SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB

(Mark One)

|X|   Annual Report Pursuant to Section 13 or 15(D) of the Securities
      Exchange Act of 1934

      For the Fiscal Year ended December 31, 1997


|_|   Transition Report Pursuant to Section 13 or 15(D) of the Securities
      Exchange Act of 1934

      For the transition period from _______________ to _______________

      Commission File Number 0-26284

                          Milestone Scientific Inc.
                          -------------------------
                (Name of Small Business Issuer in its Charter)

               Delaware                               13-3545623
               --------                               ----------
     (State or other jurisdiction                  (I.R.S. Employer
   of incorporation or organization               Identification No.)

    220 South Orange Avenue, Livingston Corporate Park, Livingston, NJ 07039
    ------------------------------------------------------------------------
               (Address of Principal Executive Office) (Zip Code)

                    Issuer's telephone number (973) 535-2717


         Securities registered under Section 12(b) of the Exchange Act:

                                                 Name of Each Exchange
          Title of Each Class                     on Which Registered
          -------------------                     -------------------
                                     None

         Securities Registered under Section 12(g) of the Exchange Act:

                    Common Stock, par value $.001 per share
                    ---------------------------------------
                               (Title of class)

      Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
 Yes |X| No |_|


                                       1
<PAGE>

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      For the year ended December 31, 1997, the revenues of the registrant were
$2,854,271.

      The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the closing price on the Nasdaq
Market on March 26, 1998 of $19 5/8 was approximately $132,320,000.

      As of March 26, 1998, the registrant has a total of 8,793,588 shares of
Common Stock outstanding.


                     DOCUMENTS INCORPORATED BY REFERENCE

                                     None


                                       2
<PAGE>

                                    PART I

Item 1. Description of Business

      All references in this report to the Company refer to Milestone Scientific
Inc. (formerly U.S. Opportunity Search, Inc.), its wholly owned subsidiaries,
Princeton PMC, Inc. ("Princeton PMC") and Sagacity I, Inc., doing business in
the United States as the Wisdom Toothbrush Co. ("Wisdom"), and its 70.3% owned
subsidiary, Spintech, Inc. ("Spintech"), unless the context otherwise indicates.

Forward-Looking Statements

      Certain statements made in this Annual Report on Form 10-KSB 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 the Company 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. The Company'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 the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, particularly in view of the Company's early stage operations, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.

General

      The Company develops, manufactures, markets and sells equipment and
related disposable or consumable items and other products for use primarily by
the dental practitioner. Company products focus on practitioner efficiency,
patient comfort, infection control and medical waste disposal. The Company's
principal product is the "The Wand(TM)", a computer controlled "painless"
injection system enabling the practitioner to more quickly and effectively
anesthetize patients in certain dental applications, which the Company
introduced at the Fall 1997 American Dental Association Trade Show. The Company
began selling equipment units of "The Wand(TM)" and an initial supply of 100
disposables in January 1998. "The Wand" is sold to four major distributors of
dental products, Henry Shein (Sullivan), Patterson Dental, Meer Dental and the
American Dental Cooperative Member Companies.

      The Company also markets and sells (i)"SplatrFree(TM)" disposable prophy
angles and related consumable products for use in dental prophylaxis procedures
and (ii) clinically oriented dental products. The Company began selling its
prophy angle during the first quarter of 1997 and began selling its clinically
oriented dental products including the "Wisdom" line of toothbrushes, flosses
and other prophylaxis products following the acquisition of Wisdom in December
1996. Through November l997 the Company also marketed, through an exclusive
distributor, the Sharps Disposal System ("SDS"), a heat activated sterilizer
that, on-site, converts needles, syringes and other "sharps" into sterile
plastic blocks for disposal. The Company markets its prophy angle and clinically
oriented dental products through a clinically oriented catalog for the dental
practitioner, a dealer network and the Wisdom distribution system, to
approximately 15,500 dentists and 2,000 other accounts.


                                       3
<PAGE>

      The Company was organized in August 1989 under the laws of Delaware. On
November 3, 1995, the Company completed a public offering of Common Stock for
aggregate proceeds of $6,000,000 (the "Offering") and consummated the
acquisition of 65% of the outstanding shares of common stock of Spintech for an
aggregate purchase price of $2,700,000. During 1997 the Company increased its
interest in Spintech to 70.3% by exercising the first of a series of five annual
options each to acquire an additional 3% of Spintech's shares for a nominal
amount granted in the original acquisition transaction and by exchanging shares
of Milestone Common Stock for Spintech shares. Spintech developed and owns the
rights to various products for healthcare providers, including "The Wand(TM)".
and has registered various patents and trademarks related to these products. In
March 1996, the Company, together with Gregory Volok, the Company's Executive
Vice President, founded Princeton PMC as a marketing company. The Company
acquired the outstanding shares of Princeton PMC common stock owned by Mr. Volok
in December 1996, making Princeton PMC a wholly owned subsidiary. In December
1996, the Company acquired Wisdom and obtained United States distribution rights
to the Wisdom line of toothbrushes and prophylaxis products. In March 1997, the
Company completed a private placement of units in which it received gross
proceeds of $3,505,965 (the "March Private Placement"). In September 1997, the
Company completed a private placement of units, each consisting of one share of
Common Stock and one Common Stock Purchase Warrant, in which it received gross
proceeds of $10,000,000 (the "September Private Placement"). The Company
maintains its executive offices at 220 South Orange Avenue, Livingston Corporate
Park, Livingston, New Jersey 07039, and its telephone number is (973) 535-2717.

Products

       "The Wand(TM)" Computer Controlled Anesthetic Injection System. "The
Wand(TM)" is a computer controlled local anesthetic injection delivery system
developed by the Company. The Company believes "The Wand(TM)" overcomes the
typical problems of conventional anesthetic injections. "The Wand's(TM)" slim
pencil-like shape is more functional to the user and less ominous in appearance
to the patient. The pencil grip provides a greater level of stability for the
user by preventing antagonistic movements between the patient and the
practitioner during needle placement, a positioning control not possible with
syringes currently in use. A computer driven infusion machine operated by the
standard air controlled foot pedal provides the precision flow necessary for
painless local anesthesia. "The Wand(TM)" provides a highly controlled rate of
emission of anesthetic solution in advance of the needle point. The anesthetic
and the controlled rate of fluid emission deadens the path of the needle
immediately ahead of the needle's entry. The controlled rate substantially
eliminates the so-called "bee sting" effect, which is pain associated with the
sudden build-up of pressure by the too rapid flow rate of expelled fluids.
Because "The Wand(TM)" uses a disposable syringe and needle, the Company
believes it will offer protection against patient cross-contamination.

       In many procedures, "The Wand(TM)" more quickly anesthetizes by
eliminating the need for preliminary pain blocking injections and the waiting
time required to see if this injection has taken effect before further
anesthetic injections. The Company believes that "The Wand(TM)" will enable a
dentist to provide painless injections, increase productivity, be more sanitary
and will provide important competitive advantages for dentists trying to build
and maintain their practices. While designed for use in dentistry, "The
Wand(TM)" may also have uses in proctology, podiatry, urology, dermatology and
plastic surgery. To date, the Company has focused its marketing of "The
Wand(TM)" exclusively on the dental market

       Although many dentists often give painless injections, it is almost
impossible for them to do so regularly using conventional techniques. Dentists
do not have a strong purchase point against which they may guide their hand when
inserting a needle or while making the injection. The resulting uncontrolled
movement of the needle frequently can be painful to the patient. Although the
dentist is taught to inject slowly, present devices do not allow full control of
the rate of flow. Thus, the needle


                                       4
<PAGE>

often enters tissue which has not yet been anesthetized. "The Wand(TM)" can
precisely control the flow rate and modulate fluid pressure by the use of a
microprocessor and electronically controlled motor.

       The Company began shipping system kits consisting of "The Wand(TM)"
driver unit, 100 disposable handpieces, an instructional video tape and other
instructional material in January 1998. Prior thereto pre-production prototype
of "The Wand(TM)" had been clinically tested in over 1,000 patients. Ninety-six
percent of those tested reported a "painless" or significantly less painful
procedure than standard procedures. Three separate additional studies were
conducted on various aspects of "The Wand(TM)" operation. These have been
published in major dental publications and have helped establish acceptance and
credibility within the dental community.

       "SplatrFree(TM)" Prophy Angles. Prophy angles are dental drill
accessories incorporating a cup-like tip moving at high rotational speeds which
are used by dentists and oral hygienists in teeth cleaning and other prophylaxis
procedures. Prophy angle tips frequently cause splattering of saliva,
particulate matter and possibly pathogens onto the dentist, hygienist, dental
tools and surrounding surfaces. The "SplatrFree(TM)" prophy angle has a unique
tip design that substantially eliminates splattering. The "SplatrFree(TM)"
prophy angle is available in disposable models. The Company believes that its
prophy angle can improve dental office infection control and hygiene by reducing
the spread of infection from patient to patient and from patient to dentist or
hygienist. In November 1995, 104 pre-production prototype exemplars of the
prophy angle, accompanied by a questionnaire, were distributed to 12 dentists
and oral hygienists for trials. In response to the questionnaire, all 12
dentists and oral hygienists indicated that the prophy angles they currently use
cause heavy or moderate splattering. Three of those surveyed indicated that use
of the Company's prophy angle eliminated splattering, while seven of those
surveyed indicated that use of the prophy angle reduced splattering noticeably.
One dental practitioner surveyed indicated that the prophy angle reduced
splattering only slightly and another indicated that no reduction in splattering
was observed.

       Clinically Oriented Dental Products; "Wisdom(TM)". In addition to the
proprietary products of the Company, since December 1996 the Company has sold to
dentists a line of clinically oriented dental prophylaxis products which include
the Wisdom line of dentist distributed toothbrushes, flosses and other
prophylaxis products, hand instruments, fluoride treatment products and topical
anesthetics. The clinical line is designed for use in a wide variety of dental
prophylaxis and periodontal procedures. All of these products are manufactured
by other companies, and the Company acquires them for resale through a variety
of means, including acting as exclusive and non-exclusive marketing agent,
purchasing bulk product for resale, and purchasing standard products for private
labeling.

       Sharps Disposal System. The principal component of the Sharps Disposal
System ("SDS") is a heat processor which raises the temperature of sharps to
410(degree)F, well above sterilization levels, while transforming the syringes,
plastic SDS sharps container and SDS indicator disk into an encapsulating bath
of molten plastic during a four-hour operating cycle. To provide added plastic
fill material required by users of the unit, the Company sells "SDS indicator
disks:" plastic disks that will not melt until temperatures well in excess of
sterilization levels are reached. The SDS processor can accommodate a sharps
container holding 30 to 40 typical syringes and needles. After processing, the
sharps emerge encapsulated in molten plastic in the shape of a solid cylindrical
block approximately one-fourth the original size of the sharps, syringes and
other material placed in the SDS processor. The disposal of hypodermic and other
needles, scalpel blades and other cutting or puncturing devices ("sharps") and
other medical waste is subject to extensive regulation by OSHA under the "Blood
Borne Pathogen Standards" and by various federal and state environmental
protection agencies.

       In November 1997, upon the expiration of distribution arrangements for
the SDS, the Company ceased active efforts to market this product. The Company
is now evaluating whether to further redesign the SDS System or to sell or
license the technology.


                                       5
<PAGE>

Manufacturing and Sources of Supply

       "The Wand(TM)" equipment units are manufactured for the Company by Tricor
Systems, Inc. ("Tricor") pursuant to specific purchase orders. The Company is
currently seeking to negotiate a long-term manufacturing arrangement with
Tricor, however, no assurances can be given that it will be able to do so. In
order to fund certain start-up expenses of Tricor, the Company has advanced a
net amount of $760,912 to Tricor as of December 31,1997, which advances will be
repaid from future sales by Tricor to the Company. The Company has received a
security interest in certain Tricor assets.

      The disposable handpiece for "The Wand(TM)" is manufactured for the
Company by Nypro pursuant to individual purchase orders.

       All "SplatrFree(TM)" prophy angles have been produced for the Company by
Team Technologies, Inc. ("TTI") pursuant to an agreement entered into in July
1995. Prototype prophy angles were produced in a single cavity mold purchased by
the Company for $7,000. Commercial quantities of prophy angles are produced
utilizing a 16-cavity production mold capable of producing more than 30,000
prophy angles per day, purchased by the Company at a cost of $72,000. Quality
control problems experienced at TTI on initial use of the production mold
prevented it from delivering commercially acceptable product to the Company
through the end of 1996. Small modifications to TTI production molds, however,
permitted commercial delivery of prophy angles that began in the first quarter
of 1997.

       All of the Company's SDS processing units have been manufactured by
Arbutus, Inc., ("Arbutus") a domestic manufacturer, in accordance with detailed
specifications provided by the Company. However, the Company has no on-going
agreement with Arbutus for the manufacture of its units. Based on its
relationship with Arbutus, the Company expects Arbutus to continue to remain
available for manufacture of the SDS processing units. TTI produces SDS
indicator disks for the Company and Winfield Medical, Inc. produces SDS sharps
plastic containers recommended and offered by the Company for use with the SDS.
The Company has no on-going agreement regarding these manufacturing arrangements
with either TTI or Winfield Medical, Inc.

      In April 1996, Wisdom entered into an Exclusive Distributorship Agreement
(the "Distributorship Agreement") with Wisdom Toothbrushes Limited ("WTL")
appointing Wisdom as the exclusive distributor of the Wisdom line of dentist
distributed toothbrushes, flosses and other prophylaxis products in the United
States of America, various United States territories, Canada and certain other
smaller markets. The Distributorship Agreement may be terminated by either
party, commencing in April 1999, on twelve months prior written notice. The
Distributorship Agreement now covers approximately 32 products. WTL may
terminate the agreement if Wisdom fails to purchase certain specified minimums,
unless Wisdom reimburses WTL for its unrecovered overhead and profit margin in
the underage.

Marketing

       "The Wand" is marketed to dental practitioners through four major
distributors, Henry Schein (Sullivan), Patterson Dental, Meer Dental and the
American Dental Cooperative member companies, each of which maintains dealer
networks. In addition, the Company employs 13 regional representatives who
assist in training dealers and representatives of the distributors in the
selling "The Wand(TM)" and, where appropriate, organize and run focus groups.
Additionally, the Company maintains a "hot-line" to answer questions from dental
practitioners on their use of the product.

      The Company markets its other clinical products directly to users through
a dealer network of domestic and foreign independent sales agencies and persons
and manufacturer representatives, the Wisdom distribution system and a
clinically oriented catalog for the dentist practitioner. The Company


                                       6
<PAGE>

promotes its products using trade advertising, direct mail and attendance at
dental trade shows. The Company estimates that it sells through Wisdom to
approximately 15,500 dentists and 2,000 other accounts utilizing four salesmen a
telemarketing department and independent sales reps. The clinically oriented
dental prophylaxis products generally are sold using the Wisdom distribution
system. The Company currently uses Wisdom to help market the "SplatrFree(TM)"
prophy angle, and in the future it may use the Wisdom distribution system for
marketing its other proprietary products. The Company currently markets its
products primarily in the United States.

      The SDS and its precursor, TAPS, which had been sold primarily to dentists
for use in their offices has not been actively marketed since the expiration of
distribution arrangements in November 1997.

Competition

      The Company faces intense competition from some companies in the medical
and dental device industry, including well-established academic institutions,
possessing substantially greater financial, marketing, personnel, and other
resources. Most of the Company's competitors have established reputations,
stemming from their success in the development, sale, and service of medical
products. Further, rapid technological change and extensive research and
development characterize the industry. Current or new competitors could, at any
time, introduce new or enhanced products with features that render the Company's
products less marketable, or even obsolete. Therefore, the Company must devote
substantial efforts and financial resources to enhance its existing products, to
bring its developmental products to market, and to develop new products for its
related markets. In order to compete successfully, the Company must establish an
effective distribution network. Several regulatory authorities must also approve
the Company's products before they may be marketed. There can be no assurance
that the Company will be able to compete successfully, that its competitors will
not develop technologies or products that render the Company's products less
marketable or obsolete, or that the Company will be able to successfully enhance
its existing products, effectively develop new products or obtain required
regulatory approvals therefor.

      "The Wand(TM)" competes with non-automated disposable and reusable
syringes and other local anesthetic delivery systems generally selling at
significantly lower prices and utilizing established and well understood
methodologies. "The Wand(TM)" competes on the basis of its performance
characteristics and offers significant benefits to the dentist and the patient.
It reduces fear, pain and anxiety for the patient and greatly reduces dentist
stress levels. It can be used for all local anesthesia techniques as well as new
and modified techniques. These new techniques allow faster procedures,
shortening of chair time while eliminating numbing of the lips and facial
muscles of expression. It enhances productivity, reduces stress and virtually
eliminates pain and anxiety.

      The primary competition for the SDS are the services provided by licensed
medical waste haulers. Except for the largest waste generators, pick-up is
generally made once per month which results in storage on premises of dangerous
and sometimes noxious medical waste. The Company believes that SDS will provide
most smaller waste generators a safer and lower risk means for disposal of
sharps. Various competitors offer devices for destruction of regulated medical
waste produced by hospitals and other generators of large volumes of waste.
These devices generally are significantly more expensive than the Company's
larger proposed SDS and do not always render the medical waste unrecognizable. A
competitor's grinding mechanism that reduces metal and glass in bulk and
encapsulates them in melted plastic provided by the waste is priced at more than
three times the price of the SDS unit and, management believes, is prevented by
the Company's patents from adding new plastic with a known melting point.

      The Company's "SplatrFree(TM)" prophy angle competes with prophy angles
produced and distributed by a number of major manufacturers and distributors and
other producers or distributors of


                                       7
<PAGE>

dental products, many of whom have significant competitive advantages because of
their size, strength in the marketplace, financial and other resources and broad
product lines. The Company competes on the basis of the superior,
non-splattering performance of its prophy angle and product quality.

Patents and Intellectual Property

      The Company's patents are believed to be material to its business and
potential growth. The Company holds the following five United States patents:

                                                   U.S. Patent   Date of
                   Description                        Number      Issue
                   -----------                        ------      -----
"The Wand(TM)"

Hypodermic Anesthetic Injection Method                4,747,824   5/31/88

Hypodermic Anesthetic Injection Apparatus             5,180,371   1/19/93

"SplatrFree(TM)"

Anti-Splattering Rotary Dental Instrument             5,690,488  11/25/97

SDS

Apparatus and Method for Sterilizing, Destroying
  and Encapsulating Medical Implement Wastes          4,992,217   2/12/91

Apparatus and Method for Verifiably Sterilizing
  Destroying and Encapsulating Regulated Medical
Wastes                                                5,078,924    1/7/92

Apparatus and Method for Verifiably Sterilizing,
  Destroying and Encapsulating Regulated Medical
  Wastes                                              5,401,444   3/28/95

Other

Self-Sterilizing Hypodermic Syringe                   5,512,730   4/30/96

Self-Sterlizing Hypodermic Syringe                    5,693,026   12/2/97


      The Company has adopted the trademarks "SplatrFree(TM)" and "The Wand(TM)"
and has filed applications for registration thereof. It has received from the
United States Patent and Trademark Office a first Office Action denying the
filing for both. The Company is preparing a response to these actions.

      The Company relies on a combination of patent, copyright, trade secret,
and trademark laws and employee and third-party nondisclosure agreements to
protect its intellectual property rights. Despite the precautions taken by the
Company to protect its products, unauthorized parties may attempt to reverse
engineer, copy, or obtain and use its products and other information the Company
regards as proprietary. Litigation may be necessary to protect the Company's
intellectual property rights and could result in substantial cost to, and
diversion of effort by, the Company with no guarantee of success. The failure of
the Company to protect its proprietary information, and the expenses of doing
so, could have a material adverse effect on the Company's operating results and
financial condition.

      While there are no current claims that the Company's products infringe on
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims


                                       8
<PAGE>

against the Company in the future with respect to current or future products or
that any such assertion may not require the Company to cease selling such
products, or to enter into arrangements that require the Company to pay
royalties, or to engage in costly litigation. Although the Company has received
no claims of infringement, it is possible that infringement of existing or
future patents or proprietary rights of others may occur. In the event that the
Company's products infringe patent or proprietary rights of others, the Company
may be required to modify its processes or to obtain a license. There can be no
assurance that the Company would be able to do so in a timely manner, upon
acceptable terms and conditions, or at all. The failure to do so would have a
material adverse effect on the Company.

Government Regulation

      The Company's "SplatrFree(TM)" prophy angles and "The Wand(TM)" were
approved for marketing in the United States by the FDA in April and July 1996,
respectively. Most of the products in the clinically oriented line of dental
products, including Wisdom toothbrushes, do not require FDA marketing approval.
Where such approval is required for the other products in this product line, it
is obtained by the manufacturer. The SDS does not require FDA marketing
approval. Any other new products may require approval.

      The manufacture and sale of medical devices and other medical products,
such as the Company's "SplatrFree(TM)" prophy angle and "The Wand(TM)", are
subject to extensive regulation by the FDA pursuant to the FDC Act, and by other
federal, state and foreign authorities. Under the FDC Act, medical devices must
receive FDA clearance before they can be commercially marketed in the United
States. Some medical products must undergo rigorous pre-clinical and clinical
testing and an extensive FDA approval process before they can be marketed. These
processes can take a number of years and require the expenditure of substantial
resources. The time required for completing such testing and obtaining such
approvals is uncertain, and FDA clearance may never be obtained. Delays or
rejections may be encountered based upon changes in FDA policy during the period
of product development and FDA regulatory review of each product submitted.
Similar delays may also be encountered in other countries. Following the
enactment of the Medical Device Amendments to the FDC Act in May 1976, the FDA
classified medical devices in commercial distribution into one of three classes.
This classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of the medical device. Class I devices are those
devices whose safety and effectiveness can reasonably be ensured through general
controls, such as adequate labeling, premarket notification, and adherence to
the FDA's GMP regulations. Some Class I devices are further exempted from some
of the general controls. Class II devices are those devices whose safety and
effectiveness can reasonably be ensured through the use of special controls,
such as performance standards, post-market surveillance, patient registries, and
FDA guidelines. Class III devices are devices which must receive premarket
approval by the FDA to ensure their safety and effectiveness. Generally, Class
III devices are limited to life-sustaining, life-supporting or implantable
devices.

       If a manufacturer or distributor can establish that a proposed device is
"substantially equivalent" to a legally marketed Class I or Class II medical
device or to a Class III medical device for which the FDA has not required
premarket approval, the manufacturer or distributor may seek FDA marketing
clearance for the device by filing a 510(k) Premarket Notification. The 510(k)
Premarket Notification and the claim of substantial equivalence may have to be
supported by various types of data and materials, including test results
indicating that the device is as safe and effective for its intended use as a
legally marketed predicate device. Following submission of the 510(k) Premarket
Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order is issued by the FDA. By regulation, the
FDA has no specific time limit by which it must respond to a 510(k) Premarket
Notification. At this time, the FDA typically responds to the submission of a
510(k) Premarket Notification within 90 to 200 days. The FDA response may
declare that the device is substantially equivalent to another legally marketed
device and allow the proposed device to be marketed in the United States. The
FDA may, however, determine that the proposed device is not


                                       9
<PAGE>

substantially equivalent, or may require further information, such as additional
test data, before the FDA is able to make a determination regarding substantial
equivalence. Such determination or request for additional information could
delay the Company's market introduction of its products and could have a
material adverse effect on the Company. If a device that has obtained 510(k)
Premarket Notification clearance is changed or modified in design, components,
method of manufacture, or intended use, such that the safety or effectiveness or
the device could be significantly affected, separate 510(k) Premarket
Notification clearance must be obtained before the modified device can be
marketed in the United States.

       If a manufacturer or distributor cannot establish that a proposed device
is substantially equivalent, whether or not the FDA has made a determination in
response to a 510(k) Premarket Notification, the manufacturer or distributor
will have to seek premarket approval of the proposed device. A premarket
approval application (a "PMA application") would be supported by extensive data,
including pre-clinical and human clinical trial data, as well as extensive
literature, to prove the safety and efficacy of the device. Upon receipt, the
FDA will conduct a preliminary review of the PMA application to determine
whether the submission is sufficiently complete to permit substantive review. If
sufficiently complete, the submission is declared acceptable for filing by the
FDA. By regulation, the FDA has 180 days to review a PMA application once it has
been declared acceptable for filing. While in the past the FDA has responded to
PMA applications within the allotted time period, more frequently PMA reviews
occur over a significantly protracted time period, and generally take
approximately two years or more from the date of filing to complete. A number of
devices for which FDA marketing clearance has been sought have never been
cleared for marketing.

       If human clinical trials of a proposed device are required and the device
presents "significant risk," the manufacturer or distributor of the device will
have to file an Investigational Device Exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and mechanical
testing. If the IDE application is approved, human clinical trials may begin at
the specific number of investigational sites and could include the number of
patients approved by the FDA.

       Though the Company's "SplatrFree(TM)" prophy angle and "The Wand(TM)"
have received FDA clearance based on its 510(k) Premarket Notification, there
can be no assurance that any of the Company's other products under development
will obtain the required regulatory clearance on a timely basis, or at all. If
regulatory clearance of a product is granted, such clearance may entail
limitations on the indicated uses for which the product may be marketed. In
addition, modifications may be made to the Company's products to incorporate and
enhance their functionality and performance based upon new data and design
review. There can be no assurance that the FDA will not request additional
information relating to product improvements, that any such improvements would
not require further regulatory review thereby delaying the testing, approval and
commercialization of the Company's development products or that ultimately any
such improvements will receive FDA clearance.

       Compliance with applicable regulatory requirements is subject to
continual review and will be monitored through periodic inspections by the FDA.
Later discovery of previously unknown problems with a product, manufacturer, or
facility may result in restrictions on such product or manufacturer, including
fines, delays or suspensions of regulatory clearances, seizures or recalls of
products, operating restrictions and criminal prosecution and could have a
material adverse effect on the Company.

       The Company is subject to pervasive and continuing regulation by the FDA
regulations which requires manufacturers of medical devices to adhere to certain
"Good Manufacturing Practices" ("GMP") as defined by the FDC Act. GMP require
testing, quality control and documentation procedures. Failure to comply with
GMP can result in the suspension or termination of production, product recall or
fines and penalties. Products must also be manufactured in registered
establishments.


                                       10
<PAGE>

In addition, labeling and promotional activities are subject to scrutiny by the
FDA and, in certain circumstances, by the Federal Trade Commission. The export
of devices is also subject to regulation in certain instances.

       The Medical Device Reporting ("MDR") regulation obligates the Company to
provide information to the FDA on product malfunctions or injuries alleged to
have been associated with the use of the product or in connection with certain
product failures which could cause serious injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believes that the Company
is not in compliance with the law, the FDA can institute proceedings to detain
or seize products, enjoin future violations, or assess civil and/or criminal
penalties against the Company, its officers or employees. Any action by the FDA
could result in disruption of the Company's operations for an undetermined time.

      In addition to the foregoing, numerous other federal and state agencies,
such as environmental, fire hazard control, working condition and other similar
regulators, have jurisdiction to take actions that could have a materially
adverse effect upon the Company's ability to do business. In addition, expansion
of the Company's operations into foreign markets will require the Company to
obtain additional approvals, permits or licenses and comply with additional
regulatory schemes to those of the United States. Amendments to existing
statutes and regulations, adoption of new statutes and regulations and expansion
of the Company's business could require the Company to alter methods of
operations at costs that could be substantial, which could have an adverse
effect on the Company. There can be no assurance that the Company will be able,
for financial or other reasons, to comply with applicable laws and regulations
and approval, permit or license requirements. Currently, the Company is in
compliance with all applicable statutes and regulations governing its operations
and business as currently conducted, including, without limitation, those in
respect of the SDS, "SplatrFree(TM)" prophy angles and "The Wand(TM)", and the
Company has all necessary approvals, permits and licenses that are applicable to
its business, operations and products and services.

Product Liability

       Failure to use any of the Company's products in accordance with
recommended operating procedures could potentially result in subjecting users to
health hazards or injury. For example, insofar as the SDS unit is used
improperly, (i) premature removal of syringes and other materials before
completion of the melt cycle could subject users to puncture by contaminated
needles prior to their complete encapsulation, or (ii) the inclusion of
excessive amounts of blood soaked gauze or other material could cause the
release of noxious fumes from the sterilizer. In addition, the SDS unit heats
material at high temperatures. Misuse or malfunction of the SDS unit could
result in fire or shock. Any of the foregoing or other failures of the Company's
products to function properly could subject the Company to claims of liability.
The Company maintains liability insurance in the aggregate amount of $2,000,000
with a per-occurrence limit of $1,000,000 and a $10,000,000 umbrella policy
which the Company believes to be adequate. Although no claims have been made
against the Company or any of the customers using its products, there can be no
assurance that such claims will not arise in the future or that the insurance
coverage will be sufficient to pay such claims. A partially or completely
uninsured claim, if successful and of significant magnitude, could have a
material adverse effect on the Company.

Research and Development Activities

      During the 1996 and 1997 fiscal years, the Company expensed $167,600 and
$981,078, respectively, on research and development activities.

Employees


                                       11
<PAGE>

       The Company had 35 full-time employees at December 31, 1997, which
includes 5 executive officers. The Company also uses the services of certain
outside consultants for marketing and other activities.

Item 2. Description of Property

      On March 20, 1997 Milestone opened new corporate headquarters and
administrative offices occupying approximately 2,693 square feet at 220 South
Orange Avenue, Livingston Corporate Park, Livingston, New Jersey. The Company
occupies this space under a five (5) year and one (1) month lease at a cost the
Company believes to be competitive. The new offices allow the Company to
consolidate and more effectively coordinate administrative functions previously
conducted at various locations. The offices of Spintech in York, Pennsylvania,
have been closed. Spintech's principal executive offices and accounting
functions have been moved to the new corporate headquarters. Spintech's
operational have been moved to the new corporate headquarters. Spintech's
operational functions are located at and consolidated with those of Wisdom in
Deerfield, Illinois.

      Wisdom's corporate, administrative and distribution headquarters are
located in leased facilities at 151 S. Pfingsten Road, Deerfield, Illinois and
occupy approximately 4,607 square feet at that location. In November 1997,
Wisdom extended their lease term until December 31,1998 and expanded their space
to 9,216 square feet to accommodate The Wand(TM) dental division. In addition,
on March 7, 1997, Wisdom opened a telemarketing office occupying 1,571 square
feet located in Rockford, Illinois. Wisdom occupies this space under a three (3)
year lease. Wisdom believes that both of the above leases are at competitive
rates.

Item 3. Legal Proceedings

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


                                       12
<PAGE>

claims against him do not arise by reason of the fact that Dr. Spinello was an
officer or director of Spintech. The Motion and Cross-motion was scheduled for
oral argument on January 26, 1998, but the Court canceled the argument in light
of the extensive briefs that had been filed. No decision has yet been rendered
by the Court. In the meantime, discovery has been held in abeyance pending the
decision, but will likely resume shortly. Milestone has been advised by its
patent counsel that all technology developed by Dr. Spinello while employed by
Spintech is owned by Spintech. The Company believes that ownership of the
technology relating to these ancillary components which are the subject of this
litigation in no way prevents the manufacture and sale of its anesthetic
delivery system at economically viable prices.

      On May 20, 1997, Glenn R. Spinello filed a Complaint in the Court of
Common Please, York County, Pennsylvania seeking damages as a result of the
alleged breach of his Employment Agreement. On June 20, 1997, the Company and
Spintech filed a notice of Removal which transferred venue of Glenn Spinello's
lawsuit to the United States District Court for the Middle District of
Pennsylvania. On June 27, 1997, the Company and Spintech filed an Answer to
Glenn Spinello's Complaint which denied the material allegations of the
Complaint and asserted counterclaims based upon Glenn Spinello's breach of his
Employment Agreement. On July 27, 1997 Glenn Spinello filed a reply to the
counterclaims by the Company and Spintech, denying the material allegations of
the counterclaims. The parties to that action are engaged in discovery.

Item 4. Submission of Matters to a Vote of Security Holders

      (a) A Special Meeting of Stockholders was held on December 11, 1997.

      (b) Not applicable.

      (c) At the meeting the Stockholders considered a proposed amendment to the
Company's Certificate of Incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue from 10,000,000 to
25,000,000. The amendment was adopted by the following vote:

      For   5,166,019         Against     275,750     Abstain     1


                                       13
<PAGE>

      PART II

Item 5. Market for Common Equity and Related Stockholder Matters

      (a)   Market Information

      The Company's Common Stock had been traded on The Nasdaq SmallCap Market
under the symbols "USOS" from November 3, 1995 through December 5, 1996 and
"WAND" from December 6, 1996 through January 6, 1998. Since such date, the
Common Stock has traded on the Nasdaq National Market under the symbol "WAND."

      The following table sets forth the high and low bid prices as quoted by
The Nasdaq SmallCap Market since the commencement of trading. Such quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not necessarily represent actual transactions.

                                                   Bid Price
                                          High                    Low
1995

Fourth Quarter (from November 3)        $ 5.63                $ 4.44

1996

First Quarter                           $ 6.50                $ 4.75
Second Quarter                          $ 7.75                $ 5.38
Third Quarter                           $ 8.13                $ 6.00
Fourth Quarter                          $ 7.25                $ 4.63

1997

First Quarter                           $ 6.50                $ 4.875
Second Quarter                          $ 6.625               $ 4.625
Third Quarter                           $28.375               $ 6.25
Fourth Quarter                          $28.00                $15.50

       (b)  Holders

      As of March 13, 1998, the number of record holders of the Common Stock of
the Company was 135. The Company believes that there are more than 4,800
beneficial holders of the Common Stock.

      (c)   Dividends

      The holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. The Company has not paid and
does not expect to declare or pay any dividends in the foreseeable future.

                                       14
<PAGE>

ITEM 6. Management's Discussion and Analysis of Financial Condition and
        Results of Operation

      During 1997, the company completed two Private Placements to accredited
investors. The September Private Placement consisted of 1,666,666 units, each
consisting of one share of common stock at $6.00 per share and one common stock
purchase warrant exercisable at $9.00 per share. The company received gross
proceeds of $9,999,996, at the initial closing. The March Private Placement
consisted of 852,262 units, each consisting of one share of Common Stock and one
Common Stock Purchase Warrant exercisable at $4.72 per share through a placement
agent. The company received gross proceeds of $3,505,965, at the initial
closing. (See Private Placement section below for additional proceeds.)

      Fiscal year ended December 31, 1997 compared to fiscal year ended
      December 31, 1996

Statement of Operations

      Revenues and Cost of Goods Sold increased to $2,854,271 and $1,857,465
respectively in 1997 from $302,388 and $195,659 in 1996 an increase of
$2,551,883 and $1,661,806. These increases are primarily due to the following
factors:

      A)    The acquisition of Wisdom in December 1996. This has resulted in
            increased sales and cost of goods sold of approximately $2,300,000
            and $1,500,000.
      B)    Launch of the "SplatrFree(TM)" product in March 1997 which has
            resulted in sales and cost of goods sold of approximately $208,000
            and $135,000.

      Selling, General and Administrative expenses increased to $5,550,719 in
1997 from $2,225,737 in 1996 an increase of $3,324,982. The increase is
primarily due to the following:

      A) The acquisition of Wisdom in December 1996, which has resulted in
         increased expenses of approximately $1,500,000.
      B) Increased salaries, marketing, travel and other administrative costs of
         approximately $1,300,000 associated with the launch of The Wand(TM).
      C) Marketing costs of approximately $160,000 associated with the launch of
         the SplatrFree(TM) Product.
      D) Increased marketing costs of approximately $150,000 associated with the
         corporate image of Milestone
      E) The write-off of approximately $118,000 of obsolete tooling costs.

Compensation- Princeton PMC purchase, represents a one time charge of $2,126,670
in 1997. This is based upon the issuance of 159,900 additional shares that the
company was obligated to issue in exchange for the minority interest of
Princeton PMC, pursuant to a 1996 Acquisition Agreement. These shares were
issued to the chief operating officer and director of the Company.

      Research and Development costs increased to $981,078 in 1997 from $167,600
in 1996, an increase of $813,478 reflecting increased costs to develop "The
Wand(TM)".

      Net Interest income increased to $220,877 in 1997 from $73,203 in 1996, a
increase of $147,674, primarily a result of investing the net proceeds of the
two private placements completed during 1997.


                                       15
<PAGE>

Liquidity and Capital Resources

      At December 31, 1997, the Company's working Capital was $15,742,554,
primarily reflecting the balance remaining of the net proceeds of $13,221,461
received on consummation of two private placements completed during 1997, as
discussed below and warrant exercises of approximately $6,600,000. The company
intends to use the funds for further development engineering, tooling, marketing
and other expenses associated with the "The Wand(TM)", development of other
products and general corporate purposes including working capital.

      Private Placement

      In September 1997, the Company sold, in a private placement, an aggregate
of 1,666,666 units at $6.00 per unit for net cash proceeds of $9,912,196, less
non cash costs for warrants issued to counsel in connection with the private
placement of $174,999 for a net amount of $9,737,197. Each unit consisted of one
share of common stock at $6.00 and one warrant to purchase one share at an
exercisable price of $9.00 per share. Each warrant entitles the holder to
purchase one share of Common Stock for two years from the closing of the
offering. In addition, the Company issued to its counsel warrants to purchase
83,333 units, exercisable at $6.00 per unit, each unit consisting of one share
of Common Stock and a warrant to purchase one share of Common Stock at an
exercise price of $9.00. Since such private placement, warrants for 288,000
shares issued in the private placement have been exercised providing the Company
with additional proceeds of $2,592,000.

      In March 1997, the Company sold, in a private placement, an aggregate of
852,262 units at $4.72 per unit for net cash proceeds of $3,309,265, less non
cash costs for shares issued in connection with the private placement of
$1,316,350 for a net amount of $1,992,915. Each unit consisted of one share of
Common Stock and one Common Stock purchase warrant. Each warrant entitles the
holder to purchase one share of Common Stock for three years from the closing of
the offering at an exercise price of $4.72 per share. In addition, the placement
agent received warrants to purchase 85,226 units at $4.72 per unit. Since such
private placement, warrants for 719,366 shares issued in the private placement
have been exercised providing the Company with additional proceeds of
$3,395,408.

Item 7. Financial Statements

      The financial statements of the Company required by this item are set
forth beginning on page F-1.

Item 8. Change in and Disagreements with Accountants on Accounting Financial
        Disclosure

            Not applicable


                                       16
<PAGE>

                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS




Board of Directors
   Milestone Scientific Inc.


We have audited the accompanying consolidated balance sheet of Milestone
Scientific Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Milestone
Scientific Inc. and Subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.




GRANT THORNTON LLP


New York, New York
February 27, 1998


                                      F-1
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEET

                                December 31, 1997



                                     ASSETS

CURRENT ASSETS
   Cash and cash equivalents ...............................       $  9,775,019
   Investments - Treasury Bills ............................          5,778,369
   Accounts receivable .....................................            318,147
   Inventories .............................................          1,249,628
   Prepaid expenses ........................................             97,779
                                                                   ------------

          Total current assets .............................         17,218,942

PROPERTY AND EQUIPMENT, NET ................................            762,882

PATENTS ....................................................          1,980,834

OTHER ASSETS ...............................................             33,406
                                                                   ------------
                                                                   $ 19,996,064
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Line of credit - bank ...................................       $    175,000
   Accounts payable ........................................          1,053,955
   Accrued expenses ........................................            247,433
                                                                   ------------
          Total current liabilities ........................          1,476,388
                                                                   ------------

STOCKHOLDERS' EQUITY
   Common stock, par value $.001; authorized,
      25,000,000 shares; issued and outstanding,
      8,661,866 shares .....................................              8,662
   Additional paid-in capital ..............................         28,685,483
   Accumulated deficit .....................................        (10,174,469)
                                                                   ------------
                                                                     18,519,676
                                                                   ------------
                                                                   $ 19,996,064
                                                                   ============




The accompanying notes are an integral part of this statement.


                                      F-2
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,




                                                         1996          1997
                                                         ----          ----

Revenues .........................................   $   302,388    $ 2,854,271
Cost of sales ....................................       195,659      1,857,465
                                                     -----------    -----------

        Gross profit .............................       106,729        996,806
                                                     -----------    -----------

Selling, general and administrative expense ......     2,225,737      5,550,719
Research and development expense .................       167,600        981,078
Compensation - Princeton PMC purchase ............                    2,126,670
                                                     -----------    -----------

                                                       2,393,337      8,658,467
                                                     -----------    -----------

        Loss from operations .....................    (2,286,608)    (7,661,661)
                                                     -----------    -----------

Other income and (expense)
   Interest income (net of interest expense) .....        73,203        220,877
   Minority interest in net loss of subsidiary ...       177,568
   Other (net) ...................................        86,309          2,667
                                                     -----------    -----------

                                                         337,080        223,544
                                                     -----------    -----------

        NET LOSS .................................   $(1,949,528)   $(7,438,117)
                                                     ===========    ===========

Loss per common share ............................   $      (.43)   $     (1.21)
                                                     ===========    ===========

Weighted average shares outstanding ..............     4,570,775      6,130,488
                                                     ===========    ===========



The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                     Years ended December 31, 1996 and 1997


<TABLE>
<CAPTION>
                                                  Common stock      Additional
                                               ------------------     paid-in        Accumulated        Unearned
                                               Shares      Amount     capital          deficit         compensation        Total
                                               ------      ------     -------        -----------       ------------        -----
<S>                                           <C>          <C>      <C>             <C>                  <C>           <C>
Balance, January 1, 1996                      4,480,000    $4,480   $  5,690,895    $   (786,824)        $(390,040)    $  4,518,511

Shares issued in connection with the
   business combinations accounted for
   as purchases                                  23,350        23        111,076                                            111,099
Shares issued to consultants                    130,000       130        382,370                                            382,500
Compensation expense                                                                                       260,000          260,000
Warrants issued to placement agent                                       635,000                                            635,000
Net loss for the year ended December 31, 1996                         (1,949,528)                                        (1,949,528)
                                              ---------    ------    -----------    ------------         ---------      -----------
Balance, December 31, 1996                    4,633,350     4,633      6,819,341      (2,736,352)         (130,040)       3,957,582

March private placement of units                852,262       852      1,992,063                                          1,992,915
Compensation expense                                                                                       130,040          130,040
Shares issued for capital assets                 12,000        12         80,238                                             80,250
Shares issued to consultants                     58,000        58        369,692                                            369,750
Shares issued in connection with
conversion offer to minority shareholders
   of Spintech                                   23,755        24        166,658                                            166,682
September private placement of units          1,666,666     1,667      9,735,530                                          9,737,197
Warrants exercised                            1,255,933     1,256      6,599,476                                          6,600,732
Warrants issued to consultants                                           807,219                                            807,219
Shares issued in connection with
   Princeton PMC purchase                       159,900       160      2,126,510                                          2,126,670
Costs associated with registering shares                                 (11,244)                                           (11,244)
Net loss for the year ended December 31, 1997                                         (7,438,117)                        (7,438,117)
                                              ---------    ------    -----------    ------------         ---------      -----------
Balance, December 31, 1997                    8,661,866    $8,662    $28,685,483    $(10,174,469)        $    --        $18,519,676
                                              =========    ======    ===========    ============         =========      ===========
</TABLE>

The accompanying notes are an integral part of this statement.


                                      F-4
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,



<TABLE>
<CAPTION>
                                                               1996            1997
                                                           ------------    ------------
<S>                                                        <C>             <C>
Cash flows from operating activities
   Net loss ............................................   $ (1,949,528)   $ (7,438,117)
   Adjustments to reconcile net loss to net cash used in
     operating activities
       Patent amortization .............................        229,544         235,195
       Amortization and depreciation ...................          3,790          71,935
       Loss applicable to minority interest ............                       (211,326)
       Compensation expense ............................        642,500         450,660
       Compensation - Princeton PMC purchase ...........                      2,126,670
       Bad debt expense ................................         10,547          25,830
       Changes in assets and liabilities, net of effects
         from acquisition of businesses
            (Increase) in accounts receivable ..........        (64,174)        (20,231)
            (Increase) in inventories ..................        (63,495)       (740,901)
            (Increase) in prepaid expenses .............         (3,078)        (76,991)
            (Increase) in other assets .................        (61,640)         (2,707)
            Increase (decrease) in accounts payable ....        (93,770)        570,418
            Increase in accrued expenses ...............         63,628         145,123
            Increase (decrease) in deferred revenue ....         38,517         (38,517)
                                                           ------------    ------------
      Net cash used in operating activities ............     (1,458,485)     (4,691,633)
                                                           ------------    ------------
Cash flows from investing activities
   Purchase of Treasury Bills ..........................                     (5,778,369)
   Acquisition costs of minority interest in Spintech ..                         (9,532)
   Capital expenditures ................................        (93,795)       (473,189)
                                                           ------------    ------------
      Net cash used in investing activities ............        (93,795)     (6,261,090)
                                                           ------------    ------------
Cash flows from financing activities
   Net proceeds from private placements ................                    13,258,895
   Net proceeds from issuance of common stock ..........                     6,600,732
   Proceeds from issuance of debt ......................                       100,000

   Costs associated with registering shares ............                       (11,244)

      Net cash provided by financing activities ........                    19,948,383
                                                           ------------    ------------
      NET (DECREASE) INCREASE IN CASH
         AND CASH EQUIVALENTS ..........................     (1,552,280)      8,995,660
Cash and cash equivalents at beginning of year .........      2,331,639         779,359
                                                           ------------    ------------
Cash and cash equivalents at end of year ...............   $    779,359    $  9,775,019
                                                           ============    ============
</TABLE>

The accompanying notes are an integral part of this statement.

                                      F-5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                             Year ended December 31,



                                                           1996          1997
                                                           ----          ----

Supplemental disclosures of cash flow information:
  Cash paid during the year for
    Interest                                             $   -          $24,277
                                                         =========      =======

Supplemental schedule of noncash investing and financing activities:

In 1996, Milestone Scientific Inc. acquired substantially all of the business
assets of Princeton PMC, Inc. and Sagacity I, Inc., subject to certain
liabilities, in exchange for 23,350 shares of Milestone's common stock valued at
$111,099.

In 1996, the Company issued warrants to its placement agent. Those warrants have
been measured at fair value ($635,000) and were established as deferred
financing costs with a corresponding offset to additional paid-in capital.

In 1997, 58,000 shares of common stock were issued for services performed
associated with the 1997 private placement. The value of the above shares
($369,750) , deferred financing and other costs incurred in 1996 was applied
against the net proceeds in 1997.

In 1997, 12,000 shares of common stock, measured at fair value of $80,250, were
issued in exchange for capital assets.

In 1997, 23,755 shares of common stock were issued in exchange for approximately
1,017 shares of Spintech common stock (approximately 1%). The value of the
stock, $166,682, and associated legal costs at date of acquisition is included
in patents.

In 1997, the Company issued warrants to consultants and placement agents for
consulting services. Those warrants have been measured at fair value, with
$320,620 being charged to compensation expense and $486,599 being charged
against the proceeds from the two private placements.



The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1996 and 1997



NOTE A - ORGANIZATION AND SUMMARY OF
                SIGNIFICANT ACCOUNTING POLICIES

    Organization of Business

    Milestone Scientific Inc. (formerly U.S. Opportunity Search, Inc.) (the
    "Company") was incorporated in the State of Delaware in August 1989. The
    Company develops, manufactures, markets and sells equipment and related
    disposable or consumable items and other products for use primarily by the
    dental practitioner in the United States.

    In November 1995, the Company purchased 65% of the common stock of Spintech,
    Inc. ("Spintech"). (See Note C.) Spintech was founded to perform research
    and to develop patented products for use by health care providers. Spintech
    has had only limited sales of its products. These limited sales provide no
    assurance that Spintech will be able to successfully market these products
    and that demand will be at the levels at which Spintech can operate
    profitably.

    In March 1996, the Company, together with one of its officers, founded
    Princeton PMC, Inc. ("Princeton PMC") as a marketing company. The Company
    acquired the remaining outstanding shares of Princeton PMC, Inc. common
    stock owned by the officer in November 1996, making Princeton PMC, Inc. a
    wholly-owned subsidiary. In December 1996, the Company acquired Sagacity I,
    Inc., Doing Business in the United States as the Wisdom Toothbrush Co.
    ("Wisdom"), and obtained United States distribution rights to the Wisdom
    line of toothbrushes and prophylaxis products (see Note C). Wisdom has an
    exclusive three-year distributor agreement in the United States, Canada and
    other areas with Wisdom Toothbrushes Limited.

    A summary of the significant accounting policies consistently applied in the
    preparation of the accompanying financial statements follows:

    1.  Principles of Consolidation

        The consolidated financial statements include the accounts of the
        Company and all of its wholly-owned and majority-owned subsidiaries. All
        material intercompany accounts and transactions have been eliminated.
        The operating results of Spintech have been included in the Company's
        consolidated financial statements since November 1995, the date of
        acquisition; the operating results of Princeton PMC have been included
        since its formation in March 1996; and the operating results of Wisdom
        have been included since December 1996, the date of acquisition.


                                      F-7
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE A (continued)

    2.  Cash and Cash Equivalents

        For purposes of the statements of cash flows, the Company considers all
        highly liquid investments purchased with a maturity of three months or
        less to be cash equivalents.

    3.  Investments - Treasury Bills

        The Company carries its Treasury Bills at cost plus accrued interest,
        which approximates fair maturity value.

    4.  Inventories

        Inventories are valued at the lower of cost or market with cost being
        determined by the first-in, first-out ("FIFO") method. Inventories
        principally consist of finished goods.

    5.  Property and Equipment

        Property and equipment are stated at cost and depreciated using
        straight-line and accelerated methods over the estimated useful lives of
        the assets.

    6.  Patents

        The excess of the Company's cost over the tangible net assets of
        Spintech has been allocated to patents and is being amortized over a
        ten-year period using the straight-line method. The recoverability of
        the carrying values of the patents are evaluated on a recurring basis.

    7.  Revenue Recognition

        The Company recognizes revenue from sales when title to merchandise
        passes to customers, including distributors.

    8.  Research and Development

        Research and development costs are expensed as incurred.


                                      F-8
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE A (continued)

    9.  Loss Per Common Share

        Loss per common share is computed based on the weighted average number
        of shares of common stock outstanding. The effect on the loss per share
        of warrants and options outstanding is antidilutive and has not been
        included in the calculation of weighted average shares outstanding. (See
        Note E for additional information.)

  10.   Use of Estimates in Financial Statements

        In preparing financial statements in conformity with generally accepted
        accounting principles, management makes estimates and assumptions that
        affect the reported amounts of assets and liabilities and disclosures of
        contingent assets and liabilities at the date of the financial
        statements, as well as the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.


NOTE B - PROPERTY AND EQUIPMENT

    Property and equipment at December 31, 1997 consist of the following:

       Tooling and dies                                              $405,833
       Office equipment                                               358,955
       Trade show displays                                             93,467
                                                                     --------
                                                                      858,255
       Less accumulated depreciation                                   95,373
                                                                     --------
                                                                     $762,882
                                                                     ========


                                      F-9
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE C - ACQUISITIONS

    Princeton PMC

    In March 1996, the Company, together with one of its officers, entered into
    a shareholders' agreement to form Princeton PMC, a corporation, and to
    engage in the marketing and sales of dental products. The Company
    contributed $85,000 for 200 shares of this entity representing a two-thirds
    ownership.

    In November 1996, the Company purchased the remaining one-third of Princeton
    PMC's outstanding stock for 100 shares of its common stock plus a contingent
    obligation as described below. The acquisition has been recorded using the
    purchase method of accounting. The purchase price approximated the net
    tangible assets acquired. The operating results of Princeton PMC have been
    included in the Company's consolidated financial statements as follows:
    two-thirds through October 1996 and 100% thereafter. In connection with the
    acquisition of Princeton PMC, additional shares of common stock could be
    issued to the officer depending upon the Company's average earnings over the
    next two years as defined. The Company is obligated to issue 159,900 shares
    of its common stock if certain income levels are achieved. The shares issued
    to the officer would result in compensation expense.

    In December 1997, the Company waived the earnings requirement and authorized
    the issuance of the 159,900 shares of common stock. The value of the stock
    was charged as "Compensation - Princeton PMC purchase" in the statement of
    operations.

    Wisdom

    In December 1996, the Company completed the purchase of Wisdom's outstanding
    stock by issuing 23,250 shares of its common stock valued at $110,437. The
    acquisition has been recorded using the purchase method of accounting. The
    cost was less than the subsidiary's net assets at the date of acquisition.
    The excess of net assets over cost has been applied to reduce the amounts
    assigned to noncurrent assets of the subsidiary. The operating results of
    Wisdom have been included in the Company's consolidated financial statements
    since the date of acquisition.


                                      F-10
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE C (continued)

    The following unaudited consolidated pro forma results of operations assume
    the acquisition occurred as of the inception date of Wisdom (April 9, 1996):

<TABLE>
<CAPTION>
                                                                                                       Pro forma
                                         The Company       Wisdom                                    consolidated
                                         Year ended     April 9, 1996                                 Year ended
                                        December 31,   to December 31,                               December 31,
                                            1996            1996            Eliminations                 1996
                                       ------------    ---------------      ------------            --------------
<S>                                   <C>               <C>                   <C>                  <C>
       Net revenues                   $    302,388      $1,538,180            $(115,592)           $ 1,724,976
       Net loss                         (1,959,528)        (87,769)                                 (2,037,297)

       Loss per share                        $(.43)          $(.02)                                      $(.45)
</TABLE>

    The pro forma financial information is not necessarily indicative of the
    operating results that would have occurred had the purchase been consummated
    as of the inception date, nor are they necessarily indicative of future
    operating results.

    Spintech

    In November 1995, the Company completed the purchase of 65% of Spintech's
    outstanding stock on a fully diluted basis for $2,700,000. The Company paid
    $2,026,495, which represents the $2,700,000 less amounts advanced to
    Spintech amounting to $632,500 plus interest of $41,005. The acquisition has
    been recorded using the purchase method of accounting. The excess of the
    aggregate purchase price over the net tangible assets acquired was allocated
    to patents and is being amortized over ten years. The operating results of
    Spintech have been included in the Company's consolidated financial
    statements since the date of acquisition. The minority interest has been
    valued at zero as of December 31, 1996 and 1997.

    The Company also holds a series of annual options to purchase, for a nominal
    amount, an additional 3% of Spintech's outstanding shares following each of
    the first five fiscal years commencing after the closing of the stock
    purchase (or an aggregate of 15% of such shares if all of the options are
    exercised). Each option is exercisable only if Spintech does not achieve a
    specified pretax profit target as defined in the applicable fiscal year. As
    a result of Spintech not achieving the specified pretax profit in 1996, the
    Company exercised its option in 1997. In addition, the Company provides
    advances to Spintech. These advances are due on demand with interest at 8%.


                                      F-11
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE C (continued)

    On several occasions, during 1997, the Company offered, to those minority
    shareholders of Spintech who are accredited investors, the opportunity to
    exchange their Spintech shares for Milestone. The conversion offer ranged
    from 6.1 to 24.43 shares of Milestone for 1 share of Spintech. These offers
    were for restricted shares. As of December 31, 1997, 1,017 shares of
    Spintech were converted, which, together with the above exercise, increased
    Milestone's ownership of Spintech to 70.3%. The value of the converted
    shares and associated offering costs are reflected in the accompanying
    balance sheet as patents.


NOTE D - LINE OF CREDIT - BANK

    Wisdom has a $250,000 line of credit with a bank with interest at the bank's
    prime rate plus 1%. The line is collateralized by substantially all assets
    of Wisdom. Advances under the line are in the form of demand notes.


NOTE E - STOCKHOLDERS' EQUITY

    In September 1997, the Company sold, in a private placement, an aggregate of
    1,666,666 units at $6.00 per unit for net cash proceeds of $9,912,196, less
    noncash costs for warrants issued to counsel in connection with the private
    placement of $174,999, for a net amount of $9,737,197. Each unit consisted
    of one share of common stock at $6.00 and one warrant to purchase one share
    at an exercisable price of $9.00 per share. Each warrant entitles the holder
    to purchase one share of common stock for two years from the closing of the
    offering. In addition, the Company issued to its counsel warrants to
    purchase 83,333 units, exercisable at $6.00 per unit, each unit consisting
    of one share of common stock and a warrant to purchase one share of common
    stock at an exercise price of $9.00. As of December 31, 1997, 1,461,999
    warrants were outstanding.

    In March 1997, the Company sold, in a private placement, an aggregate of
    852,262 units at $4.72 per unit for net cash proceeds of $3,309,265, less
    noncash costs for shares and warrants issued in connection with the private
    placement of $1,316,350 for a net amount of $1,992,915. Each unit


                                      F-12
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE E (continued)

    consisted of one share of common stock and one common stock purchase
    warrant. Each warrant entitles the holder to purchase one share of common
    stock for three years from the closing of the offering at an exercise price
    of $4.72 per share. In addition, the placement agent received warrants to
    purchase 85,226 units at $4.72 per unit. As of December 31, 1997, 218,122
    warrants were outstanding.

    During 1996 and 1997, the Company granted stock options to a director and
    various consultants to purchase 35,000 and 164,000 shares of common stock,
    respectively, at prices ranging from $5.125 to $6.50 per share. The options
    expire in three to five years depending on the option, vest over two to
    three years and contain certain antidilution provisions. All options were
    unexercised at December 31, 1997. The options issued to the consultants in
    1997 were measured at fair value of $320,620 and were charged to
    compensation expense.

    The Company has issued 130,000 shares to certain directors in consideration
    for their agreement to serve on the Advisory Board of the Board of Directors
    for at least two years. If any member fails to serve his term, except
    because of death or disability, his shares will be returned to the Company
    for cancellation. The market value of the shares issued was $520,000. This
    amount was recorded as unearned compensation and is shown as a separate
    component of stockholder's equity. Unearned compensation is being amortized
    to expense over a two-year period and amounted to $260,000 and $130,040 for
    the years ended December 31, 1996 and 1997, respectively.

    During 1996, the Company issued 60,000 shares to a consultant for services
    provided to the Company. The value of the shares, $382,500, was charged to
    compensation expense. The agreement stipulates that if the consultant is
    permitted to sell and does sell the shares issued to him and realizes from
    such sale net proceeds of less than $5 per share, the Company shall
    supplement such proceeds up to $5 per share, provided the Company's total
    obligation shall not exceed $105,000.


                                      F-13
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE E (continued)

    Stock Option Plan

    In 1997, the Board of Directors approved the adoption of the 1997 Stock
    Option Plan. The 1997 Stock Option Plan provides for the grant of options to
    purchase up to 500,000 shares of the Company's common stock. Options may be
    granted to employees, officers, directors and consultants of the Company for
    the purchase of common stock of the Company 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.

    Stock-Based Compensation

    The Company has elected to follow Accounting Principles Board Opinion No. 25
    ("APB No. 25"), "Accounting for Stock Issued to Employees," and related
    interpretations in accounting for its stock options. Under APB No. 25,
    because the exercise price of the Company's employee stock options equals
    the market price of the underlying stock on the date of grant, no
    compensation expense is recognized. However, SFAS No. 123, "Accounting for
    Stock-Based Compensation," requires presentation of pro forma net income and
    earnings per share as if the Company had accounted for its employee stock
    options granted subsequent to December 31, 1994, under the fair value method
    of that statement. For purposes of pro forma disclosure, the estimated fair
    value of the options is amortized to expense over the vesting period. Under
    the fair value method, the Company's net loss and loss per share would have
    been increased as follows:

                                                   1996                1997
                                                ----------          ---------

       Net loss                                   $247,000           $405,000
       Loss per common share                          $.05               $.07

    Because SFAS No. 123 is applicable only to options granted subsequent to
    December 31, 1994, and some options have a two- to three-year vesting
    period, the pro forma effect will not be fully reflected until 2000.


                                      F-14
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE E (continued)

    The weighted-average fair value of the individual options granted during
    1996 and 1997 was estimated as $2.54 and $2.78, respectively, on the date of
    grant. The fair value for 1996 and 1997 was determined using a Black-Scholes
    option-pricing model with the following assumptions:

                                                1996                1997
                                              -------             --------

        Dividend yield                           -                   -
        Volatility                              48.80%              52.74%
        Risk-free interest rate                  6.33                6.34
        Forfeiture rate                          -                   -
        Expected life                            3 years          3 - 5 years

    Stock option activity during 1996 - 1997 is summarized below:

                                       Shares of common       Weighted-average
                                    stock attributable to    exercise price of
                                     options and warrants   options and warrants


    Unexercised at December 31, 1995          150,000               $6.00
    Granted                                   385,000                6.15
    Exercised                                    -                    -
    Forfeited                                    -                    -
                                            ---------

    Unexercised at December 31, 1996          535,000                6.11
    Granted                                 3,240,487                7.24
    Exercised                              (1,371,366)               6.04
    Forfeited                                    -                    -
                                            ---------

    Unexercised at December 31, 1997        2,404,121                7.67
                                            =========


                                      F-15
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE E (continued)

    The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:

<TABLE>
<CAPTION>
                                       Options and warrants outstanding          Options and warrants exercisable
                                -------------------------------------------     ---------------------------------
                                                  Weighted-
                                                   average         Weighted-                       Weighted-
                                                  remaining         average                         average
                                  Number         contractual       exercise                        exercise
          Exercise prices       outstanding      life (years)        price        Number             price
          ---------------       -----------      ------------        -----        ------             -----
          <S>                    <C>                <C>             <C>         <C>                 <C>
          $4.72 - 6.499            669,122           4              $5.09         441,622           $5.09
           6.50 - 7.56             273,000           4               6.88          20,000            6.69
           9.00 - 9.00           1,461,999           2               9.00       1,461,999            9.00
</TABLE>


NOTE F - LICENSE AGREEMENT

    In November 1993, Spintech entered into a nonexclusive license agreement for
    products covered by certain of Spintech's patents (the "License Agreement").
    The License Agreement was effective through the expiration of the licensed
    patents. Spintech received a $100,000 initial advance payment in conjunction
    with the License Agreement to be credited against future earned royalties.
    In order to maintain the rights under the License Agreement, after the first
    full year of the License Agreement, the licensee was required to generate
    minimum royalties for any full quarterly period; otherwise, Spintech had the
    right to terminate the License Agreement and keep the $100,000 initial
    advance payment. The licensee had the right to maintain the License
    Agreement by paying a minimum quarterly royalty of $10,000. The License
    Agreement was voided by Spintech in February 1995 due to the licensee not
    meeting the quarterly royalty minimums. Spintech recorded $100,000 of
    royalty income in the first quarter of fiscal 1995.

    In January 1996, the licensee demanded the return of the initial advance
    made to Spintech. In 1997, the Company paid $55,000 to settle the dispute,
    which is included in "Other" on the consolidated statements of operations.


                                      F-16
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE G - EMPLOYMENT CONTRACTS

    Milestone

    In January 1998, the Company entered into a five-year employment contract
    with the Company's Chief Executive Officer providing for a base compensation
    of $350,000, plus stock options and cash bonuses based upon the achievement
    of certain net income levels of the Company.

    In November 1996, the Company entered into a five-year employment agreement
    with the Company's Executive Vice-President providing for annual
    compensation of $120,000. This agreement supersedes a consultant agreement,
    dated March 12, 1996, that the two parties had previously entered into.

    Spintech

    Spintech had entered into an employment agreement with its former Director
    of Research for a five-year term beginning on November 10, 1995, at an
    initial salary of $110,000 per annum and increasing by 10% per year for each
    succeeding year throughout the term. The agreement also provided for the
    payment of up to a $500,000 bonus at the end of the employment term
    depending on the achievement of certain profit projections during his
    employment term. Its former Director of Research had demanded certain
    revisions to this agreement.

    On March 26, 1997, the Company commenced legal action against its former
    Director of Research. The Company seeks recovery of damages for interference
    with existing and prospective contract and business relationships, a
    declaratory judgment that the former Director of Research has no personal
    rights to certain technology developed while he was employed by Spintech and
    a declaratory judgment that the Company has not breached the former Director
    of Research's employment agreement or the agreement for the purchase by the
    Company of a 65% equity interest in Spintech. His employment was terminated
    on April 9, 1997. (See Note H for additional information.)

    Spintech also entered into a five-year employment agreement commencing on
    November 10, 1995 with its former Vice President of Operations at a salary
    of $50,000 per year increasing by 10% per year for each succeeding year
    throughout the term of his employment. His employment was terminated on
    March 3, 1997. (See Note H for additional information.)


                                      F-17
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE G (continued)

    Wisdom

    In December 1996, Wisdom entered into a three-year employment agreement with
    its President for annual compensation of $105,000. The parties can elect to
    renew the term for additional one-year periods. In addition, the agreement
    provides for stock bonuses in 1997, 1998 and 1999 of 5,000, 7,000 and 10,000
    shares, respectively, of the Company's common stock if Wisdom achieves
    certain net income levels as defined. The net income level in 1997 was not
    achieved.


NOTE H - LITIGATION

    On March 26, 1997, Milestone and Spintech commenced legal action in the
    United States District Court of New Jersey against Ronald Spinello, DDS, the
    former Chairman and Director of Research of Spintech. In the complaint,
    plaintiffs seek recovery of compensatory and punitive damages for extortion
    and tortious interference with existing and prospective contract and
    business relationships, a declaratory judgment that Dr. Spinello has no
    personal rights to certain technology developed while he was employed as
    Director of Research of Spintech relating to the design and production of
    ancillary components of its computer-controlled local anesthetic delivery
    system, a declaratory judgment that plaintiffs have not breached Dr.
    Spinello's employment agreement or the agreement for the initial purchase by
    Milestone of a 65% equity interest in Spintech and injunctive relief. On May
    21, 1997, Dr. Spinello filed an answer and counterclaim which denies the
    material allegations of the complaint and seeks recovery for breach of the
    defendant's employment agreement, initiates a derivative action against
    Milestone with respect to various expenditures and actions for which
    Defendant, on behalf of Spintech, seeks an amount in excess of $75,000,
    alleges civil conspiracy against Milestone with respect to certain of those
    matters and the entry into the employment agreement with Defendant and seeks
    indemnification for expenses, including attorneys' fees, in the pending
    action. On May 25, 1997, the Company filed a reply to counterclaims which
    denied all of the material allegations of the counterclaims. On December 30,
    1997, Dr. Spinello made a motion for leave to join as an additional
    Defendant on Counterclaim the Company's Chairman, Leonard Osser, and to file
    an amended Answer and Counterclaim against the Company. Both the Company and
    Mr. Osser opposed the motion and, in addition, the Company made a
    Cross-motion to dismiss certain claims asserted in the initial Answer and
    Counterclaim. The additional claims which


                                      F-18
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE H (continued)

    Dr. Spinello sought to assert against the Company include a fraud in the
    inducement claim based upon the alleged failure of the Plaintiffs to advise
    Dr. Spinello of the legal effects of his employment agreement; and a civil
    conspiracy claim. Dr. Spinello also sought to add a jury demand through his
    amended pleading. The Company's Cross-motion sought to dismiss all of Dr.
    Spinello's claims, except his claim for unpaid salary, on the basis that his
    derivative claim is fatally defective because he did not make any demand
    upon Spintech, the entity on whose behalf he purports to bring suit, and his
    indemnification claim is fatally defective because the claims against him do
    not arise by reason of the fact that Dr. Spinello was an officer or director
    of Spintech. The Motion and Cross-motion were scheduled for oral argument on
    January 26, 1998, but the Court canceled the argument in light of the
    extensive briefs that had been filed. No decision has yet been rendered by
    the Court. In the meantime, discovery has been held in abeyance pending the
    decision, but will likely resume shortly. Milestone has been advised by its
    patent counsel that all technology developed by Dr. Spinello while employed
    by Spintech is owned by Spintech. The Company believes that ownership of the
    technology relating to these ancillary components which are the subject of
    this litigation in no way prevents the manufacture and sale of its
    anesthetic delivery system at economically viable prices.

    On May 20, 1997, Glenn R. Spinello, former Vice President of Operations,
    filed a Complaint in the Court of Common Pleas, York County, Pennsylvania,
    seeking damages as a result of the alleged breach of his Employment
    Agreement. On June 20, 1997, the Company and Spintech filed a Notice of
    Removal which transferred venue of Glenn Spinello's lawsuit to the United
    States District Court for the Middle District of Pennsylvania. On June 27,
    1997, the Company and Spintech filed an Answer to Glenn Spinello's Complaint
    which denied the material allegations of the Complaint and asserted
    counterclaims based upon Glenn Spinello's breach of his Employment
    Agreement. On July 27, 1997, Glenn Spinello filed a reply to the
    counterclaims by the Company and Spintech, denying the material allegations
    of the counterclaims. The parties to that action are engaged in discovery.


                                      F-19
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE I - INCOME TAXES

    Deferred tax attributes resulting from differences between financial
    accounting amounts and tax bases of assets and liabilities at December 31,
    1996 and 1997 follow:

                                                          1996          1997
                                                        --------     ----------


       Current assets and liabilities
          Allowance for doubtful accounts               $   -        $    11,000

       Valuation allowance                                  -           (11,000)
                                                        --------     ----------

       Net current deferred tax asset (liability)       $   -        $     -
                                                        ========     ==========

       Noncurrent assets and liabilities
          Depreciation                                  $            $  (13,000)
          Net operating loss carryforward                362,000      1,667,000
                                                        --------     ----------

                                                         362,000      1,654,000
       Valuation allowance                              (362,000)    (1,654,000)
                                                        --------     ----------

       Noncurrent deferred tax asset (liability)        $   -        $   -
                                                        ========     ==========

    The valuation allowance has been established for those loss carryforwards
    and deductible temporary differences which are not presently considered more
    likely than not to be realized.

    The provision for income taxes differs from the effective tax rate used in
    the financial statements as a result of current year net operating losses,
    the benefit of which has not been recognized in the current year.

    As of December 31, 1997, the Company had net operating loss carryforwards of
    approximately $4,173,000, which expire in 2007 through 2012.


                                      F-20
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE I (continued)

    The utilization of loss carryforwards may be limited due to an ownership
    change as defined by Section 382 of the Internal Revenue Code.

    The Company and Spintech file separate Federal and State income tax returns.


NOTE J - LEASE COMMITMENTS

    Spintech

    Commencing April 1, 1995, Spintech entered into a five-year lease for its
    corporate headquarters from LenRon Realty, Inc. ("LenRon"). LenRon was
    one-half owned by the Chief Executive Officer of the Company and the other
    half by a stockholder of Spintech and, as of December 1996, wholly-owned by
    the Chief Executive Officer. The lease terminated on March 13, 1997 when
    Spintech moved its operations to Wisdom's facilities.

    Spintech also used approximately 4,000 sq. ft. of storage and light
    manufacturing space in a warehouse building contiguous to its corporate and
    administrative offices. Under an informal rental arrangement with LenRon,
    the Company paid approximately $1,000 per month for the use of this
    facility. The informal arrangement terminated on April 30, 1996.

    Effective January 1, 1994, Spintech leased shop space from a stockholder and
    employee on a month-to-month basis at $200 per month and incurred a total of
    $1,000 and $2,400 rent for the years ended December 31, 1997 and 1996,
    respectively. This arrangement terminated in March 1997.

    Milestone

    In November 1996, the Company signed a five-year-and-one-month lease
    agreement for its corporate headquarters.


                                      F-21
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE J (continued)

    Wisdom

    In November 1997, Wisdom extended its lease term for its facilities for one
    year and expanded its space. In addition, in March 1997, Wisdom signed a
    three-year lease agreement for its Telemarketing Department.

    The Company also leases equipment under operating leases.

    The following represents approximate minimum rental payments under such
    leases:

                   Year ending December 31,
                      1998                                   $130,000
                      1999                                     60,000
                      2000                                     53,000
                      2001                                     51,000
                      2002                                     17,000
                                                             --------
                                                             $311,000
                                                             ========

    Rent expense was approximately $33,000 and $91,000, of which $23,800 and
    $3,700 was paid to Len Ron for the years ended December 31, 1996 and 1997,
    respectively.


NOTE K - RELATED PARTY TRANSACTIONS

    1.  Spintech paid approximately $220,500 and $36,175 during 1996 and 1997,
        respectively, to a company for the manufacturing of its "TAPS" and "SDS"
        products. An officer of the company is on the Board of Directors of
        Spintech.

    2.  The Company paid approximately $38,000 and $243,000 in 1996 and 1997,
        respectively, to a law firm where one of the partners is also on the
        Company's Board of Directors. In addition, warrants measured at fair
        value of approximately $175,000 were issued to the law firm.


                                      F-22
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE L - COMMITMENTS AND CONTINGENCIES

      1.    Failure to use Spintech's "TAPS" and "SDS" units in accordance with
            recommended operating procedures could potentially result in
            subjecting users to health hazards or injury. For example, premature
            removal of syringes and other materials before completion of the
            melt cycle could subject users to puncture with contaminated needles
            prior to their complete encapsulation or inclusion of excessive
            amounts of blood-soaked gauze or other material could result in the
            release of noxious fumes from the sterilizer. In addition, the
            sterilizer heats material to high temperatures and misuse or
            malfunction of the unit could result in danger of fire or shock. Any
            of the foregoing or other failures of the sterilizer to function
            properly could subject Spintech to claims of liability. Spintech
            carries product liability insurance in the amount of $2,000,000 with
            a $1,000,000 per occurrence limit with a $10,000,000 umbrella.

      2.    In June 1996, the Company entered into a consulting agreement with a
            dentist for $25,000 per annum for three years.

      3.    The Company has informal arrangements for the manufacture of its
            products by separate domestic manufacturers as follows: SDS units by
            Arbutus Electronics, Inc.; SplatrFree(TM)prophy angles by Team
            Technologies, Inc.; The Wand(TM)unit and system kit by Tricor
            Systems, Inc. ("Tricor"); and The Wand(TM)disposable handpiece by
            Nypro Inc. Termination of the manufacturing relationship with any of
            the above manufacturers could significantly and adversely affect the
            Company's ability to produce and sell its products. Though alternate
            sources of supply exist and new manufacturing relationships could be
            established, the Company would need to recover its existing tools or
            have new tools produced. Establishment of new manufacturing
            relationships could involve significant expense and delay. Any
            curtailment or interruption of the supply, whether or not as a
            result of termination of such a relationship, would adversely affect
            the Company

      4.    In order to fund certain start-up costs of Tricor, the Company has
            agreed to advance funds on its initial purchase order to Tricor.
            Tricor will repay such advances from future sales to the Company. As
            of December 31, 1997, the Company has advanced a net amount of
            $760,912, which is included in inventories. The Company has received
            a security interest in certain Tricor assets.


                                      F-23
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1997



NOTE M - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

    Financial instruments which potentially subject the Company to
    concentrations of credit risk consist principally of cash and cash
    equivalents and trade accounts receivable. The Company places its cash with
    high credit quality institutions. In general, such investments exceed the
    FDIC insurance limit. Concentrations of credit risk with respect to trade
    accounts receivable are limited due to the large number of customers
    comprising the Company's customer base, and their dispersion across
    different geographic areas. The Company routinely assesses the financial
    strength of its customers and, as a consequence, believes that its trade
    accounts receivable credit risk exposure is limited. Generally, the Company
    does not require collateral or other security to support customer
    receivables.

    Revenues of approximately $116,000 on sales to Wisdom were recognized for
    the year ended December 31, 1996 prior to the acquisition.

    No other customer accounted for more than 10% of revenues in 1996 or 1997.


NOTE N - ADVERTISING

    The Company expenses its advertising costs as they occur. Advertising
    expense for 1996 and 1997 was approximately $70,000 and $1,132,000,
    respectively.


                                      F-24
<PAGE>

                                    PART III

Incorporated by reference to a Definitive Proxy Statement to be filed not later
than 120 days after the end of the fiscal reviewed by this report

Item 13. Exhibits and Reports on Form 8-K.

(a)   Certain of the following exhibits were filed as Exhibits to the
      registration statement on form SB-2, Registration No. 33-92324 and
      amendments thereto (the "Registration Statement") filed by the Registrant
      under the Securities Act of 1933, as amended, or the reports filed under
      the Securities and Exchange Act of 1934, as amended, and are hereby
      incorporated by reference.

      Exhibit
        No.                         Description
      -------                       -----------
      3.1               Certificate of Incorporation of the Company. (1)

      3.2               Certificate of Amendment filed July 13, 1995. (2)

      3.3               Certificate of Amendment filed October 31, 1996. (5)

      3.4               Certificate of Amendment filed December 11, 1997. (6)

      3.5               By-laws of the Company. (1)

      4.1               Specimen Stock Certificate. (2)

      10.1              Lease  dated  November  25,  1996  between  Livingston
                        Corporate Park Associates, L.L.C. and the Company. (5)

      10.4              Form of Underwriter's Warrant. (2)

      10.5              Financial Advisory and Investment Banking Agreement
                        entered into July 1, 1996 between GKN Securities Corp.
                        and the Company. (5)

      10.8              Employment Agreement dated November 1, 1996 by and
                        between the Company and Gregory Volok. (5)

      10.9              Lease, as amended, dated November 6, 1991 between Raybec
                        Management Co. and Wisdom. (5)

      10.10             Employment Agreement made as of December 23, 1996 by and
                        between Sagacity I, Inc. and Joel D. Warady. (5)

      10.13             Agreement for SDS Product dated September 1, 1996
                        between Spintech and Princeton PMC. (5)

      10.14             Agreement for The Wand Product dated September 1, 1996
                        between Spintech and Princeton PMC. (5)

      10.16             Exclusive Distributorship Agreement between Wisdom
                        Toothbrushes Limited and Sagacity I, Inc. (5)


                                       17
<PAGE>

      10.18             Agreement between Milestone and Spintech dated September
                        21, 1994 and Amendment No. 1 thereto. (2)

      10.19             Employment Agreement between the Company and Leonard
                        Osser dated January 1, 1998. (6)

      21.1              Subsidiaries of the Registrant. (5)

      23                Consent of Grant Thornton (6)

      ----------------
      (1)   Filed with the initial filing of the Company's Registration
            Statement.
      (2)   Filed with Amendment No. 1 to the Registration Statement.
      (3)   Filed with Form 8-K dated January 29, 1996.
      (4)   Filed with the Company's Form 10-KSB for the year ended December 31,
            1995.
      (5)   Filed with the Company's Form 10-KSB for the year ended December 31,
            1996.
      (6)   Filed herewith.

(b)   There were no reports on Form 8-K filed by the Registrant during the last
      quarter of the period covered by this report.


                                       18
<PAGE>
                                  SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              Milestone Scientific Inc.

                              By: /S/ Leonard Osser
                                 ---------------------
                                 Leonard Osser,
                                 Chairman and Chief Executive Officer

Date:  March 31, 1998

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on March
31, 1998.

      Signature                     Date              Title
      ---------                     ----              -----

/s/ Leonard Osser               March 31, 1998    Chairman, and Chief Executive
---------------------------                         Officer
    Leonard Osser

/s/ Pat Mele                    March 31, 1998    Chief Financial Officer
---------------------------
    Pat Mele III

/s/ Gregory Volok               March 31, 1998    Director
---------------------------
    Gregory Volok

/s/ Michael J. McGeehan         March 31, 1998    Director
---------------------------
    Michael J. McGeehan

                                                  Director
---------------------------
    Giovanni Montoncello

/s/ David Sultanik              March 31, 1998    Director
---------------------------
    David Sultanik

/s/ Stephen A. Zelnick          March 31, 1998    Director
---------------------------
    Stephen A. Zelnick

/s/ Louis Margolis              March 31, 1998    Director
---------------------------
    Louis Margolis

/s/ Larry Haimovich             March 31, 1998    Director
---------------------------
    Larry Haimovich

/s/ Leonard Schiller            March 31, 1998    Director
---------------------------
    Leonard Schiller

/s/ Paul Gregory
---------------------------
    Paul Gregory                March 31, 1998    Director


                                       19