##### 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, 2009
 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.)
 45 Knightsbridge Road, Piscataway, NJ 08854
 973-535-2717
     o Yes þ No
 o Yes þ No
 þ o
 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
    
    
    12Item 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
    
    
    22Item 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
    
    
    29Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    31Item 14. Principal Accounting Fees and Services
    
    
    32PART IVItem 15. Exhibits
    
    
    33Footnotes
    
    
    33SIGNATURES
    
    
    35EXHIBITSExhibit 10.13Exhibit 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
System  , 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
 CompuFlo
  3




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



Product Platform
  STA Single Tooth Anesthesia System  (STA System)
 STA Single Tooth Anesthesia System (STA System) CompuFlo CompuDent STA System
 STA System Dentistry Today STA System STA Medical Device & Diagnostic Industry STA System STA STA System  Dentaltown
Magazine STA System Dental Products Report
 CompuDent ®
 CompuDent Wand Plus ® STA System 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;
    
    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
  6




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##### Table of Contents



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
  STA System STA System
   7




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##### Table of Contents



Patents and Intellectual Property
  U.S. PATENT
    
    
    DATE OFNUMBER
    
    
    ISSUEComputer Controlled Drug Delivery SystemsHypodermic Anesthetic Injection Apparatus & Method
    
    
    5,180,371
    
    
    
    1/19/1993Dental 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
    
    
    
    12/1/2009Engineered 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
    
    
    
    11/22/2005OtherSelf-Sterilizing Hypodermic Syringe and Method
    
    
    5,693,026
    
    
    
    12/2/1997
 CompuFlo
     8




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Government Regulation
 CompuDent CompuMed Safety Wand STA System
   STA System, CompuDent Safety Wand CompuMed
    9




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##### Table of Contents



STA System Safety Wand The Wand CompuDent
 Product Liability
  Employees
  
 Item 1A. CERTAIN RIS FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY
  Milestone has no history of profitable operations. Continuing losses could exhaust capital
resources and force us to discontinue operations.
     10




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##### Table of Contents



Milestone cannot become successful unless it gains greater market acceptance for its products and
technology.
 CompuDent STA System SafetyWand CompuMed CompuFlo CompuDent STA System
 The Companys limited distribution channels must be expanded in order to become successful.
  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 System CompuDent CompuMed STA Systems, STA
System, 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.
   11




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##### Table of Contents



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.
   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
  
  12




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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
    
    
    LOW2009First Quarter
    
    $
    0.75
    
    
    $
    0.37Second Quarter
    
    $
    0.70
    
    
    $
    0.25Third Quarter
    
    $
    1.30
    
    
    $
    0.45Fourth Quarter
    
    $
    1.85
    
    
    $
    0.832008First Quarter
    
    $
    1.57
    
    
    $
    0.75Second Quarter
    
    $
    1.05
    
    
    $
    0.56Third Quarter
    
    $
    0.80
    
    
    $
    0.30Fourth Quarter
    
    $
    0.40
    
    
    $
    0.20
 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 System(STA System); 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 System Awards  Industry Recognition
 STA System Dentistry Today STA System STA System Medical Device & Diagnostic Industry STA
System STA System
 STA System Dentaltown Magazine CompuDent/The Wand. STA System Dental Products Report DPR DPR DPRs STA System
 Second Annual Symposium on C-CLAD
 STA
System STA System
  
    
    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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##### Table of Contents



STA System Growth
 STA System, , STA System STA
System Dental Economics STA System
 Global Distribution Network
 STA System
 STA System
 STA System
 STA
  STA System, CompuDent
  16




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Twelve Months Ended December 31,2009
    
    
    2008DOMESTICInstruments
    
    $
    1,786,435
    
    
    
    33.2
    %
    
    $
    914,431
    
    
    
    21.1
    %Handpieces
    
    
    3,507,410
    
    
    
    65.2
    %
    
    
    3,373,159
    
    
    
    77.7
    %Other
    
    
    84,577
    
    
    
    1.6
    %
    
    
    54,097
    
    
    
    1.2
    %Total Domestic
    
    $
    5,378,422
    
    
    
    100.0
    %
    
    $
    4,341,687
    
    
    
    100.0
    %INTERNATIONALInstruments
    
    $
    1,390,317
    
    
    
    43.8
    %
    
    $
    695,513
    
    
    
    30.9
    %Handpieces
    
    
    1,769,682
    
    
    
    55.8
    %
    
    
    1,550,992
    
    
    
    68.8
    %Other
    
    
    10,639
    
    
    
    0.4
    %
    
    
    7,333
    
    
    
    0.3
    %Total International
    
    $
    3,170,638
    
    
    
    100.0
    %
    
    $
    2,253,838
    
    
    
    100.0
    %DOMESTIC/INTERNATIONAL
ANALYSISDomestic
    
    $
    5,378,422
    
    
    
    62.9
    %
    
    $
    4,341,687
    
    
    
    65.8
    %International
    
    
    3,170,638
    
    
    
    37.1
    %
    
    
    2,253,838
    
    
    
    34.2
    %Total Product Sales
    
    $
    8,549,060
    
    
    
    100.0
    %
    
    $
    6,595,525
    
    
    
    100.0
    %
   Current Product Platform
  
    
    STA Single Tooth Anesthesia System(STA System) In February of 2007,
Milestone introduced to market the STA System, a patented C-CLAD system that incorporates
the pressure force feedback elements of Milestones patented CompuFlotechnology, thereby
allowing dentists to administer injections accurately and painlessly into the periodontal
ligament space, effectively anesthetizing a single tooth. The STA Systemis 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 Systemachieves 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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STA System STA System Dentistry Today STA System STA Medical Device & Diagnostic Industry STA System STA Dental Products Report DPR DPR DPR STA System
 
    
    CompuDent® CompuDentwas distinguished by Dentaltown Magazineas the winner
of a 2006 Townie Choice Award, CompuDentis Milestones proprietary, patented
computer-controlled local anesthetic delivery system 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 System.
    
    CompuMed® CompuMedis a patented computer-controlled injection system
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 CompuMedsystems,
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
 Technology Rights
 SafetyWand CompuFlo CompuDent
  18




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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, 2009
    
    
    December 31, 2008Products sales, net
    
    $
    8,549,060
    
    
    
    100
    %
    
    $
    6,595,525
    
    
    
    99
    %Royalty income
    
    
    
    
    
    
    0
    %
    
    
    28,282
    
    
    
    1
    %Total revenue
    
    
    8,549,060
    
    
    
    100
    %
    
    
    6,623,807
    
    
    
    100
    %Cost of products sold
    
    
    3,458,279
    
    
    
    40
    %
    
    
    2,681,116
    
    
    
    40
    %Gross Profit
    
    
    5,090,781
    
    
    
    60
    %
    
    
    3,942,691
    
    
    
    60
    %Selling, general and
administrative expenses
    
    
    6,952,976
    
    
    
    81
    %
    
    
    5,502,762
    
    
    
    83
    %Research and development
expenses
    
    
    241,318
    
    
    
    3
    %
    
    
    168,516
    
    
    
    3
    %Operating expenses
    
    
    7,194,294
    
    
    
    84
    %
    
    
    5,671,278
    
    
    
    86
    %Loss from operations
    
    
    (2,103,513
    )
    
    
    -25
    %
    
    
    (1,728,587
    )
    
    
    -26
    %Other income
    
    
    573,428
    
    
    
    7
    %
    
    
    541,133
    
    
    
    8
    %Net loss
    
    $
    (1,530,085
    )
    
    
    -16
    %
    
    $
    (1,187,454
    )
    
    
    -18
    %
 Year ended December 31, 2009 compared to year ended December 31, 2008
 CompuDent STA CompuDent STA System STA CompuDent CompuDent
      20




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STA System.
     Liquidity and Capital Resources
       21




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Off-Balance Sheet Arrangements
  Contractual Obligations
  Payments Due by PeriodTotal
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    3-5 YearsLong-term debt obligations
    
    $
    450,000
    
    
    $
    
    
    
    $
    450,000
    
    
    $
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    454,633
    
    
    
    156,278
    
    
    
    173,397
    
    
    
    124,958Purchase obligations (1)
    
    
    7,542,499
    
    
    
    4,034,739
    
    
    
    3,507,760
    
    
    
    Total
    
    $
    8,447,132
    
    
    $
    4,191,017
    
    
    $
    4,131,157
    
    
    $
    124,958
 (1)
    
    Purchase obligations include agreements for the purchase of units and handpieces.  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
  
 Item 9A. Controls and Procedures
   22




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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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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)
    
    
    66
    
    
    Chairman of the Board
    
    
    2003Leonard A. Osser
    
    
    63
    
    
    Chief Executive Officer
    
    
    1991Joseph DAgostino
    
    
    58
    
    
    Chief Financial OfficerPablo Felipe Serna Cardenas (2)
    
    
    34
    
    
    Director
    
    
    2006Leonard M. Schiller(1)(2)
    
    
    68
    
    
    Director
    
    
    1997Jeffrey Fuller(1)
    
    
    64
    
    
    Director
    
    
    2003
 
 (1)
    
    Member of the Audit Committee(2)
    
    Member of the Compensation Committee Key Personnel
  NAME
    
    AGE
    
    POSITIONEugene Casagrande, D.D.S.
    
    
    66
    
    
    Director of Professional RelationsMark Hochman, D.D.S.
    
    
    52
    
    
    Director of Clinical Affairs
        24




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25




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Section 16(a) Beneficial Ownership Reporting Compliance
   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
    
    
    2009
    
    
    $
    300,000
    
    
    
    $
    400,000
    (1)
    
    
    
    
    
    
    
    $
    298,734
    
    
    
    $
    998,734Chairman of the Board
    
    
    2008
    
    
    $
    200,000
    (1
    )
    
    
    
    
    
    
    $
    18,408
    (1)
    
    
    $
    
    
    
    
    $
    218,408Joe W. Martin
    
    
    2009
    
    
    $
    
    (3
    )
    
    $
    
    
    
    
    $
    
    
    
    
    $
    
    
    
    
    $
    Chief Executive Officer
    
    
    2008
    
    
    $
    300,000
    
    
    
    $
    70,000
    
    
    
    $
    3,696
    
    
    
    $
    80,000
    (2)
    
    
    $
    453,696Joseph DAgostino
    
    
    2009
    
    
    $
    171,600
    
    
    
    $
    25,000
    (4)
    
    
    $
    
    
    
    
    $
    135,975
    
    
    
    $
    332,575Chief Financial Officer
    
    
    2008
    
    
    $
    165,000
    
    
    
    $
    28,000
    
    
    
    $
    2,737
    
    
    
    
    
    
    
    
    $
    195,737
 (1)
    
    Includes $200,000 and $100,000 in deferred compensation in 2009 and 2008, respectively,
in accordance with his employment agreement to be paid in common stock and not paid until
the termination of the agreement in 2014 (under new employment agreement) or thereafter, if
further extended. Other compensation represents payments made for health insurance coverage.(2)
    
    The amounts in this column reflects 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, 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, 2009.(3)
    
    Mr. Martin resigned from the Company effective March 31, 2009.(4)
    
    Includes $25,000 in deferred compensation in 2009, is accordance with agreement to be
paid in common stock and not paid until the termination of his employment with the Company. Employment Contracts
   26




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##### Table of Contents



Objective of Executive Compensation Program
       27




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##### Table of Contents



Outstanding Equity Awards at December 31, 2009
  2009 Options Awards
    
    
    2009 Options AwardsNumber of Securities
    
    
    Number of SecuritiesUnderlying Unexercised
    
    
    Underlying Unexercised
    
    
    Option Exercise
    
    
    Option ExpirationName
    
    Options Exercisable
    
    
    Options Unexercisable
    
    
    Price ($)
    
    
    DateLeonard Osser
    
    
    84,388
    
    
    
    168,776
    
    
    $
    1.74
    
    
    
    12/17/2014Joseph DAgostino
    
    
    
    
    
    
    60,000
    
    
    $
    0.40
    
    
    
    03/31/2014
    
    
    
    50,000
    
    
    $
    1.15
    
    
    
    09/01/2014
    
    
    
    50,000
    
    
    $
    1.15
    
    
    
    12/28/201410,548
    
    
    
    21,098
    
    
    $
    1.58
    
    
    
    12/17/2014
 STA Systems
 Compensation of Directors
   Director Compensation
 2009Name
    
    Option Awards (1)Leonard M. Schiller
    
    $
    13,750
    (2)Jeffrey Fuller
    
    $
    13,750
    (2)Leslie Bernhard
    
    $
    13,750
    (2)Pablo Felipe Serna Cardenas
    
    $
    13,750
    (2)
 (1)
    
    Amounts are calculated using the provisions of FASB ASC 718.(2)
    
    On June 4, 2009, each of Milestones independent directors was awarded options
exercisable for 25,000 shares of common stock at $0.55 per share.  28




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  March 10, 2010Shares of Common Stock
    
    
    PercentageNames of Beneficial Owner (1)
    
    Beneficially Owned (2)
    
    
    of OwnershipExecutive Officers and DirectorsLeonard Osser
    
    
    2,283,253
    (3)
    
    
    15.44
    %Joseph DAgostino
    
    
    236,700
    (4)
    
    
    *Leonard Schiller
    
    
    138,228
    (5)
    
    
    *Pablo Felipe Serna Cardenas
    
    
    75,000
    (6)
    
    
    *Jeffrey Fuller
    
    
    115,000
    (7)
    
    
    *Leslie Bernhard
    
    
    189,783
    (8)
    
    
    *All directors & executive officers as group (7 persons)
    
    
    2,646,572
    
    
    
    17.89
    %K. Tucker Andersen
    
    
    2,686,230
    (9)
    
    
    18.16
    %Tom Cheng
    
    
    752,852
    (10)
    
    
    5.09
    %
 
 *
    
    Less than 1%(1)
    
    The addresses of the persons named in this table are as follows: Leonard Osser and Joseph
DAgostino are at 45 Knightsbridge Road in Piscataway, New Jersey 08854; 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; Jeffrey Fuller,
Eagle Chase, Woodbury, NY 11797; Leslie Bernhard, c/o AdStar, Inc., 4553 Glencoe Avenue,
Suite 325, Marina del Rey, California 90292; K. Tucker Anderson, 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 16, 2010 and 2009, 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 14,792,528 outstanding shares on March
10, 2010, plus those shares underlying options exercisable within 60 days from the filing of
this report held by the named individual or the group.(3)
    
    March 10, 2010 excludes 666,667 Performance Options reserved for a special bonus for
obtaining a three year purchase order for the sale of 12,000 STA Systemsand related
handpieces over a four year period. These options were reserved but not granted until
specific performance targets are achieved. The options will be issued upon achievement of the
specific target on a yearly basis. Included in this total is 253,164 shares subject to option
at $1.74, one third immediately exercisable and one third each year after the grant date.
Also included in March 10, 2010, 676,676 Shares to Be Issued at the termination of his
employment agreement.(4)
    
    Includes 29,231 shares held by Mr. DAgostino at March 10, 2010. Additionally, this
includes 15,823 Shares to Be Issued at the termination of his employment; 191,646 shares
subject to options. 60,000 shares at $0.40, fully vested at October 2010, 100,000 options,
one third exercisable one year after the grant date and one third each subsequent years as
follows ; 100,000 shares at $1.15; and 31,646 at $1.58, one half immediately exercisable and
one half each year after the grant date.(5)
    
    March 10, 2010, includes 125,000 stock options; one half of each grant was exercisable
immediately and the remaining one half exercisable one year after the grant date as follows:
25,000 shares at $0.55 issued in June 2009;: 20,000 shares at $3.27 per share, 20,000 shares
at $1.40 per share, 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 13,228 shares held by Mr. Schiller.(6)
    
    March 10, 2010 includes 75,000 stock options; one half of each grant was exercisable
immediately and the remaining one half exercisable one year after the grant date as follows:
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.(7)
    
    March 10, 2010 includes 115,000 stock options; one half of each grant was exercisable
immediately and the remaining one half exercisable one year after the grant date as follows:
20,000 shares at $3.27 per share, 20,000 shares at $1.40 per share, 10,000 shares at $0.83
and 20,000 shares at $1.68 per share and 20,000 at $0.74.  29




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##### Table of Contents



(8)
    
    March 10, 2010 includes 84,783 shares owned by Ms. Bernhard, 105,000 stock options; one
half of each grant was exercisable immediately and the remaining one half exercisable one
year after the grant date as follows: 20,000 shares at $3.27, 20,000 shares at $1.40, 20,000
shares at $1.68 and 20,000 shares at $0.74 and 25,000 shares at $0.55.(9)
    
    March 10, 2010 includes 175,000 stock options, 130,000 at $5.00 and 45,000 at $0.32.(10)
    
    March 10, 2010 includes 752,852 shares of stock. Mr. Cheng purchased 333,333 shares in
August 2009 and 34,783 shares were issued for services provided in October 2009. 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
    
    
    1,000,142
    
    
    
    1.16
    
    
    
    428,000Equity compensation plan not approved by
stockholders (2)
    
    
    
    
    
    
    
    
    
    Not applicableAggregate individual option and warrants grants
    
    
    589,999
    
    
    
    2.50Total
    
    
    1,590,141
    
    
    
    1.72
 
 (1)
    
    Consisting of the 1997 stock option plan covering a total of 333,333 common shares underlying
options issuable to officers and other key employees and excluding 2,333 options, which were
exercised in October 2003, 16,667 options, which were exercised in December 2003, 333 options
which were exercised in April 2005 and 26,666 shares exercised in 2007. The plan has a term of
10 years and is administered by a committee appointed by the board of directors. The
committee, in its sole discretion, determines who is eligible to receive these incentive stock
options, how many options they will receive, the term of the options, the exercise price and
other conditions relating to the exercise of the options. Stock options granted under the plan
must be exercised within a maximum of 10 years from the date of grant at an exercise price
that is not less than the fair market value of the common shares on the date of the grant.
Options granted to shareholders owning more than 10% of the outstanding common shares must be
exercised within five years from the date of grant and the exercise price must be at least
110% of the fair market value of the common shares on the date of the grant. The plan expired
in 2008.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 2009.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.  30




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##### Table of Contents



Stock Plan
          
 Item 13. Certain Relationships and Related Transactions and Director Independence.
   31




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##### Table of Contents



Director Independence
   
 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
   32




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##### Table of Contents



PART IV
 
 Item 15. Exhibits
 (a) 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 (6)3.6
    
    
    Certificate of Amendment filed January 8, 2004. (6)3.7
    
    
    Certificate of Designation filed January 15, 2004 (6)3.8
    
    
    By-laws of Milestone (1)4.1
    
    
    Specimen stock certificate (2)4.2
    
    
    Intentionally Left Blank4.3
    
    
    Form of warrant agreement, including form of warrant (8)10.1
    
    
    Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3)10.2
    
    
    Agreement with DaVinci Systems dated July 30, 2003 (6)10.3
    
    
    Agreement with Strider dated September 3, 2003 (6)10.4
    
    
    Agreement with Len Osser and K. Tucker Andersen, dated October 9, 2003 (6)10.5
    
    
    Agreement with Morse, Zelnick, Rose & Lander dated December 22, 2003 (6)10.6
    **
    
    Employment Agreement with Leonard Osser dated December 20, 2003 (6)10.7
    
    
    Agreement with United Systems dated October 20, 2004 (9)10.8
    
    
    Agreement with Mark Hochman dated as of January 1, 2005 (9)10.9
    
    
    Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. and Milestone (9)10.10
    
    
    Agreement with DaVinci regarding exclusive license over patented products dated June 1, 2004 (10)10.11
    **
    
    Employment Agreement with Leonard Osser dated January 1, 2008 (11)10.12
    **
    
    Employment Agreement with Joe W. Martin dated May 2, 2007 (11)10.13
    **
    
    Employment Agreement with Leonard Osser dated September 1, 2009.*14
    
    
    Code of Ethics (7)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  33




---



##### Table of Contents



(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. 1.(6)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110376,
Amendment No. 3.(7)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2003.(8)
    
    Incorporated by reference to Milestones Registration Statement on Form S-2 No. 333-110367,
Amendment No. 5.(9)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2004.(10)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2005.(11)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2007.(12)
    
    Incorporated by reference to Milestones Form 10-KSB for the year ended December 31, 2008.  34




---



##### Table of Contents



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

Leonard Osser
    
    March 10, 2010
    
    Chief Executive Officer/s/ Joseph DAgostino

Joseph DAgostino
    
    March 10, 2010
    
    Chief Financial Officer/s/ Leonard Schiller

Leonard Schiller
    
    March 10, 2010
    
    Director/s/ Jeffery Fuller

Jeffrey Fuller
    
    March 10, 2010
    
    Director/s/ Leslie Bernard

Leslie Bernhard
    
    March 10, 2010
    
    Chairman/s/ Pablo Felipe Serna Cardenas

Pablo Felipe Serna Cardenas
    
    March 10, 2010
    
    Director
  35




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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, 2009 and 2008
    
    
    F-3Statements of Operations for the years ended December 31, 2009 and 2008
    
    
    F-4Statements of Changes in Stockholders Equity for the years ended December 31, 2009 and 2008
    
    
    F-5Statements of Cash Flows for the years ended December 31, 2009 and 2008
    
    
    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




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##### Table of Contents



December 31, 2009
    
    
    December 31, 2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,029,129
    
    
    $
    743,665Accounts receivable, net of allowance for doubtful accounts of $5,000 in 2009 and 2008
    
    
    1,063,742
    
    
    
    925,742Inventories
    
    
    804,736
    
    
    
    719,902Advances to contract manufacturer
    
    
    151,995
    
    
    
    250,110Prepaid expenses and other current assets
    
    
    254,501
    
    
    
    218,296Total current assets
    
    
    3,304,103
    
    
    
    2,857,715Advances to contract manufacturer
    
    
    311,230
    
    
    
    415,780Investment in distributor, at cost
    
    
    76,319
    
    
    
    76,319Furniture, Fixtures & Equipment net of accumulated depreciation of $395,630
as of December 31, 2009 and $345,377 as of December 31, 2008
    
    
    77,353
    
    
    
    152,574Patents, net of accumulated amortization of $211,539 as of December 31, 2009
and $135,406 as of December 31, 2008
    
    
    947,315
    
    
    
    901,045Other assets
    
    
    133,674
    
    
    
    7,317Total assets
    
    $
    4,849,994
    
    
    $
    4,410,750LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,154,013
    
    
    $
    829,130Accrued expenses and other payable
    
    
    524,017
    
    
    
    495,897Total current liabilities
    
    
    1,678,030
    
    
    
    1,325,027Long-term Liabilities:Accrued Interest - 6% note
    
    
    92,000
    
    
    
    Line of credit-net of discount of $52,530 in 2008
    
    
    
    
    
    
    1,247,470Notes Payable-net of discount of $11,157 and $11,927, respectively
    
    
    438,843
    
    
    
    438,073Total long-term liabilities
    
    
    530,843
    
    
    
    1,685,543Commitments and ContingenciesStockholders EquityCommon stock, par value $.001; authorized 50,000,000 shares; 14,781,295 shares issued
692,498 shares to be issued and 14,747,962 shares outstanding as of December 31, 2009;
12,695,685 shares issued, 504,639 shares to be issued, and 12,662,352 shares outstanding
as of December 31, 2008
    
    
    15,472
    
    
    
    13,200Additional paid-in capital
    
    
    62,300,619
    
    
    
    59,531,865Accumulated deficit
    
    
    (58,763,454
    )
    
    
    (57,233,369
    )Treasury stock, at cost, 33,333 shares
    
    
    (911,516
    )
    
    
    (911,516
    )Total stockholders equity
    
    
    2,641,121
    
    
    
    1,400,180Total liabilities and stockholders equity
    
    $
    4,849,994
    
    
    $
    4,410,750
   F-3




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##### Table of Contents



2009
    
    
    2008Product sales, net
    
    $
    8,549,060
    
    
    $
    6,595,525Royalty income
    
    
    
    
    
    
    28,282Total revenue
    
    
    8,549,060
    
    
    
    6,623,807Cost of products sold
    
    
    3,458,279
    
    
    
    2,681,116Gross profit
    
    
    5,090,781
    
    
    
    3,942,691Selling, general and administrative expenses
    
    
    6,952,976
    
    
    
    5,502,762Research and development expenses
    
    
    241,318
    
    
    
    168,5167,194,294
    
    
    
    5,671,278Loss from operations
    
    
    (2,103,513
    )
    
    
    (1,728,587
    )Other income (expense)Other income
    
    
    777,609
    
    
    
    675,930Interest income
    
    
    3,146
    
    
    
    9,023Interest expense
    
    
    (154,027
    )
    
    
    (116,374
    )Amortized debt issuance
    
    
    (53,300
    )
    
    
    (27,446
    )Total other income
    
    
    573,428
    
    
    
    541,133Net loss
    
    $
    (1,530,085
    )
    
    $
    (1,187,454
    )Net loss applicable to common stockholders
    
    $
    (1,530,085
    )
    
    $
    (1,187,454
    )Loss per share applicable to common stockholders 
basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.09
    )Weighted average shares outstanding and to be issued 
basic and diluted
    
    
    13,389,872
    
    
    
    12,666,979
   F-4




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##### Table of Contents



AdditionalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, December 31, 2007
    
    
    12,208,878
    
    
    
    12,210
    
    
    
    58,483,539
    
    
    
    (56,045,915
    )
    
    
    (911,516
    )
    
    
    1,538,318Options issued to employees and consultants
    
    
    
    
    
    
    
    
    
    
    151,920
    
    
    
    
    
    
    
    
    
    
    
    151,920Common stock issued for payment of
services to settle accounts payable
    
    
    156,448
    
    
    
    156
    
    
    
    262,590
    
    
    
    
    
    
    
    
    
    
    
    262,746Common stock issued for
payment of consulting services
to settle accounts payable
    
    
    356,063
    
    
    
    356
    
    
    
    315,743
    
    
    
    
    
    
    
    
    
    
    
    316,099Common stock issued for
payment of employee compensation
    
    
    135,602
    
    
    
    135
    
    
    
    98,284
    
    
    
    
    
    
    
    
    
    
    
    98,419Common shares to be issued in
settlement of deferred compensation
    
    
    83,333
    
    
    
    83
    
    
    
    99,917
    
    
    
    
    
    
    
    
    
    
    
    100,000Common stock issued for patents in settlement
of lawsuit
    
    
    260,000
    
    
    
    260
    
    
    
    93,340
    
    
    
    
    
    
    
    
    
    
    
    93,600Warrants issued in connection with
amendment to Line of Credit
    
    
    
    
    
    
    
    
    
    
    12,579
    
    
    
    
    
    
    
    
    
    
    
    12,579Warrants issued in connection with
refinancing of Notes Payable
    
    
    
    
    
    
    
    
    
    
    13,953
    
    
    
    
    
    
    
    
    
    
    
    13,953Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,187,454
    )
    
    
    
    
    
    
    (1,187,454
    )Balance, 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
    )
    
    $
    2,641,121
   F-5




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##### Table of Contents



2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (1,530,085
    )
    
    $
    (1,187,454
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation expense
    
    
    50,253
    
    
    
    71,336Amortization of patents
    
    
    76,133
    
    
    
    55,908Amortization of debt discount
    
    
    53,300
    
    
    
    27,446Common stock and options issued for compensation, consulting,
and vendor services
    
    
    1,444,159
    
    
    
    350,339Loss on sale/disposal of equipment
    
    
    46,918
    
    
    
    2,255Increase in inventory reserve
    
    
    36,000
    
    
    
    82,000Changes in operating assets and liabilities:(Increase) in accounts receivable
    
    
    (138,000
    )
    
    
    (579,395
    )Decrease in royalty receivable
    
    
    
    
    
    
    15,358(Increase) Decrease in inventories
    
    
    (120,834
    )
    
    
    834,842Decrease to advances to contract manufacturer
    
    
    202,665
    
    
    
    526,694(Increase) to prepaid expenses and other current assets
    
    
    (36,205
    )
    
    
    (48,569
    )(Increase) Decrease in other assets
    
    
    (126,357
    )
    
    
    19,980Increase (Decrease) in accounts payable
    
    
    324,883
    
    
    
    (891,707
    )Increase in accrued expenses
    
    
    125,120
    
    
    
    282,294(Decrease) in deferred compensation
    
    
    (5,000
    )
    
    
    (3,333
    )Net cash provided by (used in) operating activities
    
    
    402,951
    
    
    
    (442,006
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (51,950
    )
    
    
    (13,106
    )Proceeds on sale of equipment
    
    
    30,000
    
    
    
    7,749Payment for patent rights
    
    
    (122,403
    )
    
    
    (303,975
    )Net cash used in investing activities
    
    
    (144,353
    )
    
    
    (309,332
    )Cash flows from financing activities:Proceeds from the sale of stock options
    
    
    25,000
    
    
    
    Proceeds from the exercise of stock options
    
    
    1,866
    
    
    
    Proceeds from Long term borrowing-other
    
    
    
    
    
    
    300,000Proceeds from Notes Payable
    
    
    
    
    
    
    450,000Net cash provided by financing activities
    
    
    26,866
    
    
    
    750,000NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    285,464
    
    
    
    (1,338
    )Cash and cash equivalents at beginning of year
    
    
    743,665
    
    
    
    745,003Cash and cash equivalents at end of year
    
    $
    1,029,129
    
    
    $
    743,665Supplemental disclosure of cash flow information:Interest expense paid in cash
    
    $
    
    
    
    $
    7,500Income tax paid
    
    $
    8,225
    
    
    $
    4,720Supplemental disclosure of non cash activities:Warrants issued in connection with Line of Credit
    
    $
    
    
    
    $
    12,579Warrants issued in connection with refinancing notes payble
    
    $
    
    
    
    $
    13,953Shares issued for conversion of note
    
    $
    1,300,000
    
    
    $
    Shares issued to employees in lieu of cash compensation
    
    $
    160,325
    
    
    $
    98,419Shares issued to officer in advance of services
    
    $
    97,500
    
    
    $
    Shares issued for patents in settlement of litigation
    
    $
    
    
    
    $
    93,600Shares issued to settle accounts payable
    
    $
    500,500
    
    
    $
    578,845
   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
      Ionic White
    F-7




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##### Table of Contents



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 31,2009
    
    
    2008Volatility
    
    
    203
    %
    
    
    372
    %Risk-free interest rate
    
    
    1.83
    %
    
    
    2.86
    %Expected life
    
    3 years
    
    
    3 yearsDividend yield
    
    
    0
    %
    
    
    0
    %Forefeiture Rate
    
    
    6
    %
    
    
    6
    %
    CompuDent
      F-10




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##### Table of Contents



Summary No. 141 (revised 2007)
 Non controlling Interests in Consolidated Financial Statements- an amendment
of ARB No. 51.
      .
  F-11




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##### Table of Contents



NOTE C  INVENTORIES
 December 312009
    
    
    2008Inventories consist of the following:Finished Goods
    
    $
    775,126
    
    
    
    609,279Component parts and other materials
    
    
    29,610
    
    
    
    110,623$
    804,736
    
    
    
    719,902
  NOTE D  ADVANCES TO CONTRACT MANUFACTURER
  NOTE E  FURNITURE, FIXTURE AND EQUIPMENT
 December 312009
    
    
    2008Furniture, Fixture and Equipment consist of the following:Leasehold improvements
    
    $
    22,317
    
    
    $
    22,317Artwork
    
    
    
    
    
    
    76,918Office furniture and equipment
    
    
    98,268
    
    
    
    88,848Trade show displays
    
    
    86,121
    
    
    
    57,463Computers and software
    
    
    179,048
    
    
    
    176,276Tooling equipment-STA
    
    
    12,377
    
    
    
    12,377STA Trials Units
    
    
    63,752
    
    
    
    63,752Tooling equipment
    
    
    11,100
    
    
    
    Total
    
    
    472,983
    
    
    
    497,951Less accumulated depreciation
    
    
    (395,630
    )
    
    
    (345,377
    )$
    77,353
    
    
    $
    152,574
  NOTE F  INVESTMENT IN DISTRIBUTOR
  NOTE G  PATENTS
   F-12




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##### Table of Contents



NOTE H LINE OF CREDIT and NOTES PAYABLE
   NOTE I STOCKHOLDERS EQUITY
                   F-13




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##### Table of Contents



NOTE J  STOCK OPTION PLANS
     WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contractual
    
    
    OptionsOptions
    
    
    Price
    
    
    Life (Years)
    
    
    ValueOutstanding, January 1, 2008
    
    
    391,334
    
    
    
    1.86
    
    
    
    2.85
    
    
    
    108,800Granted
    
    
    230,832
    
    
    
    0.85
    
    
    
    4.20
    
    
    
    75Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (51,334
    )
    
    
    1.19
    
    
    
    
    
    
    
    Outstanding, December 31, 2008
    
    
    570,832
    
    
    
    1.51
    
    
    
    3.01
    
    
    
    75Exercisable, December 31, 2008
    
    
    366,442
    
    
    
    1.83
    
    
    
    2.43
    
    
    
    Granted
    
    
    872,866
    
    
    
    1.02
    
    
    
    4.59Exercised during 2009
    
    
    (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
    
    
    
    94,336
  F-14




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##### Table of Contents



Weighted
    
    
    WeightedNumber
    
    
    Averaged
    
    
    Averageof
    
    
    Exercise
    
    
    Grant DateOptions
    
    
    Price
    
    
    Fair ValueVESTED OPTIONSOutstanding, January 1, 2008
    
    
    314,334
    
    
    
    1.94
    
    
    
    Exercised during 2008
    
    
    
    
    
    
    
    
    
    
    Vested Options during 2008
    
    
    103,442
    
    
    
    
    
    
    
    Forfeited during 2008
    
    
    (51,334
    )
    
    
    1.19
    
    
    
    Outstanding, December 31, 2008
    
    
    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
    
    
    
    NONVESTED OPTIONSNonvested, January 1, 2008
    
    
    77,000
    
    
    
    1.56
    
    
    
    1.00Granted during 2008
    
    
    230,832
    
    
    
    0.85
    
    
    
    0.84Vested during 2008
    
    
    (103,442
    )
    
    
    1.19
    
    
    
    0.89Forfeited during 2008
    
    
    
    
    
    
    
    
    
    
    Nonvested, December 31, 2008
    
    
    204,390
    
    
    
    0.94
    
    
    
    0.87Granted Options 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
    
    
    
    0.45
   WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contracted
    
    
    OptionsOptions
    
    
    Price
    
    
    Life (years)
    
    
    ValueOutstanding, January 1, 2008
    
    
    639,133
    
    
    
    3.15
    
    
    
    2.56
    
    
    
    20,667Exercisable, December 31, 2008
    
    
    514,133
    
    
    
    3.49
    
    
    
    2.19
    
    
    
    1,667Granted during 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited during 2008
    
    
    (11,666
    )
    
    
    3.75
    
    
    
    
    
    
    
    Outstanding, December 31, 2008
    
    
    627,467
    
    
    
    3.14
    
    
    
    1.61
    
    
    
    Exercisable, December 31, 2008
    
    
    564,967
    
    
    
    3.29
    
    
    
    1.44
    
    
    
    Granted during 2009
    
    
    156,666
    
    
    
    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
    
    
    
    234,638
  F-15




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##### Table of Contents



WeightedNumber
    
    
    Averagedof
    
    
    ExerciseOptions
    
    
    PriceVESTED OPTIONSOutstanding, January 1, 2008
    
    
    514,133
    
    
    
    3.49Exercised during 2008
    
    
    
    
    
    
    Vested during 2008
    
    
    62,500
    
    
    
    1.77Forfeited during 2008
    
    
    (11,666
    )
    
    
    3.75Outstanding, December 31, 2008
    
    
    564,967
    
    
    
    3.29Exercised during 2009
    
    
    
    
    
    
    Vested during 2009
    
    
    140,554
    
    
    
    0.32Forfeited during 2009
    
    
    (369,134
    )
    
    
    3.38Outstanding, December 31, 2009
    
    
    336,387
    
    
    
    1.96NONVESTED OPTIONSNonvested January 1, 2008
    
    
    125,000
    
    
    
    1.77Exercised during 2008
    
    
    
    
    
    
    Vested during 2008
    
    
    (62,500
    )
    
    
    1.77Forfeited during 2008
    
    
    
    
    
    
    Nonvested December 31, 2008
    
    
    62,500
    
    
    
    1.77Granted during 2009
    
    
    156,666
    
    
    
    0.41Exercised during 2009
    
    
    
    
    
    
    Vested during 2009
    
    
    (140,554
    )
    
    
    0.32Forfeited during 2009
    
    
    
    
    
    
    Outstanding, December 31, 2009
    
    
    78,612
    
    
    
    1.64
  NOTE K  EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION
 Employment Contracts
     F-16




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##### Table of Contents



NOTE L  INCOME TAXES
   2009
    
    
    2008Current AssetsAllowance for doubtful accounts
    
    $
    2,000
    
    
    $
    2,000Inventory allowance
    
    
    79,000
    
    
    
    70,000Warranty reserve
    
    
    10,000
    
    
    
    10,000Deferred officers compensation
    
    
    77,000
    
    
    
    40,000Subtotal
    
    
    168,000
    
    
    
    122,000Valuation allowance
    
    
    (168,000
    )
    
    
    (122,000
    )Current deferred tax asset
    
    $
    
    
    
    $
    Non-current assetsNet operating loss carryforward
    
    $
    16,500,000
    
    
    $
    16,500,000Valuation allowance
    
    $
    (16,500,000
    )
    
    $
    (16,500,000
    )Non-current deferred tax asset
    
    $
    
    
    
    $
    
    F-17




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##### Table of Contents



2009
    
    
    2008Statutory 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 M  PRODUCT SALES AND SIGNIFICANT CUSTOMERS AND VENDORS
  Year End December 31,2009
    
    
    2008Instruments
    
    $
    3,176,752
    
    
    $
    1,609,944Handpieces
    
    
    5,277,092
    
    
    
    4,924,151Other
    
    
    95,216
    
    
    
    61,430$
    8,549,060
    
    
    $
    6,595,525United States
    
    $
    5,378,422
    
    
    $
    4,341,687Canada
    
    
    630,108
    
    
    
    513,651Other foreign
    
    
    2,540,530
    
    
    
    1,740,187$
    8,549,060
    
    
    $
    6,595,525
 STA CompuDent
 STA CompuDent CompuMed
  F-18




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##### Table of Contents



Ionic White
 NOTE N  COMMITMENTS AND OTHER
 (1) Lease Commitments
   Year Ending December 31,20092010
    
    
    156,2782011
    
    
    89,5702012
    
    
    83,8282013
    
    
    83,3062014
    
    
    41,653$
    454,633
  (2) Contract Manufacturing Arrangement
 CompuDent CompuMed The Wand The Wand
  (3) Other Commitments
 SafetyWand CompuFlo, CompuDent
  F-19




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##### Table of Contents



STA Systems
 (4) Litigation
  (5) Other Events
 CompuFlo
 NOTE O  PENSION PLAN
   F-20