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 June 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 August 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.


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<PAGE>

                                     INDEX


PART I.      FINANCIAL INFORMATION                                        Page

     ITEM 1. Condensed Consolidated Financial Statements (unaudited)

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

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

             Condensed Consolidated Statements of Cash Flows
             for the six months ended June 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>
                                                                   June 30,           December
                                                                     2001             31, 2000
                                                                 ------------       ------------
                                                                 (unaudited)
<S>                                                              <C>                <C>
ASSETS
CURRENT ASSETS
    Cash                                                         $     24,536       $    172,867
    Accounts receivable, net of allowance for
       doubtful accounts of $99,209 and
       $160,244 in 2001 and 2000, respectively                        400,128            529,544
    Inventories                                                     1,280,136          1,039,377
    Deferred financing costs, net                                      26,749             71,328
    Prepaid expenses                                                   53,509            152,712
                                                                 ------------       ------------

           Total current assets                                     1,785,058          1,965,828

PROPERTY AND EQUIPMENT, net                                           241,144            273,141
ADVANCES TO CONTRACT MANUFACTURER                                          --            304,530
OTHER ASSETS                                                           12,362             10,318
                                                                 ------------       ------------
            Total assets                                         $  2,038,564       $  2,553,817
                                                                 ============       ============

          LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
    Account payable                                              $  1,524,926       $  1,148,527
    Accrued expenses                                                  199,446            214,437
    Accrued interest ($152,944 payable in stock at the
      Company's option, 203,703 shares as of June 30, 2001)           234,823            150,479
    Promissory notes-short term (payable in stock at the
      Company's option, 946,243 shares as of June 30, 2001)           727,014                 --
    Note payable-officer/stockholder                                  200,000            200,000
    Deferred compensation payable to officer/stockholder              316,346            141,346
                                                                 ------------       ------------
           Total current liabilities                                3,202,555          1,854,789

NOTES PAYABLE-LONG TERM ($1,122,916 payable in stock at the
    Company's option, 1,651,348 shares as of June 30, 2001)         2,186,704          2,401,363
                                                                 ------------       ------------
                Total liabilities                                   5,389,259          4,256,152
                                                                 ------------       ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
    Common stock, par value $.001; authorized,
       25,000,000 shares; 11,372,847 issued as of
       June 30, 2001 and 10,752,898 issued
       as of December 31, 2000                                         11,373             10,753
    Additional paid in capital                                     35,697,750         34,584,473
    Accumulated deficit                                           (37,799,513)       (35,354,990)
    Unearned advertising                                             (317,734)                --
    Deferred Compensation                                             (31,055)           (31,055)
    Treasury stock, at cost, 100,000 shares                          (911,516)          (911,516)
                                                                 ------------       ------------
                Total stockholders' deficit                        (3,350,695)        (1,702,335)
                                                                 ------------       ------------

                Total liabilities and stockholders' deficit      $  2,038,564       $  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 six and three months ended June 30,
                                   (unaudited)

<TABLE>
<CAPTION>
                                                Six Months Ended                      Three Months Ended
                                                     June 30,                              June 30,
                                             2001                2000               2001              2000
                                             ----                ----               ----              ----
<S>                                      <C>                <C>                <C>                <C>
Net sales                                $  2,180,812       $  2,933,797       $    918,441       $  1,523,004
Cost of sales                               1,056,557          1,271,556            484,720            631,848
                                         ------------       ------------       ------------       ------------

Gross profit                                1,124,255          1,662,241            433,721            891,156
                                         ------------       ------------       ------------       ------------

Selling, general and
  administrative expenses                   3,172,125          3,459,811          1,358,577          1,824,484
Research and development expenses              28,081            198,950              9,363             97,750
                                         ------------       ------------       ------------       ------------
                                            3,200,206          3,658,761          1,367,940          1,922,234
                                         ------------       ------------       ------------       ------------

    Loss from operations                   (2,075,951)        (1,996,520)          (934,219)        (1,031,078)

Settlement cost - Spinello lawsuit                 --           (228,500)                --                 --
Interest expense                             (371,180)           (54,133)          (176,165)           (33,979)
Interest income                                 2,608              3,544              1,184              1,836
                                         ------------       ------------       ------------       ------------

    Net loss                             $ (2,444,523)      $ (2,275,609)      $ (1,109,200)      $ (1,063,221)
                                         ============       ============       ============       ============

Loss per share - basic and diluted       $       (.22)      $       (.21)      $       (.10)      $       (.10)
                                         ============       ============       ============       ============

Weighted average shares outstanding        11,014,765         10,652,898         11,272,847         10,326,480
                                         ============       ============       ============       ============
</TABLE>

See notes to condensed consolidated financial statements.


                                       5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                        For the six months ended June 30,
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                        2001            2000
                                                                        ----            ----
<S>                                                                <C>               <C>
Cash flows from operating activities
 Net loss                                                          $(2,444,523)      $(2,275,609)
 Adjustments to reconcile net loss to
 net cash used in operating activities
   Amortization of advertising costs                                     6,484
   Amortization of debt discount and deferred financing costs          145,972                --
   Amortization of patents                                                  --           122,278
   Depreciation                                                         41,009           234,748
   Common stock issued for services                                    150,000                --
   Settlement of Spinello lawsuit                                           --           203,500
 Changes in operating assets and liabilities:
   Accounts receivable                                                 129,416          (294,521)
   Inventories                                                        (240,759)          331,179
   Prepaid expenses                                                     99,203           131,987
   Advances to contract manufacturer                                   304,530                --
 Other assets                                                           (2,044)               --
 Accounts payable                                                      376,399           462,614
 Accrued interest                                                      225,206           (37,489)
 Accrued expenses                                                      (14,991)            3,186
 Deferred compensation                                                 175,000                --
                                                                   -----------       -----------
    Net cash used in operating activities                           (1,049,098)       (1,118,127)
                                                                   -----------       -----------

Cash flows from investing activities - capital expenditures             (9,012)           (8,801)
                                                                   -----------       -----------

Cash flows from financing activities
 Proceeds from sale of common stock                                    500,000                --
 Net proceeds from issuance of notes and
    lines of credit                                                    409,779           955,724
 Cost associated with registering shares                                    --           (22,701)
                                                                   -----------       -----------
    Net cash provided by financing activities                          909,779           933,023
                                                                   -----------       -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                             (148,331)         (193,905)

Cash and cash equivalents at beginning of period                       172,867           242,843
                                                                   -----------       -----------
Cash and cash equivalents at end of period                         $    24,536       $    48,938
                                                                   ===========       ===========

Supplemental disclosures of cash flow information:
  Cash paid during the period for interest                         $        --       $    50,947
                                                                   ===========       ===========
</TABLE>

See notes to condensed consolidated financial statements.


                                       6
<PAGE>

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

Supplemental schedule of noncash financing activities:

In January and April 2001, pursuant to the 20% promissory note agreements, the
Company converted $51,111 and $53,472, 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.


                                       7
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  June 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 June 30, 2001 and the results of operations for the three
      and six months ended June 30, 2001 and 2000 and cash flows for six months
      ended June 30, 2001 and 2000.

      The results reported for the three and six months ended June 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 June 30, 2001 the Company has a working capital deficiency of
      $1,417,497 and a stockholders' deficit of $3,350,695. The Company has used
      cash from operations of $1,049,098 for the six months ended June 30, 2001.
      These matters raise substantial doubt about the Company's ability to
      continue as a going concern.

      The Company is continuing to execute its business model which is based on
      its belief that The Wand(R) is a major advance in dentistry and that it
      may ultimately become the preferred method of delivering local dental
      anesthesia. Accordingly, the Company has taken certain steps aimed at
      growing and strengthening the end user base of The Wand(R) including (i)
      transitioning its domestic outside sales force to independent sales
      representatives, (ii) introducing The Wand(R) Plus drive unit with several
      enhancements including a cruise control feature, and (iii) establishing
      relationships with distributors in markets in Europe, Canada, South
      Africa, South America and Asia in an effort to increase sales in foreign
      markets. 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 also has initiated a cost reduction
      program which includes


                                       8
<PAGE>

      eliminating 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 June 30, 2001, Milestone had $24,536 in cash, and working capital
      deficiency of $1,417,497. 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,
      (ii) borrowed the remaining $100,000 from the $1,000,000 line of credit,
      (iii) borrowed $309,779 on a newly obtained $500,000 line of credit 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.

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 equivalents, plus any other potentially dilutive
      securities outstanding, unless the effect is anti-dilutive.

      For the three and six months ended June 30, 2001 and 2000, the assumed
      exercise of certain dilutive options and warrants were anti-dilutive.
      Accordingly, basic and diluted loss per share is based on the weighted
      average common shares outstanding.

      Options and warrants, in aggregate, to purchase 560,625 shares of common
      stock were issued during the six months ended June 30, 2001 but were not
      included in the computation of diluted 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

      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
      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 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 June 30, 2001, the Company had drawn down $309,779 from
      the line of credit.

      Year 2000 Financing

      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 August 31, 2001

      10% 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 June 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
      and another key executive of the corporation, an affiliate of one of its
      directors and six 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.


                                       10
<PAGE>

      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 June 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 record 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. In January and April 2001,
      Milestone converted $51,111 and $53,472 in accrued interest into
      additional principal, respectively.

      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 5 - 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 at the option of the vendor, if the
      Company's stock price has not averaged $2.25 for a ten day period, the
      Agreement can be terminated and accordingly two-thirds of the warrants
      remaining to purchase the Company's common stock will be forfeited or the
      vendor could resume fulfilling one-half of its obligation in three months
      and the remaining obligation in the next six months.

      As of June 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 months ended June 30, 2001, the Company recorded $6,484 of
      advertising charges. 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.


                                       12
<PAGE>

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

      During the six months ended June 30, 2001, the Company achieved six major
      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 2,100,000 shares of its Common Stock. It
      successfully reduced operating overhead through cost containment programs
      and transitioning to a commission based sales incentive program for sales
      representatives. Furthermore, it 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.

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

Statement of Operations

      Net sales for the three months ended June 30, 2001 and June 30, 2000 were
      $918,441 and $1,523,004, respectively. The $604,563 or 40% decrease is
      attributable primarily to several transactions unique to the second
      quarter of 2000 when the Company launched the sale of The Wand(R) in
      Brazil, completed a partnering arrangement with a domestic distributor in
      a promotional sales effort and fully availed to customers the opportunity
      to purchase refurbished units of The Wand(R) at a special discounted
      price. These efforts generated revenues of approximately $359,000, $58,000
      and $200,000, respectively. Domestic unit sales were lower as the Company
      completed the transition from a sales force to an independent sales force.
      The decrease was partially offset by a $16,000 or 4% increase in domestic
      handpiece sales.

      Cost of sales for the three months ended June 30, 2001 and 2000 were
      $484,720 and $631,848, respectively. The $147,128 decrease is attributable
      primarily to lower foreign and promotional unit sales volume and $97,021
      in depreciation of tooling equipment during the second quarter of 2000.
      The tooling equipment was written off during the fourth quarter of 2000.
      The decrease was partially offset by the recovery in the second quarter of
      2000 of previously written down inventory for parts and finished goods,
      $147,000 and $50,000, respectively.


      For the three months ended June 30, 2001, the Company generated a gross
      profit of $433,721 or 47% as compared to a gross profit of $891,156 or 59%
      for the three months ended June 30, 2000.

      Selling, general and administrative expenses for the six months ended June
      30, 2001 and 2000 were $1,358,577 and $1,824,484, respectively. The
      $465,907 decrease is attributable primarily to a $309,000 aggregate
      reduction in selling and marketing expenses for the Wand(R) and
      approximately $61,000 of patent amortization for the second quarter of
      2000, and $175,000 decrease in legal expenses. This decrease was partially
      offset by a $41,000 increase in professional fees.


                                       13
<PAGE>

      Research and development expenses for the three months ended June 30, 2001
      and 2000 were $9,363 and $97,750, respectively. The $88,387 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 June 30, 2001 and 2000
      were $934,219 and $1,031,078 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
      expense. The Company received from the Spinellos 5,025 shares of Spintech
      common stock, a subsidiary of Milestone.

      The Company incurred interest expense of $176,165 for the three months
      ended June 30, 2001 as compared to $33,979 of interest expense for the
      same period for calendar 2000. The difference is attributable to higher
      average borrowings in 2001 and $50,958 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 June 30, 2001 was $1,109,200 as
      compared to a net loss of $1,063,221 for the quarter ended June 30, 2000.
      The $45,979 increase in net loss is attributable to a decrease in foreign
      sales volume for The Wand(R) and its disposable handpiece and an increase
      in interest expense. This was partially offset by a decrease in operating
      expenses.

      Six months ended June 30, 2001 compared to six months ended June 30, 2000.

      Statement of Operations

      Net sales for the six months ended June 30, 2001 and 2000 were $2,180,812
      and $2,933,797, respectively. The $752,985 or 26% decrease is attributable
      primarily to several transactions unique to the first six 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 and Brazil. These efforts
      generated revenues of approximately $87,000, $270,000 and $674,000,
      respectively. The decrease was partially offset by a $70,000 or 8.6%
      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 six months ended June 30, 2001 and 2000 were
      $1,056,557 and $1,271,556, respectively. The $214,999 decrease is
      attributable primarily to lower foreign sales and promotional unit sales
      and $194,142 in depreciation of tooling equipment during the first half of
      2000. The tooling equipment was written off during the fourth quarter of


                                       14
<PAGE>

      2000. The decrease was partially offset by the recovery in the first six
      months of 2000 of previously written down inventory for parts and
      firnished goods of $147,000 and $170,000, respectively.

      For the six months ended June 30, 2001, the Company generated a gross
      profit of $1,124,255 or 52% as compared to a gross profit of $1,662,241 or
      57% for the six months ended June 30, 2000.

      Selling, general and administrative expenses for the six months ended June
      30, 2001 and 2000 were $3,172,125 and $3,459,811, respectively. The
      $287,686 decrease is attributable primarily to a $475,000 aggregate
      reduction in selling and marketing expenses for the Wand(R) and
      approximately $ 122,000 of patent amortization for the first half of 2000.
      These increases were partially offset by the 92,038 shares issued for
      service rendered with a value of $150,000 in noncash compensation and a
      $81,000 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 six months ended June 30, 2001
      and 2000 were $28,081 and $198,950, respectively. The $170,869 difference
      is the result of higher costs incurred during the second quarter of 2000,
      which were associated with the development of the medical unit and product
      improvements.

      The loss from operations for the six months ended June 30, 2001 and 2000
      were $2,075,951 and $1,996,520, 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 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 $371,180 for the six months ended
      June 30, 2001 as compared to $54,133 of interest expense for the same
      period for calendar 2000. The difference is attributable to higher average
      borrowings in 2001 and $145,972 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 six months ended June 30, 2001 was $2,444,523 as
      compared to a net loss of $2,275,609 for the quarter ended June 30, 2000.
      The $168,914 increase in net loss is attributable to a decrease in foreign
      sales volume for The Wand(R) and its disposable handpiece and an increase
      in interest expense. This was partially offset by a decrease in operating
      expenses.


                                       15
<PAGE>

      Liquidity and Capital Resources

      At June 30, 2001, Milestone had $24,536 in cash and had a working capital
      deficiency of $1,417,497. For the six months ended June 30, 2001, the
      Company decreased cash by $148,331.

      For the six months ended June 30, 2001, the Company's net cash used in
      operating activities was $1,049,098. This was attributable primarily to a
      net loss of $2,444,523 adjusted for non-cash items of $145,972 for
      amortization of debt discount and deferred financing costs, $6,484 for the
      amortization of advertising costs, $41,009 for depreciation, and $150,000
      for common stock issued for services; a $129,416 decrease in accounts
      receivable; a $240,759 increase in inventory; a $99,203 decrease in
      prepaid expenses; a decrease in accrued expenses of $14,991; a $225,206
      increase in accrued interest; a $376,399 increase in accounts payable; and
      a $175,000 increase in deferred compensation.

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

      For the six months ended June 30, 2001, the Company generated $909,779
      from financing activities. This was due to the $500,000 received from the
      sale of common stock and the $409,779 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
      restructured existing debt and raised additional capital. 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 $96,174. Based on the June 30, 2001
      closing price of $.80 per share, the notes could be paid by issuing
      1,066,461 shares of common stock. The 20% promissory notes can be paid by
      issuing shares at 85% of the current market price. At June 30, 2001,
      these notes had a carrying value of $1,122,916 and accrued interest of
      $56,770. Based on the June 30, 2001 closing price, these notes could be
      paid by issuing 1,734,833 shares of common stock. The current aggregate
      portion of above notes and respective accrued interest, net of the debt
      discount of $29,980 totals $879,958 and would reduce the Company's working
      capital deficiency from $1,417,497 to $537,539. 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.


                                       16
<PAGE>

      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 June 30,
      2001, the Company had drawn down $309,779 from the line of credit.

      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.

      DENTAL OPERATIONS

      The Company is continuing to execute its business model, which is based on
      its belief that The Wand(R) is a major advance in dentistry and that it
      may ultimately become the preferred method of delivering local anesthesia.
      Accordingly, the Company has taken certain steps aimed at growing and
      strengthening the end user base of The Wand(R) including (i) transition
      its domestic outside sales force to independent sales representatives,
      (ii) introducing The Wand(R) Plus drive unit with several enhancements
      including a cruise control feature and (iii) establishing relationships
      with distributors in markets in Europe, Canada, South Africa, South
      America and Asia in an effort to increase sales in foreign markets. 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 also has initiated a cost reduction program
      which included eliminating 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
      improve the Company's operating results.

      In April, 2001, Milestone began revamping its domestic sales force
      handling sales of "The Wand" (R) for dental use. The new sales force is
      paid on a commission basis, thus substantially reducing risk. Since the
      adoption of the new sales program in April 2001, all existing sales people
      have converted to independent sales representatives receiving only
      commission compensation on the sales of units and handpieces. The
      representatives schedule their own appointments and engage in certain
      follow up activities. Recruiting efforts are underway to fill new
      positions on the same basis. Ten existing customer service representatives
      will also continue to play an important role in both selling new units and
      handling sales of replacement disposables. The new sales force will
      provide Milestone with national market coverage in dentistry. In addition,
      PTM Group ("PTM") has been engaged on a commission basis, to train, guide
      and oversee the sales effort. PTM is an outsource marketing, product
      development and contract manufacturing service company with more than 20
      years experience in the medical and dental market.

      PROPOSED MEDICAL OPERATIONS

      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


                                       17
<PAGE>

      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. Use of the 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 towards the commercialization of CompuFlo (TM).
      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.

      Furthermore, the Company has received FDA approvals to market The Wand(R)
      Plus computer controlled anesthetic delivery system for medical
      procedures. It will be marketed as CompuMed(TM) and officially launched at
      the 2001 Annual Meeting of the American Podiatry Medical Association,
      August 16-18 in Chicago.


                                       18
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits:         (b) Reports on Form 8-K:

      NONE              Change of Auditors, filed May 12, 2001


                                       19
<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: August 13, 2001


                                       20