shares of common
      stock were issued during the nine months ended September 30, 2001 but were
      not included in the computation of loss per share because the effect would
      have been anti-dilutive. This includes options to purchase 50,000 shares
      of common stock issued to Milestone's CEO, Leonard Osser, at fair value.


                                       9
<PAGE>

NOTE 4 - REVOLVING CREDIT LINE and NOTES PAYABLE

$1,000,000 in New Financing and Debt Restructuring

In March 2001 and through two major existing investors, Milestone obtained a
$500,000 line of credit which matures on August 31, 2002 and received $500,000
from the sale of 500,000 shares of common stock. Also, in March 2001, the
Company restructured its obligations to the holders of its 10% Senior Secured
Promissory Notes.

Note Payable to Officer/stockholder

Note payable to officer/stockholder represents a note payable to the Company's
Chief Executive Officer with interest payable at 9% per annum. The $200,000
principal balance of the note originally was due on February 1, 2001. The Chief
Executive Officer has agreed to extend the due date for the payment of principal
to November 30, 2001

Promissory Notes - Short Term

$500,000 Line of Credit

As mentioned above, Milestone obtained a $500,000 line of credit in March 2001.
Milestone will pay a 2% facility fee on the line of credit and interest at the
rate of 10% per annum on monies borrowed with both the fee and interest being
payable at the Company's option in cash or in shares of Milestone's common
stock. In connection with obtaining the line of credit, the lender received
warrants to purchase 100,000 shares of common stock at an exercised price of
$1.69 and an aggregate estimated fair value of $80,000. As of September 30,
2001, the Company had drawn down $465,373 from the line of credit and the
remainder during October 2001.

Senior Secured Promissory Notes

As of February 1, 2000, the Company concluded a $1,000,000 institutional private
placement of its 10% Senior Secured Promissory Notes due September 30, 2001 and
warrants to purchase 142,857 shares of Milestone Common Stock with Cumberland
Associates LLC, Strategic Restructuring Partnership L.P., a former principal of
Cumberland Associates, the Chief Executive Officer, an affiliate of one of its
directors and seven other individuals. These notes are collateralized by all
present and future inventories of Milestone and were originally prepayable out
of a portion of the proceeds generated by sales of The Wand(R). As described
above, these notes were restructured in March 2001. Under the terms of the
restructuring agreement, each of the noteholders agreed to exchange their 10%
Notes for a new, zero coupon note (the "Zero Coupon Note") (a) paying interest
at 20% per annum until maturity on March 31, 2002, (b) having a face amount
equal to the outstanding principal owed to the noteholders plus accrued interest
and interest payable until maturity, (c) giving Milestone the option to pay the
face value of the notes in cash or in shares of common stock, provided that the
shares have been registered under the Securities Act of 1933, and (d) paying
each noteholder 108% of the face value of his Zero Coupon Note, including
unearned interest to maturity, if there is a change of control of Milestone.
Moreover, the warrants previously issued to the noteholders were repriced back
to the initial exercise price of $1.75 per share at the date of grant.


                                       10
<PAGE>

Notes Payable-Long-term

8% Promissory Note

On July 31, 2000, the Company established a $1,000,000 credit facility with a
major existing investor. Initially, $500,000 was borrowed under the line. In
December 2000, the Company borrowed an additional $400,000 and subsequently, in
January 2001, the Company borrowed the remaining $100,000. The original $500,000
drawn down in July 2000 is due on September 30, 2003 and the remaining $500,000
drawn down in aggregate during December 2000 and January 2001 is due on December
31, 2003.

In addition, in 2000, the investor was issued two separate five-year warrants
for the purchase of 70,000 shares and 80,000 shares of common stock at exercise
prices of $3.00 per share and $1.25 per share, respectively. The relative fair
market value of the warrants, which in the aggregate amounted to $212,421, was
recorded as a debt discount and is being amortized as additional interest
expense over the term of the related notes. The investor also was granted
additional warrants for 20,000 shares exercisable at $1.25 per share in
conjunction with the remaining $100,000 drawn down in January 2001. The
estimated value of the 20,000 warrants was $23,400 and was recorded as a debt
discount and is being amortized as additional interest expense over the term of
the related notes.

The Company may, at its own option, elect to convert $200,000 of the above notes
into equity securities at any time up through May 31, 2003 in the event the
Company completes a sale of such equity resulting in gross proceeds of at least
$1,800,000, at a price per share substantially the same as those sold in such
equity offering.

20% Promissory Notes

In August 2000, Milestone borrowed $1,000,000 from two funds managed by
Cumberland Associates LLC bearing interest at 20% per annum, with principal and
interest due in October 2002. After March 31, 2001, at the option of the
Company, upon written notice to the noteholders, in lieu of principal and
interest, the Company may issue common stock at .85% of the market price. In
October 2000, Milestone converted $18,333 in accrued interest into additional
principal with interest payable at 20% per annum as provided for in the note
agreement. Through September 30, 2001, Milestone converted, an additional
$161,353 in accrued interest into additional principal.

NOTE 5 - EQUITY LINE COMMITMENT

In January 2001, Milestone entered into a three-year private equity line
agreement with Hillgreen Investments Limited ("Hillgreen"), a British Virgin
Islands corporation, pursuant to which Hillgreen is obligated to purchase,
subject to the fulfillment of specified conditions, up to 2,100,000 shares of
Milestone common stock over the next 36 months. Hillgreen has allocated
$20,000,000 to fund its purchase obligations. The transaction was arranged by
Jesup & Lamont Securities Corporation, a New York-based investment banking firm.
Milestone's right to draw upon this facility is subject to a number of
limitations and conditions, including a limitation on the amounts sold to
Hillgreen within specified periods. Subject to these and other conditions and
limitations, Milestone will have full control over the timing of any financing
under the equity line and is under no obligation to sell any shares to
Hillgreen. Any shares that are sold will be priced at 87.5% of the volume
weighted average market price of Milestone common stock during a fixed period
prior to the sale. Milestone has discretion to establish a floor price below
which shares will not be sold by Milestone to Hillgreen.


                                       11
<PAGE>

NOTE 6 - CONTINGENCIES

In March 2001, the Company entered into an advertising agreement with News USA,
Inc. and Vested Media Partners, Inc.- (the "Agreement") to increase the
awareness of healthcare professionals and the public to the benefits of The
Wand(R) and the CompuFlo(TM) technologies. Under the Agreement, News USA is
required to prepare articles and advertisements for the Company's products and
technologies and place them in newspapers and on radio stations. News USA has
guaranteed 72,000 media placements during the 18-month term of the Agreement. In
exchange for these services the Company granted warrants to purchase 1,171,875
shares of common stock exercisable on the following dates and prices over the
life of the Agreement; (1) $1.28 during the first 18 months, (2) $2.25 during
the next nine months and (3) $3.00 during the next nine months.

The Agreement provides for a termination clause in the fourth month if the
Company's average closing stock price does not exceed $2.25 during the first ten
days of the fourth month provided that the Company has received 24,000
publications. Accordingly, the remaining two-thirds of the warrants to purchase
the Company's common stock would not become exercisable. However, the vendor can
recommence producing the publications whenever the Company's average closing
stock price for a ten day period exceeds $2.25. At the end of the ninth month,
the vendors have the option to terminate the Agreement if the Company's stock
price has not averaged $2.25 for a ten day period. Upon termination, two-thirds
of the warrants remaining to purchase the Company's common stock will be
forfeited unless the vendors resumes fulfilling one-half of their obligation in
three months and the remaining obligation in the next six months.

As of September 30, 2001, the Company recorded unearned advertising cost of
$324,218 which represents the estimated fair value of the 390,625 of the
warrants for one-third of the total warrants granted based on the 24,000 minimum
placements. The unearned advertising costs are being amortized as publications
and are received by the Company over the minimum placements. For the three and
nine months ended September 30, 2001, the Company recorded advertising charges
of $14,914 and $21,398, respectively. The estimated fair value of the remaining
warrants to purchase 781,250 of the Company's common stock have not been
recorded in the Company's consolidated financial statements due to the
likelihood that the Agreement will not be fulfilled.

NOTE 7 - SUBSEQUENT EVENT - PROMISSORY NOTE

In October 2001, the Company received $75,000 from a major investor issuing a
convertible promissory note. The note matures in April 2003. The interest rate
is 10% and is payable quarterly beginning January 1, 2002. At the Company's
option interest, may be paid through the issuance of stock. Interest payments
paid in stock will be calculated at 12% per annum.

At the option of the Company, any outstanding principal and accrued but unpaid
interest at maturity may be converted into shares of Milestone's common stock at
a rate of one share for every $.80 of indebtedness.


                                       12
<PAGE>

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

      Management's efforts during 2001 have focused on generating positive cash
      flow from operations, obtaining additional financing, reducing the cash
      outlays connected with existing debt and overhead, and introducing The
      Wand(R) for medical procedures.

      To date, the Company has achieved several of these objectives. As
      mentioned previously, it received over $900,000 in new financing from
      existing major investors, restructured approximately $756,000 of existing
      debt and obtained an equity commitment subject to certain conditions for
      up to the purchase of 2,100,000 shares of its Common Stock. It
      successfully reduced operating overhead through cost containment programs
      and transitioned to a commission based sales incentive program for sales
      representatives. In August, 2001, the Company unveiled the Wand(R)
      technology for medical procedures. Furthermore, the Company reached an
      agreement with a media service company to increase the awareness of
      healthcare professionals and the public to the benefits of The Wand(R) and
      the Company's new CompuFlo(TM) technologies. Finally, Milestone was
      granted a broad new U.S. patent covering the CompuFlo(TM) technology.

      Although operations have not become a source of cash to date, management
      is encouraged that only $157,439 was needed to fund the operating
      activities during the third quarter. The resulting $52,500 monthly average
      use of cash for operations in the third quarter represents a sharp decline
      from the approximate $1,050,000 (an average of $175,000 per month) used in
      operating activities during the first six months of 2001. Results to date
      indicate that this trend should continue during the fourth quarter.

      Unit sales remain below expectation while management's major focus was on
      other financial needs, as foreign distributors postponed restocking until
      existing inventories have been depleted and as domestic efforts
      concentrated on repositioning the product in the dental market place.

      We are all touched by the tragic events of September 11, 2001. Insofar as
      the Company is concerned, the events caused the cancellation of a major
      trade show in September and brought about lower attendance at subsequent
      trade shows. Nevertheless, the management of the Company remains resilient
      and committed to the long term prospect of the Wand(R) technology.

Three months ended September 30, 2001 compared to three months ended September
30, 2000

Statement of Operations

      Net sales for the three months ended September 30, 2001 and September 30,
      2000 were $798,776 and $1,532,079, respectively. The $733,303 or 47.9%
      decrease is attributable to a $770,000 decrease in revenue from foreign
      distributors partially offset by $110,000 increase in The Wand(R) drive
      unit domestic sales. For the quarters ended September 30, 2000, the
      Company made its initial shipment of 1,000 units for distribution in
      Mexico and 500 units for distribution in Japan. For the quarter ended
      September 30, 2001, the Company sold 297 units, domestically including 88
      unit upgrades, generating approximately $250,000 in


                                       13
<PAGE>

      revenue. For the quarter ended September 30, 2000, domestic net unit sales
      were 192 including 117 promotional units. These sales generated revenue of
      approximately $140,000. Over 471,000 handpieces were sold during the third
      quarter of 2001, representing less than a 1% decrease when compared to the
      same period during 2000. The shortfall is directly attributable to the
      events of September 11, 2001. The Company experienced a sharp but
      temporary decline in business activity for the remainder of the month.

      Cost of sales for the three months ended September 30, 2001 and 2000 were
      $377,250 and $891,696, respectively. The $514,446 decrease is attributable
      primarily to lower foreign and promotional unit sales volume and $97,021
      in depreciation of tooling equipment during the third quarter of 2000. The
      tooling equipment was written off during the fourth quarter of 2000. The
      decrease was offset partially by the recovery in the third quarter of 2000
      of previously written down inventory for parts and finished goods,
      $470,000 and $204,000 respectively.

      For the three months ended September 30, 2001, the Company generated a
      gross profit of $421,526 or 53% as compared to a gross profit of $640,383
      or 42% for the three months ended September 30, 2000.

      Selling, general and administrative expenses for the three months ended
      September 30, 2001 and 2000 were $1,042,414 and $1,552,890, respectively.
      The $510,476 decrease is attributable primarily to a $510,000 aggregate
      reduction in selling and marketing expenses for The Wand(R) and $61,129 of
      patent amortization for the third quarter of 2000.

      Research and development expenses for the three months ended September 30,
      2001 and 2000 were $3,675 and $52,064, respectively. The $48,389
      difference is the result of higher costs incurred during the second
      quarter of 2000, which were associated with the development of product
      improvements and the medical unit.

      The loss from operations for the three months ended September 30, 2001 and
      2000 was $624,563 and $964,571 respectively.

      The Company incurred interest expense of $186,033 for the three months
      ended September 30, 2001 as compared to $62,430 of interest expense for
      the same period for calendar 2000. The difference is attributable to
      higher average borrowings in 2001 and $50,340 in amortization of the debt
      discount and deferred financing costs which is associated with the
      detachable warrants from the financing described below.

      The net loss for the three months ended September 30, 2001 was $810,317 as
      compared to a net loss of $1,025,477 for the quarter ended September 30,
      2000. The $215,160 reduction in net loss is attributable to a decrease in
      operating expenses partially offset by a decrease in foreign sales volume
      for The Wand(R) and its disposable handpiece and an increase in interest
      expense.


                                       14
<PAGE>

Nine months ended September 30, 2001 compared to nine months ended September 30,
2000.

Statement of Operations

Net sales for the nine months ended September 30, 2001 and 2000 were $2,979,588
and $4,465,876, respectively. The $1,486,288 or 33% decrease is attributable
primarily to several transactions unique to the first nine months of 2000, when
the Company partnered with a domestic distributor in a promotional sales effort;
availed to its customers the first time opportunity to purchase refurbished
units of The Wand(R) at a special discounted price; and launched the sale of The
Wand(R) in Japan, Mexico and Brazil. These efforts generated revenues of
approximately $87,000, $334,000 and $1,200,000, respectively. The decrease was
partially offset by a $66,000 or 7% increase in domestic handpiece sales.
Domestic unit sales were lower as the Company began transitioning from a sales
force to an independent sales force.

Cost of sales for the nine months ended September 30, 2001 and 2000 were
$1,433,807 and $2,163,252, respectively. The $729,445 decrease is attributable
primarily to lower foreign sales and promotional unit sales and $291,213 in
depreciation of tooling equipment during the first nine months of 2000. The
tooling equipment was written off during the fourth quarter of 2000. The
decrease was partially offset by the recovery in the first nine months of 2000
of previously written down inventory for parts and finished goods of $617,000
and $374,000, respectively.

For the nine months ended September 30, 2001, the Company generated a gross
profit of $1,545,781 or 52% as compared to a gross profit of $2,302,624 or 52%
for the nine months ended September 30, 2000.

Selling, general and administrative expenses for the nine months ended September
30, 2001 and 2000 were $4,214,539 and $5,012,701, respectively. The $798,162
decrease is attributable primarily to a $985,000 aggregate reduction in selling
and marketing expenses for The Wand(R) and approximately $196,312 of patent
amortization for the first nine months of 2000. These decreases were partially
offset by a $152,649 increase in non cash compensation for services rendered and
a $122,500 increase in the CEO salary, which was his approved base salary in
1998 and which is being completely deferred.

Research and development expenses for the nine months ended September 30, 2001
and 2000 were $31,756 and $251,014, respectively. The $219,258 difference is the
result of higher costs incurred during the third quarter of 2000, which were
associated with the development of the medical unit and product improvements.

The loss from operations for the nine months ended September 30, 2001 and 2000
was $2,700,514 and $2,961,091, respectively.

In February 2000, the Company executed a settlement of the lawsuit between two
former employees, Ronald Spinello, DDS, former Chairman and Director of Research
of Spintech and his son, Glen Spinello. Milestone paid $25,000 to Dr. Spinello
and issued 80,000 shares of common stock to him and 8,000 shares of common stock
to Glen Spinello. Since the market price of the shares was $2.3125 per share,
the Company recognized a $228,500


                                       15
<PAGE>

expense. The Company received from the Spinello's 5,025 shares of Spintech
common stock, a subsidiary of Milestone.

The Company incurred interest expense of $557,213 for the nine months ended
September 30, 2001 as compared to $116,563 of interest expense for the same
period for calendar 2000. The difference is attributable to higher average
borrowings in 2001 and $196,312 in amortization of the debt discount and
deferred financing costs, which is associated with the detachable warrants from
the financing described below.

The net loss for the nine months ended September 30, 2001 was $3,254,840 as
compared to a net loss of $3,301,086 for the nine months ended September 30,
2000. The $46,246 reduction in net loss is attributable to a decrease in
operating expenses. This was partially offset by a decrease in foreign sales
volume for The Wand(R) and its disposable handpiece and an increase in interest
expense.

Liquidity and Capital Resources

At September 30, 2001, Milestone had $22,690 in cash and had a working capital
deficiency of $2,252,716. For the nine months ended September 30, 2001, the
Company decreased cash by $150,177.

For the nine months ended September 30, 2001, the Company's net cash used in
operating activities was $1,206,537. This is attributable primarily to a net
loss of $3,254,840 adjusted for non-cash items of $196,312 for amortization of
debt discount and deferred financing costs, $21,398 for the amortization of
advertising costs, $15,528 for amortization of unearned compensation, $58,486
for depreciation, $150,000 for common stock issued for services; $97,649 for
options issued for services rendered; a $342,940 decrease in accounts
receivable; a $136,130 increase in inventory; an $88,748 decrease in prepaid
expenses; a decrease in accrued expenses of $17,629; a $360,901 increase in
accrued interest; a $305,114 increase in accounts payable; and a $262,500
increase in deferred compensation.

For the nine months ended September 30, 2001, the Company used $9,012 in
investing activities for capital expenditures.

For the nine months ended September 30, 2001, the Company generated $1,065,373
from financing activities. This is due to the $500,000 received from the sale of
common stock and the $565,373 received in aggregate from notes and two credit
lines, net. These financings were accomplished through two major existing
investors.

To improve liquidity and meet its working capital needs, the Company has reduced
operating overhead, restructured existing debt and raised additional capital.
The reduction in operating overhead was achieved in part by transitioning its
domestic sales forces to a commission based independent sales force and by
reducing operating staff.

The Company has the option to pay in common stock, the principal and the accrued
interest of the newly restructured senior secured promissory notes and the 20%
promissory notes. The restructured notes have a principal balance of $756,995
and accrued interest of $134,865. Based on the September 30, 2001 closing price
of $.68 per share, the notes could be paid by issuing 1,311,559 shares of common
stock. The 20% promissory notes can be paid by issuing shares at 85% of the
current market price. At September 30, 2001, these notes had a carrying


                                       16
<PAGE>

value of $1,179,686 and accrued interest of $60,295. Based on the September 30,
2001 closing price, these notes could be paid by issuing 2,137,898 shares of
common stock. The current aggregate portion of above notes and respective
accrued interest, net of the debt discount of $19,987 totals $932,168 and would
reduce the Company's working capital deficiency from $1,838,454 to $906,286.
However, there can be no assurance that Milestone will exercise its option to
issue shares to satisfy these obligations.

Debt Restructuring

10% Senior Secured Promissory Notes

In March 2001, the Company restructured its obligations to the holders of its
10% Senior Secured Promissory Notes. Under the terms of the agreement, each of
the noteholders agreed to exchange their 10% Notes for a new, zero coupon note
(the "Zero Coupon Note") (a) paying interest at 20% per annum until maturity on
March 31, 2002, (b) having a face amount equal to the outstanding principal owed
to the noteholders plus accrued interest and interest payable until maturity,
(c) giving Milestone the option to pay the face value of the notes in cash or in
shares of common stock, provided that the shares have been registered under the
Securities Act of 1933, and (d) paying each noteholder 108% of the face value of
his Zero Coupon Note, including unearned interest to maturity, if there is a
change of control of Milestone. Moreover, the warrants previously issued to the
noteholders year were repriced back to the initial exercise price of $1.75 per
share at the date of grant.

$1,000,000 in New Financing

In March 2001 and through two major existing investors, Milestone obtained a
$500,000 line of credit which matures on August 31, 2002 in support of its demo
program for The Wand(R) and received $500,000 from the sale of 500,000 shares of
common stock. Milestone will pay a 2% facility fee on the line of credit and
interest at the rate of 10% per annum on monies borrowed. In connection with
obtaining the line of credit, the lender received warrants to purchase 100,000
shares of common stock at an exercised price of $1.69 and an aggregate estimated
fair value of $80,000. As of September 30, 2001, the Company had drawn down
$465,373 from the line of credit and the remainder during October 2001.
Moreover, the line of credit agreement has been amended to allow the Company to
use funds available under this agreement for general corporate purposes.

In addition to the financings described above and henceforth, Milestone
continues to explore additional equity and debt financings. However, there can
be no assurance that any additional financings will be consummated.

OPERATIONS

The Company believes that The Wand(R) technology is a major advance in the
delivery of local anesthesia and that the potential applications of this
technology extends beyond dentistry to include podiatry, hair restoration,
plastic surgery, dermatology and procedures in orthopedics, OB-GYN and
ophthalmology. Based on scientific and anecdotal support, the Company contends
that The Wand(R) could enhance the practices of the estimated 90,000 physicians
included in the afore mentioned non-dental disciplines.

Despite limited resources, the Company has continued its efforts to realize the
market potential of The Wand(R) and become profitable. These steps include (i)
relaunching of The


                                       17
<PAGE>

Wand Plus(R) drive unit domestically, under the name CompuDent(TM), (ii)
distribution of CompuDent(TM) through a host of channels (i.e. independent sales
representatives and an inside sales group), (iii) advertising to increase the
awareness of the product, (iv) implementing cost reduction programs, and (vi)
launching The Wand Plus(R) drive unit for medical purposes and marketing it as
CompuMed(TM). In March 2001, Milestone signed an agreement with News USA, Inc.
and Vested Media Partners, Inc. to increase the awareness of healthcare
professionals and the public to the benefits of The Wand(R) and Compuflo(TM)
technologies. The Company's cost reduction program includes eliminating a key
executive position and obtaining the Chief Executive Officer's consent to defer
payment of his salary.

Management believes that the above steps are critical to the realization of the
Company's long-term business strategy; however, substantial funding is still
required to execute the Company's business plan and there can be no assurance
that the successful execution of such business plan will actually improve the
Company's operating results.

During 2001, the Company has received FDA approvals to market The Wand(R) Plus
computer controlled anesthetic delivery system for medical procedures. It is
being marketed as CompuMed(TM) and was officially launched with moderate success
at the 2001 Annual Meeting of the American Podiatry Medical Association, August
16-18 in Chicago. In September, approximately $6,000 of equipment was shipped to
these practitioners.

In March 2001, Milestone officially was granted a broad new United States patent
and three related United States patents covering its CompuFlo(TM) technology, a
new technology for computer-controlled infusion of a wide array of liquid drugs
and other fluids, aspiration of bodily fluids and the measurement of in-tissue
pressure. The CompuFlo(TM) technology is designed to reduce patient pain and
tissue tearing during injection procedures. CompuFlo(TM) technology will provide
doctors with real time feed-back of flow rate, volume injected and tissue
pressure. The technology automatically will collect clinical data on the volume
of drugs injected and treatment performed, creating a treatment record that
should help reduce medical errors in hospitals and medical offices. The
technology can also be adapted for home use devices. Devices using the new
technology will employ a newly developed single-use disposable handpiece. The
new technology was developed for the Company by Dr. Mark Hochman, its Director
of Research and Development.

Steps are being taken to commercialize of CompuFlo(TM) technology. Prototypes of
CompuFlo(TM) units are being evaluated by physicians and surgeons in South
Africa in their clinical practices in areas including general practice and
conscious sedation. These clinical evaluations are narrowing the Company's focus
for initial applications of its CompuFlo(TM) technology and providing further
validation of its efficacy.

SUBSEQUENT EVENT

In October 2001, the Company received $75,000 from a major investor issuing a
convertible promissory note. The note matures in April 2003. The interest rate
is 10% and is payable quarterly beginning January 1, 2002. At the Company's
option interest may be paid through the issuance of stock. Interest payments
paid in stock will be calculated at 12% per annum. At the option of the
Company, any outstanding principal and accrued but unpaid interest at maturity
may be converted into shares of Milestone's common stock at a rate of one share
for every $.80 of indebtedness.


                                       18
<PAGE>

In October 2001, the Company began marketing CompuMed(TM) to other medical
disciplines, namely hair restoration and dermatology. The Company will continue
to attend shows to initially broaden the practitioner's awareness and to
eventually translate into product sales.


                                       19
<PAGE>

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


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

Dated: November 13, 2001


                                       21