##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    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 001-14053
 Milestone Scientific Inc.
  Delaware
    
    13-3545623State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization
    
    Identification No.)
 220 South Orange Avenue, Livingston, NJ 07039
 973-535-2717
     o Yes þ No
 o Yes þ No
 þ Yes o No
 o Yes o No
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



MILESTONE SCIENTIFIC INC.
 Form 10-K Annual Report
 TABLE OF CONTENTS
 PagePART IItem 1. Description of Business
    
    
    3Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    13Item 2. Description of Property
    
    
    13Item 3. Legal Proceedings
    
    
    13Item 4. (Removed and Reserved)
    
    
    13PART IIItem 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Pruchases of Equity Securities
    
    
    14Item 6. Selected Financial Data
    
    
    14Item 7. Managements Discussion and Analysis or Plan of Operations
    
    
    14Item 7A. Quantitative and Qualitative Disclosure about Market Risk
    
    
    22Item 8. Financial Statements
    
    
    22Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    22Item 9A. Controls and Procedures
    
    
    23Item 9B. Other Information
    
    
    23PART IIIItem 10. Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance with Section
16 (a) of the Exchange Act
    
    
    24Item 11. Executive Compensation
    
    
    26Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    28Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    30Item 14. Principal Accounting Fees and Services
    
    
    31PART IVItem 15. Exhibits
    
    
    32SIGNATURES
    
    
    34EXHIBITSExhibit 10.11Exhibit 10.12Exhibit 10.13Exhibit 10.14Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  FORWARD-LOOKING STATEMENTS
 Certain statements made in this Annual Report on Form 10-K are forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans
and objectives of management for future operations. Such statements involve known and unknown
risks, uncertainties and other factors that may cause actual results, performance or achievements
of Milestone to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking statements included
herein are based on current expectations that involve numerous risks and uncertainties. Milestones
plans and objectives are based, in part, on assumptions involving the continued expansion of
business. Assumptions relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business decisions, all of
which are difficult or impossible to predict accurately and many of which are beyond the control of
Milestone. Although Milestone believes that its assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate. In light of the
significant uncertainties inherent in the forward-looking statements included herein, particularly
in view of Milestones early stage operations, the inclusion of such information should not be
regarded as a representation by Milestone or any other person that the objectives and plans of
Milestone will be achieved. The Company undertakes no obligation to revise or update publicly any
forward-looking statements for any reason.
  2




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##### Table of Contents



PART I
 
 Item 1.
    
    Description of Business
 CompuDent ® CompuMed ® CompuFlo ® , The Wand ® The Wand
Plus ® The SafetyWand ® Cool Blue Wand ® Cool Blue Tooth Whitening
Instrument  , Dynamic Pressure Sensing Technology ® STA  Single
Tooth Anesthesia  Ionic White ® Ionic White 
 BUSINESS
 Background
   The Wand ® CompuDent ® Wand CompuDent CompuDent
 CompuMed ®
 CompuFlo ® . CompuFlo CompuDent CompuMed Dynamic Pressure Sensing ® Dynamic
Pressure Sensing
 CompuFlo In Situ
 CompuFlo CompuFlo
  3




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##### Table of Contents



CompuFlo
 CompuFlo
 CompuFlo CompuFlo
 CompuFlo STA Single Tooth Anesthesia Instrument  STA Instrument
 STA Instrument, rd STA Instrument CompuFlo STA Instrument STA Instrument STA Instrument
 STA Instrument STA Instrument STA Instrument
 STA Instrument STA Instrument
 STA Instrument STA Instrument
   4




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##### Table of Contents



STA
     CompuFlo ® Advanced Injection Technology  Core Technology
 CompuFlo STA Instrument CompuFlo STA Instrument
 CompuFlo CompuFlo CompuFlo
 CompuFlo.
  CompuFlo CompuFlo
 CompuFlo
  5




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##### Table of Contents



CompuFlo
 CompuFlo
 Product Platform
  STA Single Tooth Anesthesia Instrument  (STA Instrument)
 STA Single Tooth Anesthesia Instrument (STA Instrument) CompuFlo CompuDent STA Instrument
 STA Instrument Dentistry
Today STA Instrument STA Medical Device & Diagnostic Industry STA Instrument STA STA Instrument  Dentaltown Magazine STA Instrument Dental Products Report STA Instrument
 CompuDent ®
 CompuDent Wand Plus ® STA Instrument CompuDent th CompuDent The Wand ® )
 
    
    CompuDentminimizes the pain associated with palatal, mandibular block and all other injections,
resulting in a more comfortable injection experience for the patient;
    
    the pencil grip used with The Wandhandpieces allows unprecedented tactile sense and accurate control;
  6




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
    
    new injections made possible with the CompuDenttechnology eliminate collateral numbness of the
tongue, lips and facial muscles;
    
    bi-directional rotation of The Wandhandpieces eliminates needle deflection resulting in greater
success and more rapid onset of anesthesia in mandibular block injections;
    
    the use of a single patient use, disposable handpieces minimizes the risk of cross contamination; and
    
    the ergonomic design of The Wandhandpieces makes an injection easier and less stressful to
administer, lowering the risk of carpal tunnel syndrome.
 CompuDents CompuDent
 CompuMed ®
 CompuMed CompuDent. CompuMed CompuMed
 The Wand ®
 The Wand STA, CompuDent CompuMed The Wand
 The SafetyWand ®
 The SafetyWand SafetyWand The SafetyWand
 The SafetyWand SafetyWand SafetyWand
 Competition
   7




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##### Table of Contents



STA
Instrument STA Instrument
  Patents and Intellectual Property
  U.S. PATENT
    
    
    DATE OFNUMBER
    
    
    ISSUEComputer Controlled Drug Delivery SystemsDental Anesthetic and Delivery Injection Unit
    
    
    6,022,337
    
    
    
    2/8/2000Design for a Dental Anesthetic Delivery System Holder
    
    
    D422,361
    
    
    
    4/4/2000Design for a Dental Anesthetic Delivery System Housing
    
    
    D423,665
    
    
    
    4/25/2000Design for a Dental Anesthetic Delivery System Handle
    
    
    D427,314
    
    
    
    6/27/2000Cartridge Holder for Injection Device
    
    
    6,132,414
    
    
    
    10/17/2000Dental Anesthetic Delivery Injection Unit
    
    
    6,152,734
    
    
    
    11/28/2000Microprocessor-controlled Fluid Dispensing Apparatus
    
    
    6,159,161
    
    
    
    12/12/2000Pressure/Force Computer Controlled Drug Delivery System
    
    
    6,200,289
    
    
    
    3/13/2001Dental Anesthetic and Delivery Injection Unit with Automated Rate Control
    
    
    6,652,482
    
    
    
    11/25/2003Pressure/Force Computer Controlled Drug Delivery System with Exit Pressure
    
    
    6,786,885
    
    
    
    9/14/2004Pressure/Force Computer Controlled Drug Delivery System with Automated Charging
    
    
    6,887,216
    
    
    
    5/3/2005Drug Delivery System with Profiles
    
    
    6,945,954
    
    
    
    9/20/2005Cartridge Holder for Anesthetic and Delivery Injection Device
    
    
    D558,340
    
    
    
    12/25/2007Design for Drive Unit for Anesthetic
    
    
    D566,265
    
    
    
    4/8/2008Design for Drive Unit for Anesthetic
    
    
    D579,540
    
    
    
    10/28/2008Drug Infusion Device with Tissue Identification Using Pressure Sensing
    
    
    7,449,008
    
    
    
    11/11/2008Computer Controlled Drug Delivery Systems with Pressure Sensing
    
    
    7,618,409
    
    
    
    11/17/2009Hand Piece for Fluid Administration
    
    
    7,625,354
    
    
    
    12/1/2009Self-Administration Injection System
    
    
    7,740,612
    
    
    
    6/22/2010Engineered Sharps Injury Protection DevicesHandpiece for Injection Device with a Retractable and Rotating Needle
    
    
    6,428,517
    
    
    
    8/6/2002Safety IV Catheter Device
    
    
    6,726,658
    
    
    
    4/27/2004Safety IV Catheter Infusion Device
    
    
    6,905,482
    
    
    
    6/14/2005Handpiece for Injection Device with a Retractable and Rotating Needle
    
    
    6,966,899
    
    
    
    11/22/2005
 CompuFlo
  8




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Government Regulation
 CompuDent CompuMed Safety Wand STA Instrument
    9




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##### Table of Contents



STA Instrument, CompuDent Safety Wand CompuMed
    STA Instrument Safety Wand The Wand CompuDent
 Product Liability
  Employees
  
 Item 1A.
    
    CERTAIN RISK FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY
   10




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Milestone has no history of profitable operations. Continuing losses could exhaust capital
resources and force us to discontinue operations.
 .
   Milestone cannot become successful unless it gains greater market acceptance for its products and
technology.
 CompuDent STA Instrument SafetyWand CompuMed CompuFlo STA Instrument STA Instrument
 The Companys limited distribution channels must be expanded in order to become successful.
    11




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Milestone depends on three principal manufacturers. If the Company cannot maintain its existing
relationships or develop new ones, it may have to cease operations
 STA Instrument CompuDent CompuMed STA Instruments, STA Instrument STA
Instrument, CompuDent CompuMed
 Milestone may be subject to product liability claims that are not fully covered by insurance and
that could put the Company under financial strain.
  Milestone relies on the continuing services of the Chief Executive Officer and Director of Clinical
Affairs.
  The market price of Milestones common stock has been volatile and may continue to fluctuate
significantly because of various factors, some of which are beyond the Companys control.
  Milestone is controlled by a limited number of shareholders.
  Future sales or the potential for sale of a substantial number of shares of Milestones common
stock could cause the trading price of common stock and warrants to decline and could impair the
Companys ability to raise capital through subsequent equity offerings.
    12




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Implementation of procedures to comply with the Sarbanes-Oxley Act and SEC rules concerning
internal controls may be so costly that compliance could have an adverse effect on the Company.
 Internal Control-Integrated Framework
 
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Description of Property
   
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    (Removed and Reserved)
  13




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##### Table of Contents



PART II
 
 Item 5.
    
    Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
 Market Information
  Common Stock
  HIGH
    
    
    LOW2010First Quarter
    
    $
    1.85
    
    
    $
    1.45Second Quarter
    
    $
    1.70
    
    
    $
    1.12Third Quarter
    
    $
    1.25
    
    
    $
    0.95Fourth Quarter
    
    $
    1.12
    
    
    $
    0.802009First Quarter
    
    $
    0.75
    
    
    $
    0.37Second Quarter
    
    $
    0.70
    
    
    $
    0.25Third Quarter
    
    $
    1.30
    
    
    $
    0.45Fourth Quarter
    
    $
    1.85
    
    
    $
    0.83
 Holders
  Dividends
   Sales of Unregistered Securities
  
 ITEM 6.
    
    Selected Financial Data
  
 ITEM 7.
    
    Managements Discussion and Analysis of Financial condition and Results of Operations.
   14




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##### Table of Contents



OVERVIEW
  
    
    Optimizing our tactical approach to product sales and marketing in
order to materially increase penetration of the global dental and
medical markets with our proprietary, patented Computer-Controlled
Local Anesthesia Delivery (C-CLAD) solution, the STA Single Tooth
Anesthesia Instrument(STA Instrument); and
    
    Identifying and pursing strategic collaborations with third parties to
jointly develop new products utilizing our patented CompuFlopressure
force technology for novel new medical applications.
 STA Instrument Awards  Industry Recognition
 STA Instrument Dentistry
Today STA Instrument STA Instrument Medical Device & Diagnostic Industry STA Instrument STA Instrument
 STA Instrument Dentaltown Magazine CompuDent/The Wand. STA Instrument Dental Products Report DPR DPR DPRs STA Instrument
 STA Instrument
 Second Annual Symposium on C-CLAD
  
    
    The History of C-CLAD
    
    Treating with Connection
    
    Heart Rate Study
    
    STACompassionate Care in the 21st Century
    
    Injection Advances and Challenges
    
    Physiologic and Clinical Characteristics of PDL Anesthesia Delivered
by a High Pressure Hand piece and a Computerized Device
    
    The STAfor Tots and Teens
    
    Computerized Local Anesthesia in Dentistry: A Review
    
    Todays Technology
    
    Managing a Successful Dental Practice: Why People Keep Coming Back
    
    STA The Dental Schools Perspective
    
    Futuristic Vistas: The Dentist/Hygienist Partnership
  15




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STA Instrument Growth
 STA Instrument , STA Instrument STA Instrument Dental Economics STA Instrument
 Global Distribution Network
 North America Market
 STA Instrument
 STA Instrument
  International Market
 STA Instrument
 STA
   STA Instrument, CompuDent
  16




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Twelve Months Ended December 31,2010
    
    
    2009DOMESTICInstruments
    
    $
    1,236,517
    
    
    
    27.3
    %
    
    $
    1,786,435
    
    
    
    33.2
    %Handpieces
    
    
    3,216,000
    
    
    
    71.0
    %
    
    
    3,507,410
    
    
    
    65.2
    %Other
    
    
    76,903
    
    
    
    1.7
    %
    
    
    84,577
    
    
    
    1.6
    %Total Domestic
    
    $
    4,529,420
    
    
    
    100.0
    %
    
    $
    5,378,422
    
    
    
    100.0
    %INTERNATIONALInstruments
    
    $
    2,453,939
    
    
    
    47.0
    %
    
    $
    1,390,317
    
    
    
    43.8
    %Handpieces
    
    
    2,746,965
    
    
    
    52.6
    %
    
    
    1,769,682
    
    
    
    55.8
    %Other
    
    
    19,644
    
    
    
    0.4
    %
    
    
    10,639
    
    
    
    0.4
    %Total International
    
    $
    5,220,548
    
    
    
    100.0
    %
    
    $
    3,170,638
    
    
    
    100.0
    %DOMESTIC/INTERNATIONAL ANALYSISDomestic
    
    $
    4,529,420
    
    
    
    46.5
    %
    
    $
    5,378,422
    
    
    
    62.9
    %International
    
    
    5,220,548
    
    
    
    53.5
    %
    
    
    3,170,638
    
    
    
    37.1
    %Total Product Sales
    
    $
    9,749,968
    
    
    
    100.0
    %
    
    $
    8,549,060
    
    
    
    100.0
    %
   STA Instrument. STA Instrument
 Current Product Platform
  
    
    STA Single Tooth Anesthesia Instrument(STA Instrument) In February of
2007, Milestone introduced to market the STA Instrument, a patented C-CLAD instrument that
incorporates the pressure force feedback elements of Milestones patented CompuFlo
technology, thereby allowing dentists to administer injections accurately and painlessly
into the periodontal ligament space, effectively anesthetizing a single tooth. The STA
Instrumentis also capable of performing all of the injections that can be done with a
conventional dental syringe, including the palatal-anterior superior alveolar, anterior
middle superior alveolar and inferior alveolar nerve block. The STA Instrumentachieves all
of these injections predictably and reliably including the Periodontal-Intraligamentary
injection (Single Tooth Anesthesia) that provides an almost immediate onset of profound
anesthesia to a single tooth. Milestone received FDA 510(k) Pre-market Notification
acceptance in August 2006 and was granted a CE Mark by European regulatory authorities in
June 2007.
  17




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The STA Instrumenthas been the subject of numerous articles published in leading trade
magazines, dental journals and online blogging sites since its market introduction early in
2007. Since its market introduction in the spring of 2007, the STA Instrumenthas received
positive reviews and awards from the dental industry. In July 2007, noted industry
publication Dentistry Todayfeatured the STA Instrumentas one of the Top 100 Products in
2007, helping to promote much broader recognition of the instrument and validating STAs
value proposition for dentists and patients, alike. Earlier this year, Medical Device &
Diagnostic Industrymagazine distinguished the STA Instrumentas a 2008 Medical Design
Excellence Award winner in the Dental Instruments, Equipment and Supplies product category.
Of the 33 products to receive this coveted award, the STAwas one of only two winning
products that serve dental practitioners. In December 2009, the STA Instrument was again
recognized as one of the dental industrys best technological innovations, winning a Townie
Choice Award from Dentaltown Magazine in the category Anesthetics: Technique Instrument.
This marked the second consecutive year in a row that Milestone won a Townie Choice Award
  in 2007, the Company won the same award for its CompuDent/The Wand. Also in December
2008, Milestones STA Instrument was named as a Dental Products ReportTop 100 2008 Product
of Distinction. Each year, DPRspotlights the years Top 100 products. Of these 100
products, 50 are the ones most often inquired about by DPRs readers via an online and
Product Information Card reader service program. The other 50 represent New Classics,
which recognize both old and newer products and categories chosen by DPRs editorial team for
their perceived impact on driving innovation or helping to establish a new, higher standard
of care for patients. The STA Instrumentwas recognized as a New Classic in the
Technology category.
 
    
    CompuDent® CompuDentwas distinguished by Dentaltown Magazineas the
winner of a 2006 Townie Choice Award, CompuDentis Milestones proprietary, patented
computer-controlled local anesthetic delivery instrument which delivers anesthesia at a
precise and consistent rate below a patients pain threshold. CompuDenthas been widely
heralded as a revolutionary device, considered one of the major advances in dentistry of
the Twentieth Century and favorably evaluated in approximately 50 peer reviewed or
independent clinical research reports. CompuDentis the predecessor device to the STA
Instrument.
 
    
    CompuMed® CompuMedis a patented computer-controlled injection instrument
geared to the needs of the medical market and providing benefits similar to CompuDent.
CompuMedallows many medical procedures, now requiring intravenous sedation, to be
performed with only local anesthesia due to dramatic pain reduction. Also, dosages
of local anesthetic can often be significantly reduced, thus reducing side effects,
accelerating recovery times, lowering costs and eliminating potential complications.
CompuMedis now gaining growing clinical evidence demonstrating benefits from use in
colorectal surgery; podiatry; dermatology, including surgery for the removal of basal cell
carcinomas and other oncological dermatologic procedures; nasal and sinus surgery,
including rhinoplasty; hair transplantation and plastic surgery, among others.
 
    
    The Wand® Used in conjunction with the STA, CompuDentor CompuMed
instruments, The Wandis an ergonomically designed and patented handpiece that enables all
traditional and newer injections, such as AMSA, P-ASA and Modified-PDL, to be more
comfortable and easier to deliver. Moreover, the pen-like grasp of The Wandallows
bi-directional rotation during injection, which prevents needle deflection that can occur
with a traditional syringe. A straighter path results in a more accurate injection, meaning
fewer missed blocks, and more rapid onset of anesthesia.
 
    
    The SafetyWand®  The Safety Wandwas the first, patented safety-engineered
injection device that conforms to standards while also meeting the clinical needs of dental
and medical practitioners. The Federal Needlestick Prevention Act (U.S.) has mandated the
use of products with engineered safety injury protection to eliminate accidental needle
sticks, thus providing Milestone with an invaluable marketing platform to position The
SafetyWandas a powerful and capable alternative to traditional injection devices. The
SafetyWandwas the first patented injection device to be fully compliant with OSHA
regulations under the Act.
 CompuFlo
  18




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Technology Rights
 SafetyWand CompuFlo CompuDent
 Summary of Critical Accounting Policies and Significant Judgments and Estimates
   Accounts Receivable
  Inventories
  Impairment of Long-Lived Assets
  Revenue Recognition
   19




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Results of Operations
  Twelve Months EndedDecember 31, 2010
    
    
    December 31, 2009Total revenue
    
    $
    9,749,968
    
    
    
    100
    %
    
    $
    8,549,060
    
    
    
    100
    %Cost of products sold
    
    
    3,531,452
    
    
    
    36
    %
    
    
    3,458,279
    
    
    
    40
    %Gross Profit
    
    
    6,218,516
    
    
    
    64
    %
    
    
    5,090,781
    
    
    
    60
    %Selling, general and administrative expenses
    
    
    6,648,859
    
    
    
    68
    %
    
    
    6,952,976
    
    
    
    81
    %Research and development expenses
    
    
    270,494
    
    
    
    3
    %
    
    
    241,318
    
    
    
    3
    %Operating expenses
    
    
    6,919,353
    
    
    
    71
    %
    
    
    7,194,294
    
    
    
    84
    %Loss from operations
    
    
    (700,837
    )
    
    
    -7
    %
    
    
    (2,103,513
    )
    
    
    -25
    %Other income
    
    
    86,329
    
    
    
    1
    %
    
    
    573,428
    
    
    
    7
    %Net loss
    
    $
    (614,508
    )
    
    
    -6
    %
    
    $
    (1,530,085
    )
    
    
    -18
    %
 Year ended December 31, 2010 compared to year ended December 31, 2009
 STA Instruments STA CompuDent CompuDent STA CompuDent STA CompuDent
 STA .
 STA
   20




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STA Instrument.
     Liquidity and Capital Resources
        21




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Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments Due by PeriodLess thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 YearsLong-term debt obligations
    
    $
    450,000
    
    
    $
    
    
    
    $
    450,000
    
    
    $
    Operating lease obligations
    
    
    298,355
    
    
    
    89,570
    
    
    
    167,133
    
    
    
    41,653Purchase obligations (1)
    
    
    5,583,078
    
    
    
    1,812,236
    
    
    
    3,770,842
    
    
    
    Total
    
    $
    6,331,434
    
    
    $
    1,901,807
    
    
    $
    4,387,975
    
    
    $
    41,653
 (1)
    
    Purchase obligations include agreements for the purchase of instruments and
handpieces.The agreements are referred as purchase orders. Recent Accounting Pronouncements
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 Item 8.
    
    Financial Statements
  
 Item 9.
    
    Change in and Disagreements with Accountants on Accounting and Financial Disclosure
   22




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Item 9A.
    
    Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets;
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of the financial statements in
accordance with generally accepted accounting principles in the
United States, and that the receipts and expenditures are being
made only in accordance with authorizations of the management and
directors; and
    
    provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
assets that could have a material effect on the financial
statements.
  Internal Control  Integrated Framework
  
 Item 9B.
    
    Other Information
   23




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##### Table of Contents



PART III
 
 Item 10.
    
    Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16 (a) of the Exchange Act.
   NAME
    
    AGE
    
    POSITION
    
    DIRECTOR SINCELeslie Bernhard (2)
    
    67
    
    Chairman of the Board and Director
    
    2003Leonard A. Osser
    
    63
    
    Chief Executive Officer and Director
    
    1991Joseph DAgostino
    
    59
    
    Chief Financial OfficerPablo Felipe Serna Cardenas (1)
    
    35
    
    Director
    
    2006Leonard M. Schiller(1)(2)
    
    69
    
    Director
    
    1997
 
 (1)
    
    Member of the Audit Committee(2)
    
    Member of the Compensation Committee Key Personnel
  NAME
    
    
    AGE
    
    
    POSITIONEugene Casagrande, D.D.S.
    
    
    67
    
    
    Director of Professional RelationsMark Hochman, D.D.S.
    
    
    53
    
    
    Director of Clinical Affairs
        24




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Section 16(a) Beneficial Ownership Reporting Compliance
   25




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Code of Ethics
 www.milesci.com
 
 Item 11.
    
    Executive Compensation.
  SUMMARY OF COMPENSATION TABLE
 Other
    
    
    OptionNAME AND PRINCIPAL POSITION
    
    YEAR
    
    
    Salary
    
    
    Bonuses
    
    
    Compensation
    
    
    Awards (2)
    
    
    TotalLeonard A. Osser 
 Chief Executive Officer-
 effective 9-1-2009
    
    
    2010
    
    
    $
    300,000
    
    
    $
    100,000
    (1)
    
    $
    50,880
    (1)
    
    $
    
    
    
    $
    450,880Chairman of the Board
    
    
    2009
    
    
    $
    300,000
    (1)
    
    $
    100,000
    (1)
    
    $
    46,280
    (1)
    
    $
    49,788
    (1)
    
    $
    496,068Joseph DAgostino
    
    
    2010
    
    
    $
    171,600
    
    
    $
    50,000
    (3)
    
    $
    9,000
    (3)
    
    $
    168,000
    
    
    $
    398,600Chief Financial Officer
    
    
    2009
    
    
    $
    171,600
    
    
    $
    25,000
    (3)
    
    $
    2,737
    
    
    $
    135,975
    
    
    $
    335,312
 (1)
    
    Includes $100,000 bonus in 2010. Other compensation represents payments made for personal
use of corporate apartment, health insurance coverage and car allowance. 2009 excludes a
Performance Bonus, not achieved of $300,000 and stock based compensation of $248,946 that was
reversed in 2010.(2)
    
    The amounts in this column reflect the fair value of the options at date of grant. For
details used in the assumption calculating the fair value of the option reward, see Note B to
the Financial Statements for the year ended December 31, 2010 and 2009, which is located on
pages F-7 through F-11 of the Annual Report on Form 10-K. Compensation cost is generally
recognized over the vesting period of the award. See the table below entitled Outstanding
Equity Awards at December 31, 2010.(3)
    
    Includes $50,000 and $25,000 in deferred compensation in 2010 and 2009 respectively, is
accordance with agreement to be paid in common stock and not paid until the termination of his
employment with the Company. Other compensation in 2010 includes a car allowance. Employment Contracts
    26




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##### Table of Contents



Objective of Executive Compensation Program
      Outstanding Equity Awards at December 31, 2010
  2010 Options Awards
    
    
    2010 Options AwardsNumber of Securities
    
    
    Number of SecuritiesUnderlying Unexercised
    
    
    Underlying Unexercised
    
    
    Option Exercise
    
    
    Option ExpirationName
    
    Options Exercisable
    
    
    Options Unexercisable
    
    
    Price ($)
    
    
    DateJoseph DAgostino
    
    
    
    
    
    
    100,000
    
    
    $
    1.00
    
    
    
    12/20/201533,333
    
    
    
    66,667
    
    
    $
    1.00
    
    
    
    12/20/2015
  27




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##### Table of Contents



Compensation of Directors
   Director Compensation
 2010Name
    

Stock Awards (1)Leonard M. Schiller
    
    $
    15,000Leslie Bernhard
    
    $
    15,000Pablo Felipe Serna Cardenas
    
    $
    15,000
 (1)
    
    Shares valued at $1.30 per share as of May 26, 2010, 11,538 shares per independent
director. 
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  March 30, 2011Shares of Common Stock
    
    
    PercentageNames of Beneficial Owner (1)
    
    Beneficially Owned (2)
    
    
    of OwnershipExecutive Officers and DirectorsLeonard Osser
    
    
    1,924,604
    (3)
    
    
    12.80
    %Joseph DAgostino
    
    
    242,650
    (4)
    
    
    1.61
    %Leonard Schiller
    
    
    109,766
    (5)
    
    
    *Pablo Felipe Serna Cardenas
    
    
    86,538
    (6)
    
    
    *Leslie Bernhard
    
    
    76,538
    (7)
    
    
    *All directors & executive officers as group (5 persons)
    
    
    2,440,096
    
    
    
    16.23
    %K. Tucker Andersen
    
    
    2,411,230
    (8)
    
    
    16.04
    %Tom Cheng
    
    
    752,852
    (9)
    
    
    5.01
    %
 
 *
    
    Less than 1%(1)
    
    The addresses of the persons named in this table are as follows: Leonard Osser and Joseph
DAgostino are at 220 South Orange Avenue in, New Jersey 07039; Leonard M. Schiller, c/o
Schiller, Klein & McElroy, P.C., 33 North Dearborn Street, Suite 1030, Chicago, Illinois
60602; Pablo Felipe Serna Cardenas, Via Camillo Golgi 2 Opera, Italy 20090; Leslie Bernhard,
c/o AdStar, Inc., 4553 Glencoe Avenue, Suite 325, Marina del Rey, California 90292; K. Tucker
Andersen, c/o Cumberland Associates LLC, 1114 Avenue of the Americas, New York, New York
10036.(2)
    
    A person is deemed to be a beneficial owner of securities that can be acquired by such
person within 60 days from March 30, 2011, as applicable, upon the exercise of options and
warrants or conversion of convertible securities. Each beneficial owners percentage
ownership is determined by assuming that options, warrants and convertible securities that
are held by such person (but not held by any other person) and that are exercisable or
convertible within 60 days from the filing of this report have been exercised or converted.
Except as otherwise indicated, and subject to applicable community property and similar laws,
each of the persons named has sole voting and investment power with respect to the shares
shown as beneficially owned. All percentages are determined based on the number of all
shares, including those underlying options exercisable within 60 days from the filing of this
report held by the named individual, divided by 15,030,458 outstanding shares on March 30,
2011, plus those shares underlying options exercisable within 60 days from the filing of this
report held by the named individual or the group.  28




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##### Table of Contents



(3)
    
    March 30, 2011 includes 571,190 Shares to Be Issued at the termination of his employment
agreement.(4)
    
    March 30, 2011 includes 65,823 Shares to Be Issued at the termination of employment.
Includes 29,231 shares held by Mr. DAgostino at March 30, 2011. Additionally, this includes
147,596 shares subject to options; 60,000 shares at $0.40; 33,166 shares at $1.15; and 21,097
shares at $1.58, and 33,333 shares at $1.00.(5)
    
    March 30, 2011, includes 85,000 stock options; 25,000 shares at $0.55 issued in June 2009;
20,000 shares at $0.83 per share and 20,000 shares at $1.68 and 20,000 shares at $0.74. Also
included is 24,766 shares held by Mr. Schiller of which 11,538 shares was issued in 2010.(6)
    
    March 30, 2011 includes 75,000 stock options; 25,000 shares at $0.55 issued in June 2009,
10,000 shares at $0.83 per share, 20,000 shares at $1.68 and 20,000 shares at $0.74 also
includes 11,538 shares issued in 2010.(7)
    
    March 30, 2011, 65,000 stock options; 20,000 shares at $1.68 and 20,000 shares at $0.74 and
25,000 shares at $0.55. Also included is 11,538 shares issued in 2010.(8)
    
    March 30, 2011 includes shares owned by Mr. Andersen(9)
    
    March 30, 2011 includes shares owned Mr. Cheng. Securities Authorized for Issuance Under Equity Compensation Plans
 Equity Compensation Plan Information
  Number of securities (1)Number of Securities (1) to
    
    
    Weighted-average exercise
    
    
    remaining available forbe issued upon exercise of
    
    
    price of outstanding
    
    
    future issuance underoutstanding options and warrants
    
    
    options and warrants
    
    
    equity compensation planEquity compensation plan approved by
stockholders (1)Grants under our 2004 Stock Option Plan
    
    
    322,000
    
    
    
    1.50
    
    
    
    428,000Equity compensation plan not approved by
stockholders (2)
    
    
    
    
    
    
    
    
    
    Not applicableAggregate individual option and
warrants grants
    
    
    1,216,502
    
    
    
    1.13Total
    
    
    1,538,502
    
    
    
    1.40
 
 (1)
    
    In July 2004 the Board of Directors approved the adoption of the 2004 Stock Option Plan. The
2004 Stock Option Plan provides for the grant of options to purchase up to 500,000 shares of
Milestones common stock. Options may be granted to employees, officers, directors and
consultants of Milestone for the purchase of common stock of Milestone at a price not less
than the fair market value of the common stock on the date of the grant. In general, options
become exercisable over a three-year period from the grant date and expire five years after
the date of grant. No options were exercised in 2010.In March 2008, the Board of Directors authorized an additional 250,000 options to this plan.(2)
    
    The aggregate individual option grants outside the Stock Option Plans referred to in the
table above include options issued as payment for services rendered to us by outside
consultants and providers of certain services. The aggregate individual warrant grants
referred to in the table above include warrants granted to investors in Milestone as part of
private placements and credit line arrangements.  29




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##### Table of Contents



Stock Plan
       
 Item 13.
    
    Certain Relationships and Related Transactions and Director Independence.
   Director Independence
   30




---



##### Table of Contents



Item 14.
    
    Principal Accounting Fees and Services
 Audit Fees
  Audit Related Fees
  Tax Fees
  All Other Fees
  Audit Committee Administration of the Engagement
  Audit Committee Pre-Approval Policies and Procedures
   31




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules
  1.
    
    Financial Statements.The following financial statements and the reports of
Milestones independent auditor thereon, are filed herewith.
 
    
    Report of Independent Registered Public Accounting Firm (Holtz Rubenstein LLP
-2010 and 2009)
    
    Balance Sheets at December 31, 2010 and 2009
    
    Statements of Operations for the years ended December 31, 2010 and 2009
    
    Statements of Changes in Stockholders Equity for the years ended December 31,
2010 and 2009
    
    Statements of Cash Flows for the years ended December 31, 2010 and 2009
    
    Notes to Financial Statements
 2.
    
    Financial Statement ScheduleSchedules are omitted because the information required is not applicable or the required
information is shown in the consolidated financial statements or notes thereto
  32




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##### Table of Contents



3.
    
    Exhibits
  EXHIBITNO.
     
    DESCRIPTION3.1
    
    
    Certificate of Incorporation of Milestone (1)3.2
    
    
    Certificate of Amendment filed July 13, 1995 (2)3.3
    
    
    Certificate of Amendment filed December 6, 1996 (3)3.4
    
    
    Certificate of Amendment filed December 17, 1997 (4)3.5
    
    
    Certificate of Amendment filed July 23, 2003 (5)3.6
    
    
    Certificate of Amendment filed January 8, 2004. (5)3.7
    
    
    Certificate of Designation filed January 15, 2004 (5)3.8
    
    
    By-laws of Milestone (1)4.1
    
    
    Specimen stock certificate (2)4.3
    
    
    Form of warrant agreement, including form of warrant (6)10.1
    
    
    Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3)10.2
    
    
    Agreement with DaVinci Instruments dated July 30, 2003 (5)10.3
    
    
    Agreement with Strider dated September 3, 2003 (5)10.4
    
    
    Agreement with Len Osser and K. Tucker Andersen, dated October 9, 2003 (5)10.5
    
    
    Agreement with Morse, Zelnick, Rose & Lander dated December 22, 2003 (5)10.6
    **
    
    Employment Agreement with Leonard Osser dated December 20, 2003 (5)10.7
    
    
    Agreement with United Instruments dated October 20, 2004 (7)10.8
    
    
    Agreement with Mark Hochman dated as of January 1, 2005 (7)10.9
    
    
    Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. and Milestone (7)10.10
    
    
    Agreement with DaVinci regarding exclusive license over patented products dated June 1, 2004 (8)10.11
    **
    
    Employment Agreement with Leonard Osser dated September 1, 2009. (9)10.12
    *
    
    Loan agreement of $1 million from K. Tucker Andersen*10.13
    *
    
    Loan agreement of $1.3 million from K. Tucker Andersen*10.14
    *
    
    Loan agreement of $450,000 from K. Tucker Andersen*14
    
    
    Code of Ethics (6)23.1
    
    
    Consent of Holtz Rubenstein Reminick LLP*31.1
    
    
    Rule 13a-14(a) Certifications  Chief Executive Officer*31.2
    
    
    Rule 13a-14(a) Certifications  Chief Financial Officer*32.1
    
    
    Section 1350 Certifications Chief Executive Officer*32.2
    
    
    Section 1350 Certifications Chief Financial Officer*
 
 *
    
    Filed herewith.**
    
    Indicates management contract or compensatory plan or arrangement(1)
    
    Incorporated by reference to Milestones Registration Statement on Form SB-2 No. 33-92324.(2)
    
    Incorporated by reference to Amendment No. 1 to Milestones Registration Statement on Form
SB-2 No. 333-92324.(3)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 1996.(4)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 1999.(5)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110376,
Amendment No. 3.(6)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2003.(7)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110367, Amendment No. 5.(8)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2004.(9)
    
    Incorporated by reference to Milestones Form 10-K for the year ended December 31, 2009.  33




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##### Table of Contents



SIGNATURES
  Milestone Scientific Inc.By:
    /s/ Leonard OsserChief Executive Officer   Signature
    
    Date
    
    Title/s/ Leonard Osser

Leonard Osser
    
    March 30, 2011
    
    Chief Executive Officer and Director/s/ Joseph DAgostino

Joseph DAgostino
    
    March 30, 2011
    
    Chief Financial Officer/s/ Leonard Schiller

Leonard Schiller
    
    March 30, 2011
    
    Director/s/ Leslie Bernard

Leslie Bernhard
    
    March 30, 2011
    
    Chairman and Director/s/ Pablo Felipe Serna Cardenas

Pablo Felipe Serna Cardenas
    
    March 30, 2011
    
    Director
  34




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Balance Sheets as of December 31, 2010 and 2009
    
    
    F-3Statements of Operations for the years ended December 31, 2010 and 2009
    
    
    F-4Statements of Changes in Stockholders Equity for the years ended December 31, 2010 and 2009
    
    
    F-5Statements of Cash Flows for the years ended December 31, 2010 and 2009
    
    
    F-6Notes to Financial Statements
    
    
    F-7
  F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
  F-2




---



##### Table of Contents



December 31, 2010
    
    
    December 31, 2009ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    627,082
    
    
    $
    1,029,129Accounts receivable, net of allowance for doubtful accounts of $202,160 in 2010 and $5,000
in 2009
    
    
    796,221
    
    
    
    1,063,742Inventories
    
    
    986,947
    
    
    
    804,736Advances to contract manufacturer
    
    
    730,491
    
    
    
    151,995Prepaid expenses and other current assets
    
    
    247,465
    
    
    
    254,501Total current assets
    
    
    3,388,206
    
    
    
    3,304,103Accounts receivable-long term, net of allowance for doubtful accounts of $438,840 in 2010
    
    
    361,160
    
    
    
    Advances to contract manufacturer
    
    
    1,713,794
    
    
    
    311,230Investment in distributor, at cost
    
    
    76,319
    
    
    
    76,319Furniture, Fixtures & Equipment net of accumulated depreciation of $426,482
as of December 31, 2010 and $395,630 as of December 31, 2009
    
    
    66,936
    
    
    
    77,353Patents, net of accumulated amortization of $294,934 as of December 31, 2010
and $211,539 as of December 31, 2009
    
    
    944,858
    
    
    
    947,315Other assets
    
    
    57,750
    
    
    
    133,674Total assets
    
    $
    6,609,023
    
    
    $
    4,849,994LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable  short term
    
    $
    2,883,587
    
    
    $
    1,154,013Accrued expenses and other payable
    
    
    511,304
    
    
    
    524,017Total current liabilities
    
    
    3,394,891
    
    
    
    1,678,030Long-term Liabilities:Accounts payable  long term
    
    
    440,376
    
    
    
    Accrued Interest - 6% note
    
    
    
    
    
    
    92,000Notes Payable-net of discount of $8,361 and $11,157, respectively
    
    
    441,639
    
    
    
    438,843Total long-term liabilities
    
    
    882,015
    
    
    
    530,843Commitments and ContingenciesStockholders EquityCommon stock, par value $.001; authorized 50,000,000 shares; 14,915,959 shares issued
637,013 shares to be issued and 14,882,626 shares outstanding as of December 31, 2010;
14,781,295 shares issued, 692,498 shares to be issued, and 14,747,962 shares outstanding
as of December 31, 2009
    
    
    15,552
    
    
    
    15,472Additional paid-in capital
    
    
    62,606,043
    
    
    
    62,300,619Accumulated deficit
    
    
    (59,377,962
    )
    
    
    (58,763,454
    )Treasury stock, at cost, 33,333 shares
    
    
    (911,516
    )
    
    
    (911,516
    )Total stockholders equity
    
    
    2,332,117
    
    
    
    2,641,121Total liabilities and stockholders equity
    
    $
    6,609,023
    
    
    $
    4,849,994
  F-3




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##### Table of Contents



2010
    
    
    2009Product sales, net
    
    $
    9,749,968
    
    
    $
    8,549,060Cost of products sold
    
    
    3,531,452
    
    
    
    3,458,279Gross profit
    
    
    6,218,516
    
    
    
    5,090,781Selling, general and administrative expenses
    
    
    6,648,859
    
    
    
    6,952,976Research and development expenses
    
    
    270,494
    
    
    
    241,3186,919,353
    
    
    
    7,194,294Loss from operations
    
    
    (700,837
    )
    
    
    (2,103,513
    )Other income (expense)Other income
    
    
    183,673
    
    
    
    777,609Interest income
    
    
    587
    
    
    
    3,146Interest expense
    
    
    (95,135
    )
    
    
    (154,027
    )Amortized debt issuance
    
    
    (2,796
    )
    
    
    (53,300
    )Total other income
    
    
    86,329
    
    
    
    573,428Net loss
    
    $
    (614,508
    )
    
    $
    (1,530,085
    )Net loss applicable to common stockholders
    
    $
    (614,508
    )
    
    $
    (1,530,085
    )Loss per share applicable to common stockholders -
basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.11
    )Weighted average shares outstanding and to be issued -
basic and diluted
    
    
    14,824,802
    
    
    
    13,389,872
   F-4




---



##### Table of Contents



AdditionalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, December 31, 2008
    
    
    13,200,324
    
    
    $
    13,200
    
    
    $
    59,531,865
    
    
    $
    (57,233,369
    )
    
    $
    (911,516
    )
    
    $
    1,400,180Options issued to employees and consultants
    
    
    
    
    
    
    
    
    
    
    285,835
    
    
    
    
    
    
    
    
    
    
    
    285,835Common stock issued for payment of consulting
services to settle accounts payable
    
    
    518,367
    
    
    
    518
    
    
    
    499,982
    
    
    
    
    
    
    
    
    
    
    
    500,500Common stock issued for payment of employee
compensation
    
    
    323,009
    
    
    
    323
    
    
    
    160,002
    
    
    
    
    
    
    
    
    
    
    
    160,325Common stock issued in advance of services-Chairman
    
    
    84,783
    
    
    
    85
    
    
    
    97,415
    
    
    
    
    
    
    
    
    
    
    
    97,500Common stock to be issued for settlement of
deferred compensation
    
    
    45,455
    
    
    
    45
    
    
    
    24,955
    
    
    
    
    
    
    
    
    
    
    
    25,000Common stock to be issued for bonus
    
    
    142,405
    
    
    
    142
    
    
    
    224,858
    
    
    
    
    
    
    
    
    
    
    
    225,000Sale of common stock
    
    
    333,333
    
    
    
    333
    
    
    
    149,667
    
    
    
    
    
    
    
    
    
    
    
    150,000Proceeds from exercising stock options
    
    
    3,333
    
    
    
    3
    
    
    
    1,863
    
    
    
    
    
    
    
    
    
    
    
    1,866Conversion of Line of Credit
    
    
    822,785
    
    
    
    823
    
    
    
    1,299,177
    
    
    
    
    
    
    
    
    
    
    
    1,300,000Proceeds on the sale of stock option agreement
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,530,085
    )
    
    
    
    
    
    
    (1,530,085
    )Balance, December 31, 2009
    
    
    15,473,794
    
    
    $
    15,472
    
    
    $
    62,300,619
    
    
    $
    (58,763,454
    )
    
    $
    (911,516
    )
    
    $
    2,641,121Options issued to employees and consultants
    
    
    
    
    
    
    
    
    
    
    239,817
    
    
    
    
    
    
    
    
    
    
    
    239,817Common stock issued for directors compensation
    
    
    34,614
    
    
    
    35
    
    
    
    44,965
    
    
    
    
    
    
    
    
    
    
    
    45,000Common stock issued for payment of consulting
services to settle accounts payable
    
    
    76,661
    
    
    
    77
    
    
    
    103,923
    
    
    
    
    
    
    
    
    
    
    
    104,000Common stock issued for payment of employee
compensation
    
    
    23,388
    
    
    
    23
    
    
    
    33,331
    
    
    
    
    
    
    
    
    
    
    
    33,354Common stock to be issued for settlement of
bonus compensation
    
    
    50,000
    
    
    
    50
    
    
    
    49,950
    
    
    
    
    
    
    
    
    
    
    
    50,000Reversal of common stock to be issued
for settlement of bonus compensation
    
    
    (105,485
    )
    
    
    (105
    )
    
    
    (166,562
    )
    
    
    
    
    
    
    
    
    
    
    (166,667
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (614,508
    )
    
    
    
    
    
    
    (614,508
    )Balance, December 31, 2010
    
    
    15,552,972
    
    
    $
    15,552
    
    
    $
    62,606,043
    
    
    $
    (59,377,962
    )
    
    $
    (911,516
    )
    
    $
    2,332,117
   F-5




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##### Table of Contents



2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (614,508
    )
    
    $
    (1,530,085
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation expense
    
    
    45,243
    
    
    
    50,253Amortization of patents
    
    
    83,395
    
    
    
    76,133Amortization of debt discount
    
    
    2,796
    
    
    
    53,300Common stock and options issued for compensation, consulting,
and vendor services
    
    
    305,503
    
    
    
    1,444,159Bad debt expense
    
    
    640,558
    
    
    
    Loss on sale/disposal of equipment
    
    
    (7,494
    )
    
    
    46,918Increase in inventory reserve
    
    
    
    
    
    
    36,000Changes in operating assets and liabilities:(Increase) in accounts receivable
    
    
    (734,197
    )
    
    
    (138,000
    )(Increase) in inventories
    
    
    (182,211
    )
    
    
    (120,834
    )(Increase) Decrease to advances to contract manufacturer
    
    
    (1,981,060
    )
    
    
    202,665Decrease (Increase) to prepaid expenses and other current assets
    
    
    7,036
    
    
    
    (36,205
    )Decrease (Increase) in other assets
    
    
    75,924
    
    
    
    (126,357
    )Increase in accounts payable
    
    
    2,169,950
    
    
    
    324,883(Decrease) Increase in accrued expenses
    
    
    (104,712
    )
    
    
    125,120(Decrease) in deferred compensation
    
    
    
    
    
    
    (5,000
    )Net cash (used in) provided by operating activities
    
    
    (293,777
    )
    
    
    402,951Cash flows from investing activities:Purchases of property and equipment
    
    
    (29,355
    )
    
    
    (51,950
    )Proceeds on sale of equipment
    
    
    2,023
    
    
    
    30,000Payment for patent rights
    
    
    (80,938
    )
    
    
    (122,403
    )Net cash used in investing activities
    
    
    (108,270
    )
    
    
    (144,353
    )Cash flows from financing activities:Proceeds from the sale of stock options
    
    
    
    
    
    
    25,000Proceeds from the exercise of stock options
    
    
    
    
    
    
    1,866Net cash provided by financing activities
    
    
    
    
    
    
    26,866NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (402,047
    )
    
    
    285,464Cash and cash equivalents at beginning of year
    
    
    1,029,129
    
    
    
    743,665Cash and cash equivalents at end of year
    
    $
    627,082
    
    
    $
    1,029,129Supplemental disclosure of cash flow information:Interest expense paid in cash
    
    $
    92,000
    
    
    $
    Supplemental disclosure of non cash activities:Shares issued for conversion of note
    
    $
    
    
    
    $
    1,300,000Shares issued to directors for compensation
    
    $
    45,000
    
    
    $
    Shares issued to employees in lieu of cash compensation
    
    $
    33,354
    
    
    $
    160,325Shares issued to officer in advance of services
    
    $
    
    
    
    $
    97,500Shares issued to settle accounts payable
    
    $
    104,000
    
    
    $
    500,500
   F-6




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##### Table of Contents



MILESTONE SCIENTIFIC INC.
 
 NOTES TO FINANCIAL STATEMENTS
 NOTE A  ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
 The Wand CompuDent, Wand Plus and STA (Single Tooth Anesthesia) CompuMed. CompuDent CompuMed Wand Plus
   NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        F-7




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F-8




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##### Table of Contents



.
  Fair Value Measurements Fair Value Measurements and
Disclosures
     F-9




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##### Table of Contents



Share-Based Payment.
  December 31,2010
    
    
    2009Volatility
    
    
    122
    %
    
    
    203
    %Risk-free interest rate
    
    
    2.13
    %
    
    
    1.83
    %Expected life
    
    3 years
    
    
    3 yearsDividend yield
    
    
    0
    %
    
    
    0
    %Forfeiture Rate
    
    
    6
    %
    
    
    6
    %
    CompuDent STA
Instrument
   F-10




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##### Table of Contents



.
 Fair
Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures
 Subsequent Events: Amendments to Certain
Recognition and Disclosure Requirements Subsequent
Events,
   NOTE C  ACCOUNTS RECEIVABLE  CURRENT AND LONG TERM
  NOTE D  INVENTORIES
 December 312010
    
    
    2009Inventories consist of the following:Finished Goods
    
    $
    766,693
    
    
    
    747,566Component parts and other materials
    
    
    220,254
    
    
    
    57,170$
    986,947
    
    
    
    804,736
  NOTE E  ADVANCES TO CONTRACT MANUFACTURER
   F-11




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##### Table of Contents



NOTE F FURNITURE, FIXTURES AND EQUIPMENT
 December 312010
    
    
    2009Furniture, Fixtures and Equipment consist of the following:Leasehold improvements
    
    $
    22,317
    
    
    $
    22,317Office furniture and equipment
    
    
    98,268
    
    
    
    98,268Molds
    
    
    7,200
    
    
    
    Trade show displays
    
    
    89,395
    
    
    
    86,121Computers and software
    
    
    181,008
    
    
    
    179,048Tooling equipment-STA
    
    
    20,377
    
    
    
    12,377STA Trials Instruments
    
    
    63,752
    
    
    
    63,752Tooling equipment-Wand
    
    
    11,100
    
    
    
    11,100Total
    
    
    493,418
    
    
    
    472,983Less accumulated depreciation
    
    
    (426,482
    )
    
    
    (395,630
    )$
    66,936
    
    
    $
    77,353
  NOTE G  INVESTMENT IN DISTRIBUTOR
  NOTE H  PATENTS
  NOTE I  LINE OF CREDIT and NOTES PAYABLE
    F-12




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##### Table of Contents



NOTE J  STOCKHOLDERS EQUITY
               NOTE K  STOCK OPTION PLANS
     F-13




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##### Table of Contents



WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contractual
    
    
    OptionsOptions
    
    
    Price $
    
    
    Life (Years)
    
    
    Value $Outstanding, January 1, 2009
    
    
    570,832
    
    
    
    1.51
    
    
    
    3.01
    
    
    
    75Granted
    
    
    872,866
    
    
    
    1.02
    
    
    
    4.59
    
    
    
    Exercised
    
    
    (3,333
    )
    
    
    0.56
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (380,223
    )
    
    
    0.88
    
    
    
    
    
    
    
    Outstanding, December 31, 2009
    
    
    1,060,142
    
    
    
    1.33
    
    
    
    3.61
    
    
    
    632,624Exercisable, December 31, 2009
    
    
    559,154
    
    
    
    1.45
    
    
    
    2.62
    
    
    
    94,336Granted
    
    
    313,333
    
    
    
    1.11
    
    
    
    5.88Exercised during 2010
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (444,971
    )
    
    
    1.72
    
    
    
    Outstanding, December 31, 2010
    
    
    928,504
    
    
    
    1.07
    
    
    
    3.92
    
    
    
    115,849Exercisable, December 31, 2010
    
    
    471,722
    
    
    
    0.95
    
    
    
    2.74
    
    
    
    110,142
 Weighted
    
    
    WeightedNumber
    
    
    Averaged
    
    
    Averageof
    
    
    Exercise
    
    
    Grant DateOptions
    
    
    Price $
    
    
    Fair Value $VESTED OPTIONSOutstanding, January 1, 2009
    
    
    366,442
    
    
    
    1.83
    
    
    
    Exercised during 2009
    
    
    (3,333
    )
    
    
    0.56
    
    
    
    Vested Options during 2009
    
    
    232,378
    
    
    
    1.45
    
    
    
    Forfeited during 2009
    
    
    (36,333
    )
    
    
    3.62
    
    
    
    Outstanding, December 31, 2009
    
    
    559,154
    
    
    
    1.45
    
    
    
    Exercised during 2010
    
    
    
    
    
    
    
    
    
    
    Vested Options during 2010
    
    
    214,456
    
    
    
    0.81
    
    
    
    Forfeited during 2010
    
    
    (301,888
    )
    
    
    1.72
    
    
    
    Outstanding, December 31, 2010
    
    
    471,722
    
    
    
    0.95
    
    
    
    NONVESTED OPTIONSNonvested, January 1, 2009
    
    
    204,390
    
    
    
    0.94
    
    
    
    0.81Granted during 2009
    
    
    872,866
    
    
    
    1.02
    
    
    
    0.41Vested during 2009
    
    
    (232,378
    )
    
    
    1.45
    
    
    
    0.47Forfeited during 2009
    
    
    (343,890
    )
    
    
    0.59
    
    
    
    0.59Nonvested, December 31, 2009
    
    
    500,988
    
    
    
    1.20
    
    
    
    0.45Granted during 2010
    
    
    313,333
    
    
    
    1.11
    
    
    
    0.99Vested during 2010
    
    
    (214,456
    )
    
    
    0.81
    
    
    
    Forfeited during 2010
    
    
    (143,083
    )
    
    
    1.62
    
    
    
    Nonvested, December 31, 2010
    
    
    456,782
    
    
    
    1.20
    
    
    
    
   F-14




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WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contracted
    
    
    OptionsOptions
    
    
    Price $
    
    
    Life (years)
    
    
    Value $Outstanding, January 1, 2009
    
    
    627,467
    
    
    
    3.14
    
    
    
    1.61
    
    
    
    Exercisable, December 31, 2009
    
    
    564,967
    
    
    
    3.29
    
    
    
    1.44
    
    
    
    Granted during 2009
    
    
    156,616
    
    
    
    0.41
    
    
    
    3.08
    
    
    
    Forfeited during 2009
    
    
    (369,134
    )
    
    
    3.38
    
    
    
    
    
    
    
    Outstanding, December 31, 2009
    
    
    414,999
    
    
    
    1.90
    
    
    
    2.70
    
    
    
    263,083Exercisable, December 31, 2009
    
    
    336,387
    
    
    
    1.91
    
    
    
    2.71
    
    
    
    234,638Granted during 2010
    
    
    136,666
    
    
    
    1.69
    
    
    
    0.72
    
    
    
    Forfeited during 2010
    
    
    (16,666
    )
    
    
    1.98
    
    
    
    
    
    
    
    Outstanding, December 31, 2010
    
    
    534,999
    
    
    
    1.85
    
    
    
    1.51
    
    
    
    99,617Exercisable, December 31, 2010
    
    
    514,998
    
    
    
    1.87
    
    
    
    1.41
    
    
    
    99,311
 WeightedNumber
    
    
    Averagedof
    
    
    ExerciseOptions
    
    
    Price $VESTED OPTIONSOutstanding, January 1, 2009
    
    
    564,967
    
    
    
    3.29Exercised during 2009
    
    
    
    
    
    
    Vested during 2009
    
    
    140,554
    
    
    
    0.32Forfeited during 2009
    
    
    (369,134
    )
    
    
    3.38Outstanding, December 31, 2009
    
    
    336,387
    
    
    
    1.96Exercised during 2010
    
    
    
    
    
    
    Vested during 2010
    
    
    195,277
    
    
    
    1.72Forfeited during 2010
    
    
    (16,666
    )
    
    
    1.98Outstanding, December 31, 2010
    
    
    514,998
    
    
    
    1.87NONVESTED OPTIONSNonvested January 1, 2009
    
    
    62,500
    
    
    
    1.77Exercised during 2009
    
    
    
    
    
    
    Vested during 2009
    
    
    (140,554
    )
    
    
    0.32Forfeited during 2009
    
    
    
    
    
    
    Nonvested December 31, 2009
    
    
    78,612
    
    
    
    1.64Granted during 2010
    
    
    136,666
    
    
    
    1.69Exercised during 2010
    
    
    
    
    
    
    Vested during 2010
    
    
    195,277
    
    
    
    1.72Forfeited during 2010
    
    
    
    
    
    
    Outstanding, December 31, 2010
    
    
    20,001
    
    
    
    1.21
   F-15




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NOTE L  EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION
 Employment Contracts
     NOTE M  INCOME TAXES
   2010
    
    
    2009Current AssetsAllowance for doubtful accounts-short term
    
    $
    81,000
    
    
    $
    2,000Inventory allowance
    
    
    79,000
    
    
    
    79,000Warranty reserve
    
    
    10,000
    
    
    
    10,000Deferred officers compensation
    
    
    333,000
    
    
    
    77,000Subtotal
    
    
    503,000
    
    
    
    168,000Valuation allowance
    
    
    (503,000
    )
    
    
    (168,000
    )Current deferred tax asset
    
    $
    
    
    
    $
    Non-current assetsAllowance for doubtful accounts-long term
    
    $
    175,000
    
    
    
    Net operating loss carryforward
    
    $
    16,100,000
    
    
    $
    16,500,000Subtotal
    
    $
    16,275,000
    
    
    $
    16,500,000Valuation allowance
    
    $
    (16,275,000
    )
    
    $
    (16,500,000
    )Non-current deferred tax asset
    
    $
    
    
    
    $
    
    F-16




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##### Table of Contents



2010
    
    
    2009Statutory rate
    
    
    (34
    )%
    
    
    (34
    )%State income tax  all states
    
    
    (6
    )%
    
    
    (6
    )%(40
    )%
    
    
    (40
    )%Current year valuation allowance
    
    
    40
    %
    
    
    40
    %Benefit for income taxes
    
    
    0
    %
    
    
    0
    %
     NOTE N  PRODUCT SALES AND SIGNIFICANT CUSTOMERS AND VENDORS
  Year End December 31,2010
    
    
    2009Instruments
    
    $
    3,690,456
    
    
    $
    3,176,752Handpieces
    
    
    5,962,965
    
    
    
    5,277,092Other
    
    
    96,547
    
    
    
    95,216$
    9,749,968
    
    
    $
    8,549,060United States
    
    $
    4,529,420
    
    
    $
    5,378,422Canada
    
    
    601,034
    
    
    
    630,108Other foreign
    
    
    4,619,514
    
    
    
    2,540,530$
    9,749,968
    
    
    $
    8,549,060
 STA CompuDent CompuMed
  F-17




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NOTE O  COMMITMENTS AND OTHER
 (1) Lease Commitments
   Year Ending December 31,20102011
    
    
    89,5702012
    
    
    83,8282013
    
    
    83,3062014
    
    
    41,6532015
    
    
    $
    298,355
  (2) Contract Manufacturing Arrangement
 STA CompuDent CompuMed The Wand The Wand
  (3) Other Commitments
 SafetyWand CompuFlo, CompuDent
  F-18




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STA Instruments
 (4) Other Events
 CompuFlo
 NOTE P  PENSION PLAN
   F-19