UNITED STATES
                       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, 1999

|_|             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)

                  Registrant's telephone number (973) 535-2717

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

         Title of Each Class                              Name of Each Exchange
         -------------------                               on Which Registered
                                                           -------------------
Common Stock, par value $.001 per share                  American Stock Exchange
                                                         Pacific Stock Exchange

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

                                      None

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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  |_|
<PAGE>

      Indicate by check mark disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or 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, 1999, the revenues of the registrant were
$2,855,463.

      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 American
Stock Exchange March 27, 2000 of $2.625 was approximately $27,963,857.

      As of March 27, 2000, the registrant has a total of 10,652,898 shares of
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


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<PAGE>

                           MILESTONE SCIENTIFIC, INC.

                            Form 10-KSB Annual Report
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I
   Item 1.  Description of Business........................................   4
   Item 2.  Description of Properties......................................  15
   Item 3.  Legal Proceedings..............................................  15
   Item 4.  Submission of Matters to a Vote of Security Holders............  17

PART II
   Item 5.  Market for Common Equity and Related Stockholder Matters.......  18
   Item 6.  Management's Discussion and Analysis or Plan of Operations.....  19
   Item 7.  Financial Statements...........................................  22
   Item 8.  Changes in and Disagreements With Accountants on Accounting
             and Financial Disclosure......................................  22

PART III
   Item 9.  Directors and Executive Officers, Promoters and Control
             Persons; Compliance with Section 16(a) of the Exchange Act....  23
   Item 10. Executive Compensation.........................................  26
   Item 11. Security Ownership of Certain Beneficial Owners and
             Management....................................................  28
   Item 12. Certain Relationships and Related Transactions.................  30
   Item 13. Exhibits, List and Reports on Form 8-K.........................  30

                           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.


                                       3
<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 Milestone Scientific, and its 79.3% owned subsidiary,
Spintech, Inc. ("Spintech"), unless the context otherwise indicates. Unless
stated to the contrary, all references in this Annual Report on From 10-KSB to
"we," "us," "our" or "the Company" refer to Milestone Scientific Inc. and its
subsidiaries.

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, and infection control. The Company's principal product is the
"The Wand(R)", (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(R)" and an initial supply of disposables in January 1998. "The Wand(R)" was
originally sold in the U.S. and Canada through major distributors of dental
products. A toll free number was established in January 1999, allowing dentist
to buy the product directly from the Company.

      In October 1999, the Company launched its new disposable handpiece, the
Wand(R) Plus. The product reduced the aspiration time from 14 to 5 seconds. In
conjunction with the launch of the Wand(R) Plus handpiece, the Company severed
the U.S. dealer distribution channel and began selling its product directly to
dentists throughout the U.S. The dealer distribution channel in Canada was not
affected.

      In January 1999, the Company received authorization to apply the CE mark
to "The Wand(R)." This is a requirement for all dental and medical devices
distributed throughout the European Union. In September 1999, the authorization
was extended to include medical use of "The Wand(R)". Furthermore, in February
1999, the Company entered into an agreement for the international distribution
of "The Wand(R)". In January 2000, the Company entered into an agreement to
terminate its existing international distribution agreement and commenced new
international distribution agreements, giving its products entry into Japan,
Great Britain, Germany, Israel, South Africa, Scandinavia, while retaining its
presence in China and Taiwan.

      The Company also markets and sells (i)"SplatrFree(TM)" disposable prophy
angles and (ii) luer lock needles. Both are currently being sold domestically,
directly to its dental customers.

      The Company was organized in August 1989 under the laws of Delaware. On
November 3, 1995, the Company acquired 65% of the outstanding shares of common
stock of Spintech for an aggregate purchase price of $2,700,000. During 1998 and
1999, the Company increased its interest in Spintech to 75.9% by exchanging
shares of Milestone Common Stock for Spintech shares and by exercising the
second and third of a series of five annual options to acquire an additional 3%
of Spintech's shares for a nominal amount granted in the original acquisition
transaction. Spintech developed and owns the technology underlying various
products for healthcare providers, including "The Wand(R)" and has registered
various patents and trademarks related to these products.

      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.


                                       4
<PAGE>

Products

      "The Wand(R)" Computer Controlled Anesthetic Injection System is a
computer controlled local anesthetic delivery system developed by the Company.
The Company believes "The Wand(R)" overcomes the typical problems of
conventional anesthetic injections. "The Wand's(R)" 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 virtually painless local
anesthesia. "The Wand(R)" 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 causes an anesthetic pathway which numbs the
tissue 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(R)" uses a disposable handpiece and needle,
the Company believes it will offer protection against patient
cross-contamination.

      In many procedures, "The Wand(R)" 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.
Also, with the October 1999 introduction of the Wand(R) Plus disposable
handpiece, the aspirating time was reduced from 14 to 5 seconds. The Company
believes that "The Wand(R)" enables a dentist to provide virtually 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(R)" may also have uses
in proctology, podiatry, urology and possibly dermatology and plastic surgery.
Although the Company has mainly focused its marketing of "The Wand(R)" on the
dental market, it was also granted approval in September 1999 to sell "The
Wand(R)" in Europe for medical use.

      Although many dentists often give comfortable injections, it is extremely
difficult for them to do so consistently 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 automatic
control of the rate of flow. Thus, the needle often enters tissue which has not
yet been anesthetized. "The Wand(R)" 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(R)" driver
unit, an initial supply of disposable handpieces, an instructional video tape
and other instructional material in January 1998. Prior thereto pre-production
prototype of "The Wand(R)" has 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 clinical. Three separate additional
clinical studies were conducted on various aspects of "The Wand(R)" operation
and were published in major dental publications. Over the last two years, three
favorable evaluations were reported by independent testing groups. Also, eight
domestic and three international studies were completed in 1999 and submitted
for publication in major dental journals.

      "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 dental 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.


                                       5
<PAGE>

      Since the Company began marketing "the Wand(R)," it has included Becton
Dickinson Luer Lock Needles in its wand system kits. In October 1999, the
Company began selling the needles directly to its dental customers.

Manufacturing and Sources of Supply

      "The Wand(R)" equipment units are manufactured for the Company by Tricor
Systems, Inc. ("Tricor") pursuant to specific purchase orders. In order to fund
certain expenses of Tricor, the Company has continued to advance funds to
Tricor. These advances are reduced as Tricor makes shipments to the Company. Net
advances to Tricor as of December 31, 1999 and 1998 were $1,707,789 and
1,796,400, respectively. The Company has received a security interest in certain
Tricor assets.

      The disposable handpiece for "The Wand(R)" is manufactured for the Company
by Nypro Inc. ("Nypro") pursuant to scheduled production requirements. Nypro
utilizes molds, semi-automated assembly equipment and packaging equipment
purchased by the Company. In 1998, a $1,712,982 writedown of new, yet unused,
semi-automation equipment and molds was made by the Company. The semi-automation
equipment and molds were purchased for approximately $2,200,000 in anticipation
for the ramp up of disposable handpiece sales.

      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. The 16-cavity production mold was purchased by the
Company at a cost of $72,000. Commercial delivery of prophy angles began in the
first quarter of 1997 after small modifications to TTI production molds.

      In October 1999, the Company reached an agreement through an authorized
intermediary to sell Becton Dickinson ("BD") Luer Lock Needles directly to
Milestone dental customers. In December 1999, the Company was informed by BD
that its dental partner, Crosstex International would handle future purchases by
the Company.

Marketing

      "The Wand(R)" was originally marketed to dental practitioners through a
group of dental distributors in the U.S. and Canada. In October 1999 and in
conjunction with the launch of The Wand(R) Plus handpiece the Company severed
the U.S. distribution channel and began selling and marketing its product
directly to dentists throughout the U.S. The dealer distribution channel in
Canada was not affected. In addition, the Company has established regional sales
territories in the U.S. and Canada. As of December 31, 1999, these territories
were staffed by two full time sales people and three independent sales
representatives. Sales representatives train, motivate, and direct sales
activity. They also conduct study clubs for dentists, contact and call on dental
hygiene schools, attend local, state and national dental conventions and call on
dentists for training and education purposes. Sales literature and training
materials are produced to support the selling and educational activities of
Company and its representatives. Currently, the Company has ten full time and
five independent sales representatives.

      Marketing of the Wand(R) outside the U.S. and Canada is accomplished
through specified dental product distributors. AFP Imaging ("AFP") who
originally identified these distributors, is phasing out its involvement.

      The Company markets its other products directly to its dental customers.


                                       6
<PAGE>

Dental and Hygiene School Program

      The Company has a commitment to the dental profession to support the
education and training of future dentists and dental professionals. Accordingly,
the Company offers special educational assistance programs to qualified dental
and hygiene schools throughout the United States and Canada. These programs
include providing demo units, a year supply of handpieces per unit, and free
instruction and guidance to participating educators. Currently, the Wand(R) has
been added to the curriculum of 28 U.S. and Canadian dental schools and 16
schools providing degrees in dental hygiene.

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(R)" 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(R)" 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
minimizing numbing of the lips and facial muscles of expression. It enhances
productivity, reduces stress and virtually eliminates pain and anxiety.

      "SplatrFree(TM)" prophy angles competes with prophy angles produced and
distributed by a number of major manufacturers and distributors and other
producers or distributors of 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.

      The luer lock needle competes with dental needles produced and
distributed by a number of major manufacturers and distributors and other
producers or distributors of 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 convenience since it can package the product with an order for
disposable handpieces.


                                       7
<PAGE>

Patents and Intellectual Property

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

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

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

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

Dental Anesthetic and Delivery Injection Unit             6,022,337      2/8/00

"SplatrFree(TM)"

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

Other

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

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

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

      The Company has also filed two additional United States utility patent
applications on improvements in "The Wand(R)" and its accessories, and two other
utility applications on related injection technology. There are also three
pending design patent applications on various component parts of "The Wand(R)".
Those applications are presently awaiting examination at the United States
Patent and Trademark Office.

      The Company has adopted the trademarks "SplatrFree(TM)", "The Wand(R)" and
"The Wand(R)Plus." "SplatrFree(TM)" is registered on the Supplemental Register
as United States Trademark Registration No. 2,226,868, issued February 23, 1999.
"The Wand(R)" is registered on the Principal Register as Registration No.
2,291,401, issued November 9, 1999. "The Wand(R)Plus" is the subject of a
pending trademark application which is awaiting action at the United States
Patent & Trademark Office.

      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


                                       8
<PAGE>

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 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

      "SplatrFree(TM)" prophy angles and "The Wand(R)" were cleared for
marketing in the United States by the FDA in April and July 1996, respectively.

      The manufacture and sale of medical devices and other medical products,
such as the "SplatrFree(TM)" prophy angle and "The Wand(R)", 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 Quality System Regulation ("QSR"), also referred to as "good
manufacturing practices ("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- 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 substantially
equivalent, or may require further information, such as additional test data,
before the FDA is able to make a


                                       9
<PAGE>

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, to a legally marketed device, 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. 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 subject to any limitations imposed by FDA, such as
the specific number of investigational sites and/or number of patients approved
by FDA.

      Though the "SplatrFree(TM)" prophy angle and "The Wand(R)" 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 require manufacturers of medical devices to adhere to certain
QSR requirements also referred to as "Good Manufacturing Practices" ("GMP") as
defined by the FDC Act. QSR compliance requires testing, quality control and
documentation procedures. Failure to comply with QSR requirements can result in
the suspension or termination of production, product recall or fines and
penalties. Products must also be manufactured in registered establishments. 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.


                                       10
<PAGE>

      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 believes it
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 "SplatrFree(TM)" prophy angles and "The
Wand(TM)",Wand(R)", 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. 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 1999, and 1998 fiscal years, the Company expensed $455,332 and
$436,024, respectively, on research and development activities.

Employees

      The Company had 24 full-time including three executive officers and 3
part-time employees at December 31, 1999. The Company also uses the services of
certain outside consultants for marketing and other activities.

Certain Risk Factors That May Affect Growth And Profitability

      The following factors may affect the growth and profitability of the
Company and should be considered by any prospective purchaser of the Company's
securities:


                                       11
<PAGE>

      History of Losses; Accumulated Deficit. Our operations commenced in
November 1995, when we acquired a 65% interest in Spintech. For the fiscal years
ending December 31, 1995, 1996 and 1997 we had limited revenues. For the fiscal
years ended December 31, 1998 and 1999 our revenues were approximately $8.8
million and $2.9 million, respectively. In addition, we have had losses for each
of the years ended December 31, 1995, 1996, 1997, 1998 and 1999 including a loss
of approximately $7.0 million for 1999. At December 31, 1999, we had an
accumulated deficit of approximately $27.8 million. We cannot assure you we will
be able to generate operating profits and resultant cash flow sufficient to fund
our operations in the future.

      Need for Greater Market Acceptance of "The Wand(R)". As with any new
technology, there is substantial risk that the marketplace will not accept the
potential benefits of such technology or be willing to pay for any cost
differential with the existing technologies. Market acceptance of "The Wand(R)"
depends, in large part, upon our ability to educate potential customers of the
distinctive characteristics and benefits of The Wand(R) and will require
substantial marketing efforts and expense. More than 10,000 Wand units were sold
in aggregate in the U.S. and Canada over the past two years. The 1,250,000 in
disposable handpiece sales for 1999 reflect a low level of usage of The Wand(R).
However, since November 1999 through the present, the Company has experienced
increased disposable handpiece sales in the U.S. If Wand sales and the rates of
usage of our products not continue to improve, we may be forced to curtail
marketing efforts and rely on the gradual build-up of demand as a result of
increasing placement of units in dental schools and from growing awareness of
the benefits of The Wand(R) technology as a result of additional clinical
studies. We cannot assure that our current or proposed products will be accepted
by the end users or that any of the current or proposed products will be able to
compete effectively against current and alternative products.

Limited Financial Resources; Need for Additional Financing. Our capital
requirements have been and will continue to be significant though we believe
after giving effect to the February 2000 private placement that we have
sufficient working capital for the next 12 months. However, if we have
underestimated our operating expenses or our expected revenue, we will be
required to borrow funds or sell equity securities, or curtail or reduce our
activities. As of February 1, 2000 we concluded a $1,000,000 private placement
of secured ten percent notes and warrants for 142,857 shares exercisable at
prices ranging from $1.75 to $7.00 per share. We have no current arrangements
for future additional financing. We cannot assure you any sources of additional
financing will be available on acceptable terms, or at all. To the extent that
any future financing involves the sale of our equity securities, the ownership
interest of our-stockholders could be substantially dilluted.

      Highly Competitive Industry; Technological and Product Obsolescence. We
face intense competition from many companies in the medical and dental device
industry, including well-established academic institutions, possessing
substantially greater financial, marketing, personnel, and other resources. Most
of our competitors have established reputations, stemming from their success in
the development, sale, and service of competing dental products. Further, rapid
technological change and research may affect our product. Current or new
competitors could, at any time, introduce new or enhanced products with features
that render our products less marketable, or even obsolete. Therefore, we must
devote substantial efforts and financial resources to enhance our existing
products, to bring our products to market quickly, and to develop new products
for related markets. In addition, our ability to compete successfully, require
that we establish an effective distribution network. Several regulatory
authorities must approve our products before they may be marketed. We cannot
assure you that we can compete successfully, that our competitors will not
develop technologies or products that render our products less marketable or
obsolete, or that we will be able to successfully enhance our existing products,
effectively develop new products, or obtain required regulatory approval for
those products.

      Limited Distribution; Need to Broaden Distribution Channels. Our future
revenues depends on our ability to successfully market and distribute The
Wand(R). During 1999, we relied, primarily, on independent dental distributors
to sell The Wand(R) domestically and internationally. In January 2000, we
entered into an agreement to terminate our existing international distribution
agreement and commenced new international distribution agreement giving our
products entry into Japan, Great Britain, Germany, Israel, South Africa,
Scandinavia, while retaining our presence in China and Taiwan. Domestically, our
sales force's efforts in marketing The Wand(R) continue to grow. It should be
noted, that further increases to the size of the sales force will carry with it
a concomitant increase in up front expenses.


                                       12
<PAGE>

      Patent and Intellectual Property Protection. We hold U.S. patents
applicable to the "The Wand(R)" and we have applied for certain improvement
patents on The Wand(R) as well as the "SplatrFree(TM)" prophy angle. We rely on
a combination of patent, trade secret, and trademark laws and employee and
third-party nondisclosure agreements to protect our intellectual property
rights. Despite the precautions we have taken to protect our products,
unauthorized parties may attempt to reverse engineer, copy, or obtain and use
its products and other information we regard as proprietary. We may have to
initiate lawsuits to protect our intellectual property rights. Such lawsuits are
costly and divert management's time and effort away from our business with no
guarantee of success. Our failure to protect our proprietary rights, and the
expense of doing so, could have a material adverse effect on our operating
results and financial condition. Although we have not received any claims of
infringement, it is possible that our products may infringe on existing or
future patents or proprietary rights of others. If that happens we may have to
modify our processes or to obtain a license. We cannot assure you that we will
be able to do so in a timely manner, upon acceptable terms and conditions, or at
all.

      Dependence on Manufacturers. We have informal arrangements with certain
manufacturers with respect to the manufacture of our products. Termination of
the manufacturing relationship with any of these manufacturers could
significantly and adversely affect our ability to produce and sell our products.
Though alternate sources of supply exist and new manufacturing relationships
could be established, we would need to recover our existing tools or have new
tools produced. Establishing of new manufacturing relationships could involve
significant expense and delay. Any curtailment or interruptions of the supply,
whether or not as a result or termination of the relationship, would adversely
affect us.

      Product Liability. We could be subject to claims for personal injury from
the use of our dental and medical products. We have liability insurance in the
aggregate amount of $2,000,000 with a per-occurrence limit of $1,000,000 which
we believe is adequate, although we cannot assure you that the insurance
coverage will be sufficient to pay such claims should they be made. A partially
or completely uninsured claim, if successful and of significant magnitude, could
have a material adverse effect on us.

      Reliance Upon Management. We depend on the personal efforts and abilities
of Leonard Osser, our Chairman and Chief Executive Officer. While we have a key
man life insurance policy in the amount of $3,000,000 on the life of Mr. Osser
any loss of his services could have a materially adverse effect.

      Litigation; Change in Officers. On April 10, 1997, the Board of Directors
of Spintech terminated the employment of Dr. Ronald Spinello as its Chairman and
Director of Research. The action by the Board followed the bringing by Milestone
and Spintech of legal action against Dr. Spinello in which they sought, among
other things, 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 "The
Wand(R)" and a declaratory judgment that they had not breached Dr. Spinello's
employment agreement. Milestone, as principal stockholder of Spintech, also
removed Dr. Spinello and Glenn Spinello as directors of Spintech. In February,
2000 we entered into an agreement with Dr. Spinello favorably resolving all
disputes. Pursuant to that agreement, Dr. Spinello assigned to us any right
which he has to technology relating to The Wand(R) developed while Dr. Spinello
was employed at Spintech. Dr. Spinello also agreed to cooperate in filing and to
assign to us all future patent applications covering that technology. As part of
the settlement, Dr. Spinello received $25,000 and 80,000 of our shares.

      A Class Action lawsuit is pending against us seeking damages in an amount
that may substantially exceed our insurance coverage. Further, although we
believe we have meritorious defenses, the defense of the action could divert
management's attention from operation of the business.


                                       13
<PAGE>

      No Dividends. We have never paid a cash dividend on our Common Stock.
Payment of dividends on our Common Stock is within the discretion of the Board
of Directors and will depend upon our earnings, capital requirements and
financial condition, and other relevant factors. We do not currently intend to
declare any dividends on our Common Stock in the foreseeable future.

      Control by Certain Persons. Our current officers and directors own
approximately 23% of the currently outstanding shares of Common Stock.
Accordingly, by reason of their stockholdings, and their control of the means
for soliciting stockholder votes, the officers and directors will be able to
exercise control and, in all likelihood, will be able to continue to elect all
directors.

      Limitation of Director Liability. Our Certificate of Incorporation
provides that our directors are not personally liable to us or any of our
stockholders for monetary damages for breach of the fiduciary duty of care as a
director, including breaches which constitute gross negligence, subject to
certain limitations imposed by the Delaware General Corporation Law. Thus, under
certain circumstances, neither we nor our stockholders can recover damages even
if directors take actions which harm us.

      Government Regulation and FDA Clearance. The manufacture and sale of the
Company's "SplatrFree(TM)" prophy angles and "The Wand(R)", are subject to
extensive regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic
Act ("FDC Act"), and by other federal, state and foreign authorities. Under the
FDC Act, these medical devices must receive FDA clearance before they can be
commercially marketed in the United States. Some 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 based upon changes in FDA policy during
the period of product development and FDA regulatory review of each submitted
application. Similar delays may also be encountered in other countries. While
the "SplatrFree(TM)" prophy angle and "The Wand(R)" have received FDA marketing
clearance there can be no assurance that all of our 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 impose
limitations on the indicated uses for which the product may be marketed. In
addition, modifications may be made to our 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 our products or that ultimately any such improvements
will receive FDA clearance. FDA regulations also require manufacturers of
medical devices to adhere to certain "Good Manufacturing Practices" ("GMP"),
which include testing, design, quality control and documentation procedures.
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 us.

      Restricted Securities; Possible Volatility of Market Price. Shares of our
Common Stock are currently traded on The American Stock Exchange. From time to
time the market prices of dental and medical product companies have been
affected by various factors, including adverse publicity. We cannot assure you
that the market price of our Common Stock will not be volatile as a result of
factors such as our financial results, possible adverse publicity resulting from
any infractions of governmental regulations and various other factors affecting
dental and medical product companies or the market generally. In recent years
the stock market has experienced wide price fluctuations not necessarily related
to the operating performance of such companies.

      Effect of Outstanding Warrants and Options. We currently have outstanding
options and warrants to purchase 1,270,857 shares of our Common Stock at prices
ranging from $1.00 to $23.00 per share. Holders of these warrants and options
are given the opportunity to profit from a rise in the market price of our
Common


                                       14
<PAGE>

Stock and are likely to exercise their securities at a time when we would be
able to obtain additional equity capital on more favorable terms. Thus, the
terms upon which we will be able to obtain additional equity capital may be
adversely affected since the holders of outstanding options and warrants can be
expected to exercise them at a time when we would, in all likelihood, be able to
obtain any needed capital on terms more favorable to us than the exercise terms
provided by such outstanding securities. We have granted registration rights
with respect to our shares of our Common Stock covered by the warrants.

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. Spintech's accounting functions were moved
to the new corporate headquarters. Spintech's operational functions are located
at and consolidated with the other operations in Deerfield, Illinois.

      In October 1999, the Company consolidated its operations in Deerfield,
Illinois, moving from two facilities to a single facility (approximately 5,470
square feet) in the same business complex. A five-year lease was signed. The
facility serves as distribution center for the Company's products and the
telemarketing office.

Item 3. Legal Proceedings

      Spinello Lawsuits

      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
sought recovery of compensatory and punitive damages for extortion and tortuous
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.

      As a result of various pretrial motions, the only claims remaining in the
litigation with Dr. Spinello were Milestone's claims against Dr. Spinello and
Dr. Spinello's counterclaim for unpaid salary for the period subsequent to his
alleged wrongful termination, and a portion of his indemnification claim against
Spintech.

      In January 2000, prior to trial, the Company agreed to settle with Dr.
Spinello, the counterclaims asserted against Dr. Spinello and the claims
asserted by Glenn Spinello. Various stipulations incorporating that settlement
were executed in February 2000. Under the agreement, Dr. Spinello has assigned
to Milestone any rights which he has to technology relating to "The Wand(R)"
handpiece or technology developed while he was employed at Spintech and has
agreed to cooperate in filing and to assign to Milestone any future patent
applications covering that technology. Dr. Spinello and Glenn Spinello each also
agreed to convey to Milestone all of his equity interests in Spintech. In return
for the assignment of technology, the conveyance of Spintech equity and the
resolution of all disputes between the parties, including the discontinuance
with prejudice of pending legal actions, Milestone has paid $25,000 to Dr.
Spinello and has agreed to issue to him a number of shares of Common Stock equal
to the greater of 80,000 shares or shares with a market value of $80,000 and to
issue to Glenn Spinello 8,000 shares.


                                       15
<PAGE>

      Class Action Lawsuit

      In 1998, several class action lawsuits were commenced against the Company,
certain present and former executive officers, one outside director and
consultants in the United States District Court for the District of New Jersey.
The District Judge before whom the cases are pending has entered an order
consolidating all of the class actions into one consolidated action. The
Complaints contain generally overlapping and similar allegations of violations
of the Securities Exchange Act of 1934, including allegations that the Company
and certain of the other defendants violated the Act by issuing false and
misleading financial statements and disseminating misleading statements about,
among other things, the demand for the Company's principal product, its expected
sales growth, the acceptance of that product by dental professionals, shipments
during certain time periods and misrepresentations as to third-party evaluations
of the efficacy of the product through failure to disclose the issuance of stock
options to certain consultants. On October 22, 1998, the District Judge entered
an order appointing lead plaintiff to represent the interests of all class
members. On March 28, 1999, the District Judge appointed lead counsel to
represent the class. On April 28, 1999, the class filed a Consolidated and
Amended Class Action Complaint, naming as defendants the Company and three
present and former executive officers and directors. The Consolidated Complaint
alleges that the Company issued false and misleading statements concerning,
among other things, certain studies and reports on the Company's products, the
Company's backlog and the amount of reserve taken for returns. Milestone
believes that the material allegations of the Consolidated Complaint does not
state a cause of action under the Federal Securities Law and on May 21, 1999
served a motion to dismiss the Consolidated Complaint for failure to state a
claim. The class has responded to the motion and the Company filed a reply. The
Motion was submitted to the Court in September 1999, but no decision has yet
been rendered. Instead, on March 1, 2000, the Court held oral argument on the
Motion to Dismiss, at the end of which the court requested supplemental
memoranda of law on one issue. The Supplemental Memoranda Of Law were filed on
March 16 and 22, 2000. If the Motion to Dismiss is not granted, the Company
believes that the allegations contained in the Class Action Complaint are
without merit and it intends to vigorously defend the action. Specifically,
Milestone believes that its financial statements presented fairly its results of
operations, that the information which it has publicly disclosed did not contain
any material misstatements or misrepresentations and that stock options issued
to persons who published research reports were issued for other services for the
Company, principally service as spokespersons and demonstrators of the Company's
product. Further, the Company continues to believe that The Wand(R) embodies
superior technology, is a major advance in dentistry and may ultimately become
the accepted method for delivering local dental anesthesia.

      Derivative Action Lawsuit

      In February 1999, a purported owner of Milestone stock, commenced a
derivative action on behalf of the Company, in the Court of Chancery of the
State of Delaware in Newcastle County, against certain present and former
executive officers and directors. In the action, plaintiff alleges that, based
on the same facts as the class actions described above, the defendants engaged
in violations of the securities laws, committed fraud and securities fraud,
wasted corporate assets and damaged the Company's reputation. As a derivative
action, even if the plaintiff is successful, any award, after deduction of
plaintiff's costs and disbursements, would be payable to the Company.
Nevertheless, Milestone believes that the material allegations of the complaint
lack merit and intends to provide a legal defense for its present and former
officers and directors in accordance with the indemnification provisions of its
Certificate of Incorporation. Because the allegations of the Derivative
Complaint are so closely tied to the allegations of the Class Complaint, the
Derivative Plaintiff's counsel has agreed with the Company that no response to
the Derivative Complaint is due until 60 days after the Court in the Class
Action decides the motion to dismiss.


                                       16
<PAGE>

      Insurance Broker and Carrier

      In January 1999, the Company filed a complaint against its insurance
broker (Frank Crystal Financial Services) and the two excess insurers [American
Alliance and St. Paul] in the United States District Court for the District of
New Jersey. American Alliance and St. Paul were in dispute with the Company
because they claim that the Company did not timely submit the appropriate
application. As a result, American Alliance refused to issue a policy and St.
Paul, which issued a policy, has refused to cover the class actions described
above. In April 1999, the Company reached a settlement of this action, as a
result of which American Alliance issued the Excess Director's and Officer's
Insurance Policy; the Company agreed that claims arising prior to the date of
the policy were not covered by the policy and the parties reserved all of their
arguments and positions with respect to any other coverage issues including
those that resulted from the Consolidated and Amended Class Action Complaint
referred to above.

      On June 24, 1999 American Alliance filed a complaint in the United States
District Court for the Southern District of New York seeking a declaratory
judgment that it is not liable under its policy for the claim asserted in the
amended class complaint as well as the derivative complaint. The Company intends
to vigorously defend against the American Alliance action and intends to move to
dismiss that action. On July 9, 1999 the Company filed its own declaratory
judgment action against American Alliance and St. Paul in the United States
District Court for the District of New Jersey seeking a declaration that the
claims asserted in the Consolidated Complaint in the Class Action and in the
Derivative Action are covered by the Excess Director's and Officer's Insurance
Policies. On August 4, 1999, the District Judge in New Jersey administratively
terminated the Company's action until the previously filed New York Action was
resolved or dismissed. Thereafter, the Company filed an answer and counterclaim
in the New York Action seeking the same relief as it sought in its complaint in
the New Jersey Action. Both American Alliance and the Company each requested
leave from the Judge in the New York Action to make a motion for summary
judgment and to dismiss the complaint, respectively. Instead, since any decision
on the scope of coverage of the excess policies will, in large part, depend upon
whether the Class Action complaint is dismissed, in whole or in part, the
District Judge in the New York Action decided to hold in abeyance any action on
American Alliance's complaint and Milestone's answer and counterclaim until a
decision is rendered by the District Court in New Jersey in the Class Action.

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

      (a)   Not applicable.

      (b)   Not applicable.

      (c)   Not applicable.


                                       17
<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. The Common Stock has
traded on the Nasdaq National Market under the symbol "WAND" from January 7,
1998 through April 22, 1998. Since such date, the Common Stock has traded on the
American Stock Exchange under the symbol "MS" and the Pacific Stock Exchange
under the symbol "MS."

      The following table sets forth the high and low bid prices as quoted by
The Nasdaq SmallCap Market and the Nasdaq National Market from January 1, 1998
through April 22, 1998. Thereafter, it contains the high and low closing prices
as quoted by the American Stock Exchange. Such quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not necessarily
represent actual transactions.

                                                      Bid Price
                                          High                            Low

1998

First Quarter                           $24.375                         $15.250
Second Quarter (through April 3)        $18.5                           $17.625

                                                    Closing Price
                                       High                             Low

Second Quarter (after April 3)          $19.375                         $ 5.4375
Third Quarter                          $  4.688                         $ 1.50
Fourth Quarter                         $  1.813                         $  .938

1999

First Quarter                          $  3.00                          $  .938
Second Quarter                         $  1.88                          $ 1.00
Third Quarter                          $  2.75                          $  .688
Fourth Quarter                         $  1.438                         $  .875

      (b)   Holders

      As of February 17, 2000, the number of record holders of the Common Stock
of the Company was 143. The Company believes that there are more than 3,500
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.


                                       18
<PAGE>

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

      1999 was a year of transition for Milestone Scientific. It expanded its
market from the U.S. and Canada to a global market, including Europe, Asia,
Africa and South America. International sales were somewhat limited, pending
establishment of arrangements with local dealers. The need for regulatory
approval in some jurisdictions also limited sales activity, though shortly after
year end the Company received approval to market the Wand in Japan. Also,
Milestone transformed itself from a company which distributed its product
through a dealer network to a company distributing directly to U.S. dentists. As
part of focused efforts on its core products, Milestone terminated its Wisdom
operations.

      Fiscal year ended December 31, 1999 compared to fiscal year ended December
31, 1998

Statement of Operations

      Net sales for the year ended December 31, 1999 and December 31, 1998 were
$2,855,463 and $8,804,235 respectively. The $5,948,772 or 68% decrease reflects
a decline in Wand sales volume (including disposable handpieces) partially
offset by a decrease in returns. Furthermore, net sales from the Wisdom product
line which was terminated in April, 1999 were $174,086 for the year ended
December 31, 1999 as compared to $1,983,277 for the year ended December 31,
1998. For the year ended December 31, 1999, approximately, $940,000 in revenue
was generated through sales to countries outside the United States and Canada.
Net sales revenue for The Wand(R) (including disposable handpieces) in the U.S.
and Canada was approximately $1,666,000 for 1999. $615,000 or 37% of these sales
were generated in the fourth quarter. The latter increase represents a 76%
increase in average monthly sales revenues.

      Cost of sales for the year ended December 31, 1999 as compared to the year
ended December 31, 1998 declined from $10,144,796 to $1,572,319, a $8,572,477
reduction. The reduction is primarily attributable to lower sales volume, a
sharp decline in returns and a decrease in average product costs due to prior
period inventory writedowns.

      Included in the cost of sales for the year ended December 31, 1998 is a
$1,243,986 writedown of the carrying value of the inventory and a $1,982,000
writedown in the net book value of fixed assets. The latter reduction includes a
$269,000 obsolete equipment writeoff. The remainder or $1,712,982 is the
writedown of new, yet unused semi automation equipment and molds. The semi
automation equipment and molds were purchased for approximately $2,200,000 in
anticipation of the ramp up disposable handpiece sales.

      For the year ended December 31, 1999, the Company generated a gross profit
of $1,283,144 as compared to a gross loss of $1,340,561 for the year ended
December 31, 1998.

      Selling, general and administrative expenses for the year ended December
31, 1999 and December 31, 1998 were $7,009,543 and $9,336,445 respectively. The
$2,326,902 or 25% decrease is primarily attributable to approximately $1,630,000
aggregate decrease in selling and marketing expenses associated with The
Wand(R), a $270,000 reduction in corporate salaries, a $221,452 decrease in
compensation expense related to 1998 option grants, and a $498,000 reduction in
selling and marketing expenses associated with the Wisdom product line. These
expenses were offset by a $366,000 increase in legal expenses and a $168,000
increase in insurance expenses.

      In April 1999, the Company discontinued its selling effort with regards to
the Wisdom product line excluding Splatrfree(TM) prophy angles. $76,345 in
aggregate costs were incurred in terminating the product line. They included
$19,291 for uncollectible receivables, $15,692 in aggregate termination
compensation and employee benefits, $5,066 for a lease buyout, $18,793 in
previously unamortized acquisition costs and $17,503 to write off inventory
currently earmarked for distribution to charities and trade associations.


                                       19
<PAGE>

      Research and development expenses for the year ended December 31, 1999 and
December 31, 1998 were $455,332 and $436,024, respectively. The $19,308 increase
is primarily attributable to the cost incurred in developing product
improvements and a medical version of "The Wand(R)".

      Loss from operations for the years ended December 31, 1999 and 1998 were
$6,258,076 and $11,113,030, respectively.

      Net interest income for the years ended December 31, 1999 and 1998 were
$17,014 and $414,676. The $397,662 decrease is primarily attributable to lower
aggregate funds available for investing and additional interest expense
associated with senior convertible notes. Also, as a result of a reduction in
the conversion price for the 3% convertible notes, the Company incurred a non
cash debt conversion expense of $731,250 in 1999.

      The net loss for the year ended December 31, 1999 was $6,972,312 as
compared to net loss of $10,698,354 for the year ended December 31, 1998. The
decrease reflects sharp declines in product returns and in selling general and
administrative expenses, a decrease in the average product cost, and 1998
writedowns in inventory carrying values and in the net book value of production
equipment and molds associated with the Wand(R). This is partially offset by a
decline in Wand(R) sales volume, lower net interest income and a $731,250 debt
conversion expense.

Liquidity and Capital Resources

      At December 31, 1999, the Company's working capital was $1,207,778. It
consisted primarily of inventories, investment in treasury bills and cash and
cash equivalents.

      For the year ended December 31, 1999, the Company decreased cash and cash
equivalents by $73,863, providing $3,161,134 from investing activities and
$2,098,000 from financing activities.

      For the year ended December 31, 1999, the Company's net cash used in
operating activities was $5,332,997. This was primarily attributable to a net
loss of $6,972,312 adjusted for non cash items of $263,950 for amortization,
$468,907 for depreciation, $36,438 for non cash interest and a $731,250 debt
conversion expense; a $133,129 decrease in accounts receivable; a $461,832
increase in inventories; a $65,373 increase in prepaid expenses; an increase in
accrued expenses of $81,151 and a $451,415 increase in accounts payable.

      The $3,161,134 provided by investing activities for the year ended
December 31, 1999 was attributable to the maturing of $7,020,940 in treasury
bills, offset by $3,753,000 in Treasury bill purchases and $106,806 in capital
expenditures. These expenditures covered retooling cost for product
modifications.

      Financing activities provided $2,098,000 for the period. The Company, as
described below, raised $2,000,000 from an institutional private placement and
$250,000 from the sale of similar securities to its Chairman and CEO. Also,
$150,000 was repaid under the Company's line of credit.

      As of December 31, 1999, the Company had $242,843 in aggregate cash and
cash equivalents. In addition, as of February 1, 2000, the Company concluded a
$1,000,000 private placement of 10% Senior Subordinated Note. Management
believes that through the proper utilization of these existing funds, revenues
generated from international distributors and from continued increases in
domestic disposable handpiece sales, the expense reductions achieved through
cost containment programs, and the funds raised from the first quarter 2000
private placement, it will have sufficient cash to meet its needs over the next
twelve months.

      The Company continues to take steps aimed at growing and strengthening the
end user base thereby gaining greater acceptance of The Wand(R) and translating
to increased revenue through higher disposable handpiece usage. On October 1,
1999, the Company began a new sales initiative, permitting dentists in the


                                       20
<PAGE>

United States to order the Wand(R) directly through Milestone and to avail
themselves of certain quantity discounts when purchasing disposable handpieces
and dental needles. Furthermore, it continues to a) develop its market overseas;
b) visit, obtain feedback and provide further support to current Wand users; c)
provide assistance to dental schools which include The Wand(R) in their
curriculum; d) distribute The Wand(R) technique videos and technical bulletins
to its current users, and e) maintain a well trained service staff.

      Subsequent to year-end, the Company achieved two major objectives. As
mentioned above, it completed a $1,000,000 private placement, issuing 10% Senior
Secured Notes with warrants to purchase 142,857 shares of Milestone Common
Stock. Secondly, it received approval to sell "The Wand(R)" and its disposable
handpiece in Japan. An order of 1,000 units and 150,000 disposable handpieces
was immediately received from its exclusive distributor, Yoshida Dental
Manufacturing Company. As requested, 500 units and 50,000 disposable handpieces
were shipped by March 26, 2000. Since November 1999 and through March 2000 the
Company has experienced monthly growth in domestic handpiece sales. First
quarter 2000, revenues are expected to exceed the prior quarter's revenues by
over 50%. Also, cash receipts through March 26, 2000 were over $1.2 million for
the quarter.

      In August 1999, the Company submitted an application to the FDA to market
for medical use, a similar device to The Wand(R). A working prototype of an
improved device for delivery of multi-volume anesthetic and other medicaments
and with other added features of interest to medical specialists has been
developed and will be submitted to the FDA in the near future.

      Private Placements

      In March 1999, the Company concluded a $2 million institutional private
placement with Cumberland Partners, other investment funds managed by or
affiliated with Cumberland Associates and certain principals of Cumberland
Associates. An additional $250,000 was raised from the Chairman and Chief
Executive Officer of Milestone, on the same terms and conditions. The investors
purchased, at face value, 3% Senior Convertible Notes Due 2003, convertible into
Milestone Common Stock at prices increasing from $2.50 per share in the first
year to $6.00 per share in the fourth year, subject to anti-dilution protection
in the event of stock dividends and certain capital changes. Purchasers of the
Notes were granted rights to participate in certain future security offerings by
Milestone. Subsequent to year end, in February 2000, the holders of the 3%
Convertible Notes agreed to convert all $2,250,000 of such notes into common
stock at an $1.25 per share. Of the 1,800,000 shares which were to be issued,
only the 200,000 shares to Mr. Osser are being held in escrow and pending
shareholder approval.

      As of February 1, 2000, the Company concluded a $1 million institutional
private placement of 10% Senior Secured Promissory Notes due June 30, 2001 and
Warrants to purchase 142,857 shares of Milestone Common Stock with Cumberland
Associates, Strategic Restructuring Partnership L.P., a former principal of
Cumberland Associates, two officers of the Corporation, an affiliate of one of
its directors and six other individuals. The Notes are secured by all present
and future inventories of Milestone and are prepayable out of a portion of the
proceeds generated by sales of "Wand" units. The Warrants are exercisable at
prices increasing from $1.75 per share in the first year to $7.00 per share in
the fifth year, subject to anti-dilution protection in the event of stock
dividends and certain capital changes. Purchasers of the Warrants were granted
rights to participate in certain future security offerings by Milestone.

Year 2000 Compliance

      The Company experienced no disruption with regards to the year 2000. It
had developed a plan which included the upgrade of its internal information
system and insured that its operating systems were compliant with


                                       21
<PAGE>

the requirements to process transactions in the year 2000. The cost was not
significant for overall compliance. The Company reviewed its own equipment and
determined that the equipment was either Year 2000 compliant or not affected by
the Year 2000 issues. Also, the Company contacted its vendors, on whom it
relies, and they too were Year 2000 complaint.

Subsequent Events

      International Distribution Arrangement

      In January 2000, the Company entered into an agreement with AFP to
terminate international distribution of "The Wand(R)" through AFP by June 30,
2000.

      The agreement provides for a phased termination during which Milestone
will immediately begin to fill handpiece requirements of all existing and new
foreign dealers throughout the world and will directly distribute "Wand(R)"
units to dealers in Japan, Great Britain, Germany, Israel, South Africa,
Scandinavia and certain other countries. Milestone currently serves dealers in
China and Taiwan. In addition, the Company will assume responsibility
for distribution to dealers in Central and South America in April 2000 and for
dealers throughout the rest of the world after June 30, 2000.

      The change in Milestone's international distribution arrangements, was
made to bring Milestone one step closer to the end user, allowing it to better
serve the individual practitioner. It should provide more pricing flexibility
and allow cost reductions to Milestone's end users.

      Approval for the Sale of "The Wand(R)" System in Japan

      In February 2000, the Company received approval to sell "The Wand(R)" and
disposable handpiece in Japan. Following the approval, Milestone's exclusive
Japanese distributor, The Yoshida Dental Manufacturing Co., placed an initial
order for 1,000 system kits and 150,000 disposable handpieces. Japan is the
world's second largest dental market and Yoshida is one of Japan's largest
wholesale dental equipment and product distributors. Yoshida has 400 sales
representatives staffing offices located in 44 major cities and its distribution
network has agreements with approximately 25% of the more than 600 dental
dealers in Japan.

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


                                       22
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act

      The current executive officers and directors of the Company and their
respective ages as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                                                    Director
              Name                     Age                                      Position                             Since
---------------------------------    --------    ------------------------------------------------------------     -------------

<S>                                    <C>         <C>                                                                 <C>
Leonard A. Osser                       52          Chairman and Chief Executive Officer of the Company and             1991
                                                   President and Chief Executive Officer of Spintech, a
                                                   subsidiary

Mitchell G. Kuhn                       57          President and Chief Operating Officer and Director of the           1999
                                                   Company

Thomas M. Stuckey                      45          Chief Financial  Officer and Vice President of the Company
                                                   and Chief Financial  Officer of both Spintech and Sagacity
                                                   I, each a subsidiary

Stephen A. Zelnick (1)                 61          Director of the Company                                             1996

Paul Gregory                           64          Director of the Company                                             1997

Louis I. Margolis (1) (2)              56          Director of the Company                                             1997

Leonard M. Schiller(2)                 58          Director of the Company                                             1997

Larry Haimovitch                       53          Director of the Company                                             1997

Daniel Martin                          61          Director of the Company                                             1998
</TABLE>

--------

(1)   Member of the Compensation Committee
(2)   Member of the Audit Committee


                                       23
<PAGE>

      Leonard A. Osser has been Chief Executive Officer and a director of the
Company since July 1991, and the President and Chief Executive Officer of
Spintech, a subsidiary of the Company, since November, 1995. From July 1991
until July 1997, he also served as President and Chief Financial Officer of the
Company. From 1980 until the consummation of the Company's public offering in
November 1995, he had been primarily engaged as the principal owner and Chief
Executive of U.S. Asian Consulting Group, Inc., a New Jersey based provider of
consulting services in "work-out" and "turnaround" situations for publicly and
privately owned companies in financial difficulty.

      Mitchell G. Kuhn has been President, Chief Operating Officer of the
Company since October 1999. He was elected as a director in December 1999. From
July 1977 until March 1999, Mr. Kuhn was the Chief Operating Officer and an
Executive Director of the New York County Dental Society. From January 1990
until March 1999, Mr. Kuhn was the Chief Operating Officer and an Executive
Director of First District Dental Society Health and Welfare Trust. From January
1982 until March 1999, Mr. Kuhn was Chief Executive Officer, President and Chief
Operating Officer of First Madison Corp.

      Thomas M. Stuckey has been the Chief Financial Officer and Vice President
of the Company and the Chief Financial Officer of Spintech and Sagacity I, a
subsidiary of the Company, since May 1998. Prior to joining the Company, Mr.
Stuckey had been the Corporate Controller of PureTec, a plastic products
manufacturer, where he had spent 13 years.

      Stephen A. Zelnick has been a director of the Company since January 1996.
He has been a partner in the law firm Morse, Zelnick, Rose & Lander, LLP since
its inception in August 1995. For more than five years prior to that he was of
counsel to the law firm Dreyer and Traub, LLP.

      Paul Gregory has been a director of the Company since April 1997. Mr.
Gregory has been a business and insurance consultant at Innovative Programs
Associates Inc. and Paul Gregory Associates Inc. since January 1995 and January
1986, respectively, where he services, among other entities, foreign and
domestic insurance groups, law and accounting firms and international
corporations.

      Louis I. Margolis has been a director of the Company since April 1997. Mr.
Margolis has been a General Partner of Pine Street Associates, L.P., a private
investment partnership that invests in other private limited partnerships, since
January 1994. Since June 1998, Mr. Margolis has been a general partner of Select
Ventures Management, LP, a special purpose limited partnership that invests in
an early stage venture capital partnership. Since April 1998, Mr. Margolis has
been a registered representative with GRO Corporation, a member firm of the
NASD. In January 1997, Mr. Margolis formed and is the President and sole
shareholder of Chapel Hill Capital Corp., a financial services company. From
1993 through 1995 he was Chairman of Classic Capital Inc., a registered
investment advisor. Mr. Margolis has been a member of the Financial Products
Advisory Committee of the Commodity Futures Trading Commission since its
formation in 1986, a Trustee of the Futures Industry Institute since 1991 and a
Trustee of Saint Barnabas Hospital in Livingston, NJ since 1994. Mr. Margolis is
also a director of Hometown Auto Retailers, Inc., an automotive retailer
conducting business in the northeastern United States.


                                       24
<PAGE>

      Leonard M. Schiller has been a director of the Company since April 1997.
Mr. Schiller has been a partner in the law firm of Schiller, Klein & McElroy,
P.C. since 1977 and has practiced law in the State of Illinois for over 25
years. He is also President of The Dearborn Group, a residential property
management and real estate acquisition company. Mr. Schiller is a member of the
Board of Directors of AccuMed International, Inc., a laboratory diagnostic
company. He is also a member of the Board of Directors of iMall, Inc., a leading
provider of fully-integrated "one-stop" e-commerce solutions.

      Larry Haimovitch has been a director of the Company since October 1997.
Mr. Haimovitch has been the President of Haimovitch Medical Technology
Consultants, a San Francisco-based health care consulting firm, since he formed
the firm in 1990. His firm, whose current area of emphasis includes
minimally-invasive surgical technologies, specializes in the analysis of the
medical device industry with emphasis on the current trends and future outlook
for emerging medical technology. Mr. Haimovitch also serves as a director of
Cardiac Control Systems Inc., a company engaged in the design, development,
manufacture and marketing of implantable cardiac pacemaker systems.

      Daniel R. Martin has been a director of the Company since March 1998. From
March 1998 until February 1999 Mr. Martin also served as the President and Chief
Operating Officer of the Company. From January 1990 to October 31, 1997, Mr.
Martin was the President, Chief Operating Officer and director, and later Chief
Executive Officer of E-Z-EM, Inc., a manufacturer of medical devices and
pharmaceuticals for diagnostic imaging.

      All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.

      The Company's Board of Directors has established compensation and audit
committees. The Compensation Committees reviews and recommends to the Board of
Directors the compensation and benefits of all the officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company, and administers the issuance of stock options to the
Company's officers, employees, directors and consultants. The Company has agreed
with the placement agent in a March 1997 private placement that until March 13,
2000, all compensation arrangements between the Company and its directors,
officers and affiliates shall be reviewed by a compensation committee, the
majority of which is made up of independent directors. The Audit Committee meets
with management and the Company's independent auditors to determine the adequacy
of internal controls and other financial reporting matters.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent (10%)
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.

      To the best of the Company's knowledge, based solely on review of the
copies of such forms furnished to the Company, or written representations that
no other forms were required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
(10%) shareholders were complied with during 1999, with the exception of the
following individuals with late Form 4 filings reporting changes in beneficial
ownership: Leonard A. Osser and Louis I. Margolis.


                                       25
<PAGE>

Item 10. Executive Compensation.

      The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 1999,
1998, and 1997 by (i) the Company's Chief Executive Officer and (ii) the most
highly compensated executive officers, other than the CEO, who were serving as
executive officers at the end of the 1999 fiscal year and whose salary as
determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals
falling within categories (i) and (ii) are collectively referred to as the
"Named Executives").

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                          Long-Term Compensation
                                                                             --------------------------------------------------
                                                 Annual Compensation                  Awards                     Payouts
                                              --------------------------     --------------------------     -------------------
                                                                              Common Stock Underlying           All Other
    Name and Principal                                 Salary                         Options                  Compensation
         Position                 Year                   ($)                            (#)                        ($)
---------------------------     ---------     --------------------------     --------------------------     -------------------

<S>                               <C>                 <C>                              <C>                       <C>
Leonard A. Osser                  1999                191,135 (1)                       50,000
    Chief Executive               1998                280,395 (2)                       50,000
    Officer and                   1997                267,768 (3)                      150,000
      Chairman

Thomas M. Stuckey                 1999                 119,922                          21,000                   10,000 (4)
 Chief Financial Officer
    and Vice President
</TABLE>

-----------

(1)   Includes voluntary reduction of base salary which commenced in July 1998
      and also includes $36,000 earned as President and Chief Executive Officer
      of Spintech.
(2)   Effective July 7, 1998 Mr. Osser took a voluntary reduction in his 1998
      annual base salary of $350,000. Includes $73,136 earned as President and
      Chief Executive Officer of Spintech. Does not include $11,559 paid by the
      Company to Marilyn Elson, a certified public accountant who was employed
      by the Company to render accounting services. Ms. Elson is the wife of Mr.
      Osser.
(3)   Does not include $41,538 paid by the Company to Marilyn Elson, C.P.A., who
      was employed by the Company to render accounting services prior to the
      hiring by the Company of a Chief Financial Officer. Ms. Elson is the wife
      of Mr. Osser.
(4)   1999 Bonus.


                                       26
<PAGE>

Stock Options

      The following tables show certain information with respect to incentive
and non-qualified stock options granted in 1999 to Named Executives under the
Company's 1997 Stock Option Plan and the aggregate value at March 8, 2000 of
such options. In general, the per share exercise price of all options is equal
to the fair market value of a share of Common Stock on the date of grant. No
options granted to Named Executives have been exercised.

<TABLE>
<CAPTION>
                                                    Option Grants in 1999
------------------------------------------------------------------------------------------------------------------------------
Individual Grants of Options
------------------------------------------------------------------------------------------------------------------------------

                                   Number of Shares       Percent of Total
                                    of Common Stock        Options Granted
                                      Underlying           to Employees in       Exercise Price
            Name                       Option #                 1999                 ($/Sh)            Expiration Date
------------------------------     ------------------     ------------------     ----------------    ---------------------

<S>                                     <C>                     <C>                    <C>                 <C>
Leonard A. Osser                        50,000(1)               19.8%                  $1.00               1/09/04

Thomas A. Stuckey                       21,000(2)                8.3%                  $3.00               1/14/04
</TABLE>

-----------
(1)   Options vest 12/10/03
(2)   One third of options vested on the date of grant (1/15/99), with an
      additional one third vesting on each anniversary thereof.

<TABLE>
<CAPTION>
                                         Aggregated 1999 Year End Options Values
                                       for Options granted prior to and During 1999
---------------------------------------------------------------------------------------------------------------------------
                                                                                                Value of Unexercised
                                                  Number of Shares of Common Stock              In-The-Money Options
                                                 Underlying Unexercised Options at                At 12/31/99 (1)
                   Name                          12/31/99 Exercisable/Unexercisable          Exercisable/Unexercisable
--------------------------------------------     -----------------------------------     -----------------------------------

<S>                                                              <C>                            <C>
Leonard A. Osser                                                 100,000 // 150,000                0 // $150,000
Thomas M. Stuckey                                                  22,333 // 23,667             $14,000 // $ 7,000
</TABLE>
-----------

(1)   Based on the closing price on March 8, 2000 of $4.00 as quoted on the
      American Stock Exchange.

Employment Contracts

      As of January 1, 1998 the Company entered into an Employment Agreement
with Mr. Osser which provides for an initial term expiring on December 31, 2002,
with a two-year non-competition period at the end of the term. The term is
automatically increased for successive one-year periods unless prior to December
1 of any year either party notifies the other of its election not to extend the
term. Under the Agreement Mr. Osser serves as Chief Executive Officer and is
required to work on a full-time basis. Under the Employment Agreement Mr. Osser
receives annual base pay of $350,000, increasing to reflect cost of living
adjustments commencing on January 1, 2001. In addition, during January 1998 and
each of the next four Januarys the Company shall grant Mr. Osser an option to
purchase 50,000 shares of Common Stock exercisable only during the last 30 days
of the five year option term unless the Company achieves certain financial goals
to be specified annually by the Compensation Committee. Additionally, as soon as
financial statements for each year commencing with 1998 are completed, the
Company shall grant the executive an additional option to purchase up to 50,000
shares depending upon the achievement of specified performance goals. Further,
Mr. Osser shall receive the opportunity to earn cash bonuses of up to $200,000
per year depending upon the achievement of performance targets to be specified
by the Option Committee.


                                       27
<PAGE>

      On July 7, 1998, at his sole discretion, Mr. Osser implemented a voluntary
reduction of his annual base salary, reducing his annual base pay from $350,000
to $188,462. The voluntary reduction has been described by Mr. Osser as being
both temporary and having no effect upon his rights under his employment
agreement with the Company. Such reduction remains in effect on the date hereof.
The self imposed current limits of Mr. Osser's base pay is below the level
suggested by an independent compensation committee retained in December 1997.

Compensation of Directors

      Non-employee directors are granted, upon becoming a director, a five-year
option to purchase 20,000 shares of our Common Stock at an exercise price equal
to the fair market value of a share of Common Stock on the date of grant. They
receive no cash compensation.

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The following table, together with the accompanying footnotes, sets forth
information, as of March 9, 2000, regarding stock ownership of all persons known
by the Company to own beneficially more than 5% of the Company's outstanding
Common Stock, certain executive officers, all directors, and all directors and
officers of the Company as a group:

                                                     Shares of
                                                    Common Stock
                                                    Beneficially   Percentage of
             Name of Beneficial Owner (1)            Owned (2)       Ownership
--------------------------------------------------  -------------- ------------
Executive Officers and Directors
Leonard Osser.....................................  2,010,061 (3)       18.69%
Mitchell G. Kuhn                                       16,800               *
Thomas M. Stuckey                                      32,166 (4)           *
Paul Gregory......................................     20,150 (5)           *
Larry Haimovitch..................................     20,156 (6)           *
Louis I. Margolis.................................     84,000 (7)           *
Leonard M. Schiller...............................     65,594 (8)           *
Stephen A. Zelnick................................    180,620 (9)        1.68%
Daniel R. Martin                                       52,100 (10)          *
All Directors and Officers as a group               2,481,647 (11)      23.07%

-----------
*     Less than 1%


                                       28
<PAGE>

                                               Shares of
                                              Common Stock
                                              Beneficially         Percentage of
                                               Owned (2)             Ownership
5% and Greater Stockholders

Cumberland Associates, LLC
1114 Avenue of the Americas                   1,901,524(12)             17.68%
New York, New York 10036

Gintel Asset Management, Inc.
      6 Greenwich Office Park                 1,374,700(13)             12.78%
      Greenwich, CT 06831

(1)   The addresses of the persons named in this table are as follows: Leonard
      A. Osser, 220 South Orange Avenue, Livingston Corporate Park, Livingston,
      NJ 07039; Mitchell G. Kuhn, 220 South Orange Avenue, Livingston Corporate
      Park, Livingston, NJ 07039; Thomas M. Stuckey, 220 South Orange Avenue,
      Livingston Corporate Park, Livingston, NJ 07039; Stephen A. Zelnick,
      Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York
      10022; Paul Gregory, Innovative Programs Associates Inc., 300 Mercer
      Street, New York, New York 10003; Louis I. Margolis, Pine Street
      Associates, L.P., 88 Pine Street, Suite 3100, New York, New York 10005;
      Leonard M. Schiller, Schiller, Klein & McElroy, P.C., 33 North Dearborn
      Street, Suite 1030, Chicago, Illinois 60602; Larry Haimovitch, Haimovitch
      Medical Technology Consultants, Four Maritime Plaza, San Francisco, CA
      94111-3416 and Daniel R. Martin, 220 South Orange Avenue, Livingston
      Corporate Park, Livingston, NJ 07039.
(2)   A person is deemed to be a beneficial owner of securities that can be
      acquired by such person within 60 days from the filing of this report upon
      the exercise of options and warrants or conversion of convertible
      securities. Each beneficial owner's percentage ownership is determined by
      assuming that options, warrants and convertible securities that are held
      by such person (but not held by any other person) and that are exercisable
      or convertible within 60 days from the filing of this report have been
      exercise or converted. Except as otherwise indicated, and subject to
      applicable community property and similar laws, each of the persons named
      has sole voting and investment power with respect to the shares shown as
      beneficially owned. All percentages are determined based on 10,752,898
      shares outstanding on March 9, 2000.
(3)   Includes 70,000 shares subject to stock options, exercisable within 60
      days of the date hereof at 7.00 per share, and 29,000 shares subject to
      stock options, exercisable within 60 days of the date hereof at 7.56 per
      share.
(4)   Includes 14,000 shares subject to stock options, exercisable within 60
      days of the date hereof at $3.00 per share and 16,666 shares subject to
      stock options, exercisable within 60 days of the date hereof at $16.50 per
      share. Mr. Stuckey disclaims beneficial ownership to (i) 5,300 shares
      which are held by his wife as custodian for their children, and (ii) 1,200
      shares which are owned by his wife in her IRA.
(5)   Includes 150 shares held by Mr. Gregory's wife and 17,000 shares subject
      to stock options, exercisable within 60 days of the date hereof at $5.125
      per share.
(6)   Includes 15,000 shares subject to stock options, exercisable within 60
      days of the date hereof at $6.875 per share.
(7)   Includes 20,000 shares subject to stock options, exercisable within 60
      days of the date hereof at $5.125 per share and 32,000 shares subject to
      stock purchase warrants, exercisable within 60 days of the date hereof at
      $9.00 per share.
(8)   Includes 45,000 shares subject to stock options, exercisable within 60
      days of the date hereof at $5.125 per share.


                                       29
<PAGE>

(9)   Includes (i) an aggregate of 70,000 shares issuable upon exercise of stock
      options within 60 days of the date hereof, 50,000 of which are exercisable
      at $5.125 per share and 20,000 of which are exercisable at $5.375 per
      share and (ii) warrants immediately exercisable to purchase 14,286 shares
      at $1.75 per share.
(10)  Includes 50,000 shares subject to stock options exercisable within 60 days
      of the date hereof at $23.00 per share.
(11)  Includes 378,666 shares subject to stock options and no shares subject to
      warrants all of which are exercisable within sixty (60) days of the date
      hereof.
(12)  Based solely upon an amendment to Schedule 13G filed by Cumberland
      Associates LLC with the Securities and Exchange Commission on 2/14/00.
(13)  Based solely upon an amendment to Schedule 13G filed by Gintel Asset
      Management, Inc. on 2/12/99.

Item 12. Certain Relationships and Related Transactions

      Pursuant to a $1 million private placement which was completed in February
2000, Leonard Osser, the Chairman and Chief Executive Officer of the Company
purchased $250,000 principal amount of 10% secured promissory notes and
five-year warrants to purchase 35,714 shares of the Company's common stock,
immediately exercisable at $1.75 per share with such exercise price increasing
each anniversary to a final exercise price of $7.00 per share. Also pursuant to
this private placement Mitchell G. Kuhn, President and Chief Operating Officer,
purchased $50,000 principal amount of 10% secured promissory notes and five-year
warrants to purchase 7,143 shares of the Company's common stock. Additionally,
pursuant to an agreement made as of January 31, 1999, the Company issued
1,800,000 shares of common stock in full payment of the Company's three percent
Senior Convertible Promissory Notes in the aggregate principal amount of
$2,250,000, of which 200,000 shares were issued to Leonard Osser, Chairman and
Chief Executive Officer, subject to shareholder approval.

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)


                                       30
<PAGE>

      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(R) 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)

      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)

      10.20            Undertaking of Leonard Osser dated April 5, 2000. (6)

      21.1             Subsidiaries of the Registrant. (5)

      23               Consent of Grant Thornton LLP  (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.


                                       31
<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 27, 2000

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, 1999.

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


/s/Leonard Osser                 March 27, 2000       Chairman, and Chief
-----------------------------                         Executive Officer
           Leonard Osser


/s/Mitchell G. Kuhn              March 27, 2000       President, Chief Operating
-----------------------------                         Officer and Director
           Mitchell G. Kuhn


/s/Thomas M. Stuckey             March 27, 2000       Vice President and Chief
-----------------------------                         Financial Officer
           Thomas M. Stuckey


/s/Daniel R. Martin              March 27, 2000       Director
-----------------------------
           Daniel R. Martin


/s/Stephen A. Zelnick            March 27, 2000       Director
-----------------------------
           Stephen A. Zelnick


/s/Louis Margolis                March 27, 2000       Director
-----------------------------
            Louis Margolis


/s/Larry Haimovitch              March 27, 2000       Director
-----------------------------
           Larry Haimovitch


/s/Leonard Schiller              March 27, 2000       Director
-----------------------------
           Leonard Schiller


/s/Paul Gregory                 March 27, 2000        Director
-----------------------------
           Paul Gregory


                                       32
<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, 1999 and 1998 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, 1999.
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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.


GRANT THORNTON LLP

New York, New York
March 27, 2000
(except for Note A for which
the date is April 5, 2000)


                                      F-1
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,

<TABLE>
<CAPTION>
                                            ASSETS                                                   1999                  1998
                                                                                                  -----------           -----------

<S>                                                                                               <C>                   <C>
CURRENT ASSETS
    Cash and cash equivalents                                                                     $   242,843           $   316,706
    Investments - Treasury Bills                                                                           --             3,267,940
    Accounts receivable, net of allowance for
        doubtful accounts of $79,814 and
        $137,870 in 1999 and 1998, respectively                                                       297,778               430,907
    Inventories                                                                                     1,717,094             1,255,262
    Prepaid expenses                                                                                  192,636               127,263
                                                                                                  -----------           -----------

             Total current assets                                                                   2,450,351             5,398,078

PROPERTY AND EQUIPMENT, NET                                                                         1,669,769             2,031,870

PATENTS, NET                                                                                        1,491,724             1,736,275

OTHER ASSETS                                                                                           10,318                29,997
                                                                                                  -----------           -----------

             Total assets                                                                         $ 5,622,162           $ 9,196,220
                                                                                                  ===========           ===========

                             LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Line of credit - bank                                                                         $        --           $   150,000
    Accounts payable                                                                                  996,120               544,705
    Accrued expenses                                                                                  246,453               165,302
                                                                                                  -----------           -----------

             Total current liabilities                                                              1,242,573               860,007
                                                                                                  -----------           -----------

SENIOR CONVERTIBLE NOTES                                                                            2,250,000                    --
                                                                                                  -----------           -----------
COMMITMENT AND CONTINGENCIES                                                                               --                    --
                                                                                                  -----------           -----------
STOCKHOLDERS' EQUITY
    Common stock, par value $.001; authorized, 25,000,000 shares; 8,864,898
        issued as of December 31, 1999 and 8,817,882 issued as of December 31, 1998                     8,865                 8,818
    Additional paid-in capital                                                                     30,877,375            30,111,734
    Accumulated deficit                                                                           (27,845,135)          (20,872,823)
    Treasury stock, at cost, 100,000 shares                                                          (911,516)             (911,516)
                                                                                                  -----------           -----------

                Total stockholders' equity                                                          2,129,589             8,336,213
                                                                                                  -----------           -----------
                Total liabilities and stockholders' equity                                        $ 5,622,162           $ 9,196,220
                                                                                                  ===========           ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-2
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                                                1999                      1998
                                                                                            ------------               ------------

<S>                                                                                         <C>                        <C>
Revenues                                                                                    $  2,855,463               $  8,804,235
Cost of sales                                                                                  1,572,319                 10,144,796
                                                                                            ------------               ------------

           Gross profit (loss)                                                                 1,283,144                 (1,340,561)
                                                                                            ------------               ------------

Selling, general and administrative expense                                                    7,009,543                  9,336,445
Research and development expense                                                                 455,332                    436,024
Loss from termination of Wisdom product line                                                      76,345                         --
                                                                                            ------------               ------------

                                                                                              (7,541,220)                (9,772,469)
                                                                                            ------------               ------------

           Loss from operations                                                               (6,258,076)               (11,113,030)
                                                                                            ------------               ------------

Interest income (net of interest expense of $64,572
   and $15,376, respectively)                                                                     17,014                    414,676
Debt conversion expense                                                                         (731,250)                        --
                                                                                            ------------               ------------

           NET LOSS                                                                         $ (6,972,312)              $(10,698,354)
                                                                                            ============               ============

Loss per common share - basic and diluted                                                   $       (.80)              $      (1.22)
                                                                                            ============               ============

Weighted average shares outstanding - basic and diluted                                        8,729,905                  8,736,537
                                                                                            ============               ============
</TABLE>

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, 1999 and 1998

<TABLE>
<CAPTION>
                                                     Common stock          Additional
                                              -------------------------      paid-in       Treasury     Accumulated
                                                 Shares        Amount        capital        stock         deficit         Total
                                              ------------  ------------   ------------  ------------   ------------   ------------

<S>                                              <C>        <C>            <C>           <C>            <C>            <C>
Balance, December 31, 1997                       8,661,866         8,662     28,685,483                  (10,174,469)    18,519,676

Shares repurchased                                                                       $   (911,516)                     (911,516)
Warrants exercised                                 119,591           120      1,029,585                                   1,029,705
Options exercised                                   36,425            36        175,214                                     175,250
Warrants/options issued to consultants                                          221,452                                     221,452
Net loss for the year ended December
    31, 1998                                                                                             (10,698,354)   (10,698,354)
                                              ------------  ------------   ------------  ------------   ------------   ------------

Balance, December 31, 1998                       8,817,882  $      8,818   $ 30,111,734  $   (911,516)  $(20,872,823)  $  8,336,213
                                              ------------  ------------   ------------  ------------   ------------   ------------

Shares issued for interest payment                  47,016            47         36,391                                      36,438
Costs associated with registering shares                                         (2,000)                                     (2,000)
Debt conversion expense                                                         731,250                                     731,250

Net loss for the year ended December 31, 1999                                                             (6,972,312)    (6,972,312)
                                              ------------  ------------   ------------  ------------   ------------   ------------

Balance, December 31, 1999                       8,864,898  $      8,865   $ 30,877,375  ($   911,516)  $(27,845,135)  $  2,129,589
                                              ============  ============   ============  ============   ============   ============
</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>
                                                                                                 1999                      1998
                                                                                             ------------              ------------

<S>                                                                                          <C>                       <C>
Cash flows from operating activities
    Net loss                                                                                 $ (6,972,312)             $(10,698,354)
    Adjustments to reconcile net loss to net cash used in
       Operating activities
         Patent amortization                                                                      263,950                   244,559
         Depreciation                                                                             468,907                   336,002
         Non cash interest                                                                         36,438                        --
         Debt conversion expense                                                                  731,250                        --
         Loss on impairment of fixed assets                                                            --                 1,982,321
         Loss on write-down of inventory                                                               --                 1,243,986
         Compensation expense                                                                          --                   221,452
         Changes in assets and liabilities, net of effects
            From acquisition of businesses
                (Increase) decrease  in accounts receivable                                       133,129                  (112,760)
                Increase in inventories                                                          (461,832)               (1,249,620)
                Increase in prepaid expenses                                                      (65,373)                  (29,484)
                Decrease in other assets                                                              280                     3,409
                Increase (decrease) in accounts payable                                           451,415                  (509,250)
                Increase (decrease) in accrued expenses                                            81,151                   (82,131)
                                                                                             ------------              ------------

        Net cash used in operating activities                                                  (5,332,997)               (8,649,870)
                                                                                             ------------              ------------
Cash flows from investing activities
    Purchase of Treasury Bills                                                                 (3,753,000)               (5,520,000)
    Sale of Treasury Bills                                                                      7,020,940                 8,030,429
    Capital expenditures                                                                         (106,806)               (3,587,311)
                                                                                             ------------              ------------
        Net cash provided by (used in) investing activities                                     3,161,134                (1,076,882)
                                                                                             ------------              ------------
Cash flows from financing activities
    Net proceeds from issuance of senior convertible notes                                      2,250,000
    Repayment of borrowings                                                                      (150,000)                  (25,000)
    Costs associated with registering shares                                                       (2,000)                       --
    Purchase of treasury stock                                                                         --                  (911,516)
    Proceeds from exercise of warrants and options                                                     --                 1,204,955
                                                                                             ------------              ------------

        Net cash provided by financing activities                                               2,098,000                   268,439
                                                                                             ------------              ------------

        NET DECREASE IN CASH AND
            CASH EQUIVALENTS                                                                      (73,863)               (9,458,313)

Cash and cash equivalents at beginning of year                                                    316,706                 9,775,019
                                                                                             ------------              ------------

Cash and cash equivalents at end of year                                                     $    242,843              $    316,706
                                                                                             ============              ============
</TABLE>


                                      F-5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                             Year ended December 31,

                                                             1999         1998
                                                            -------      -------

Supplemental disclosures of cash flow information:
   Cash paid during the year for
      Interest                                              $   316      $15,376
                                                            =======      =======

Supplemental schedule of noncash investing and financing activities:

In 1998, 7,425 warrants were issued to a former board member for services
rendered as such, which were also exercised during 1998 in a cashless
conversion. Accordingly, the Company recognized a total noncash charge of
$95,000 as compensation expense for the fair value of the warrants issued and
exercised.

In September 1999, in making the first semi annual interest payment on the
Senior Convertible Notes and in accordance with the terms of the note
agreements, the Company elected to issue 47,016 shares of Milestone Common Stock
in lieu of cash of $36,438.

The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1999 and 1998

NOTE A - BASIS OF PRESENTATION

      The accompanying financial statements have been prepared in conformity
      with generally accepted accounting principles, which contemplate
      continuation of the Company as a going concern. However, subsequent to its
      first fiscal quarter in 1998, the Company has incurred substantial losses
      from operations. In addition, the Company has used, rather than provided,
      cash in its operations during the years ended December 31, 1999 and 1998.

      In view of the matters described in the preceding paragraph,
      recoverability of a major portion of the recorded asset amounts shown in
      the accompanying balance sheet is dependent upon continued operations of
      the Company, which in turn is dependent upon the success of the Company's
      Wand(R) product and the Company's ability to obtain necessary financing
      through January 1, 2001. The financial statements do not include any
      adjustments relating to the recoverability and classification of recorded
      asset amounts or amounts and classification of liabilities that might be
      necessary should the Company be unable to continue in existence.

      Based on management's belief that The Wand(R), is a major advance in
      dentistry and may ultimately become the accepted method for delivering
      local dental anesthesia, the Company continues to take steps aimed at
      growing and strengthening the end user base thereby gaining greater
      acceptance of The Wand(R) and translating to increased revenue through
      higher disposable handpiece usage. On October 1, 1999, the Company began a
      new sales initiative, permitting dentists in the United States to order
      the Wand(R) directly through Milestone and to avail themselves of certain
      quantity discounts when purchasing disposable handpieces and dental
      needles. Furthermore, it continues to a) develop its market overseas; b)
      visit, obtain feedback and provide further support to current Wand(R)
      users; c) provide assistance to dental schools which include The Wand(R)
      in their curriculum; d) distribute The Wand(R) technique videos and
      technical bulletins to its current users, and e) maintain a well trained
      service staff.

      As of December 31, 1999, the Company had $242,843 in aggregate cash and
      cash equivalents. In addition, as of February 1, 2000, the Company
      concluded a $1,000,000 private placement of 10% Senior Subordinated Note
      (See Note O). Management believes that through the proper utilization of
      these existing funds, revenues generated from international distributors
      and from continued increases in domestic disposable handpiece sales, the
      expense reductions achieved through cost containment programs, and the
      funds raised from the first quarter 2000 private placement, it will have
      sufficient cash to meet its needs over the next twelve months.


                                      F-7
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE A (continued)

      In addition, on April 5, 2000 Leonard Osser, the Chairman and CEO of the
      Company, signed an agreement which provides the Company through December
      31, 2000 with the following: 1) a $200,000 line of credit with a maturity
      of February 1, 2001 and a 9% annual interest rate; 2) payment guarantees
      on year 2000 sales to certain foreign countries through two specified
      distributors; and 3) the option, should the line of credit be
      insufficient, to defer payment of his full salary until January 3, 2001.
      Furthermore, Mr. Osser and one other participant in the February 2000
      private placement agreed to amend the Company's promissory note agreement
      so as to defer all payments including interest until January 3, 2001.
      These notes comprised $300,000 of the $1,000,000 private placement.

NOTE B - 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
      dental practitioners, throughout the world.

      In November 1995, the Company purchased 65% of the common stock of
      Spintech, Inc. ("Spintech"). (See Note D.) 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. ("Sagacity"), 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 D).
      Wisdom had an exclusive three-year distributor agreement in the United
      States, Canada and other areas with Wisdom Toothbrushes Limited ("Wisdom
      UK"). This agreement was mutually terminated in March 1999.


                                      F-8
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE B (continued)

      In December 1997, in addition to doing business as Wisdom, Sagacity
      commenced doing business in the United States as Milestone Scientific,
      Inc. ("Milestone").

      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.

      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 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. The estimated useful lives to be used to
            determine depreciation are as follows:

                       Furniture and fixtures              7 years
                       Office equipment                    5 years
                       Trade show displays                 5 years
                       Tooling equipment               5 - 7 years
                       Computer and software               3 years


                                      F-9
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE B (continued)

      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 and provides a reserve
            for estimated returns based on prior experience.

      8.    Research and Development

            Research and development costs are expensed as incurred.

      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 F 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.


                                      F-10
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE B (continued)

      11.   Product Sales

            During 1999 and 1998 the Company had the following product sales
            which comprises its total sales in the accompanying financial
            statements:

                                                       1999              1998
                                                    ----------        ----------

Wand(R) System Kits and Handpieces                  $2,605,677        $6,622,000
Wisdom products including prophy angles                249,786         2,182,235
                                                    ----------        ----------

                                                    $2,855,463        $8,804,235
                                                    ==========        ==========

NOTE C - PROPERTY AND EQUIPMENT

      Property and equipment consisted of the following at December 31:

                                                     1999                1998
                                                  ----------          ----------

Furniture and fixtures                            $  196,263          $  174,914
Office equipment                                     179,511             191,200
Trade show displays                                  130,135             116,583
Tooling equipment                                  2,101,866           2,032,214

Computers and software                                38,039              24,097
                                                  ----------          ----------

                                                   2,645,814           2,539,008

Less accumulated depreciation                        976,045             507,138
                                                  ----------          ----------

                                                  $1,669,769          $2,031,870
                                                  ==========          ==========


                                      F-11
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE D - ACQUISITIONS

      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.

      In April 1999, the Company discontinued its selling effort with regards to
      the Wisdom product line excluding SplatrFree(TM) prophy angles. The
      discontinued products generated net sales of $174,086 and an operating
      loss of $52,911 for the year ended December 31, 1999. For the year ended
      December 31, 1998, these products generated $1,983,277 in net sales and
      operating income of $70,329. In terminating the product line the Company
      incurred $76,345 of expenses, including $19,291 for uncollectible
      receivables, $15,692 in aggregate termination compensation and employee
      benefits, $5,066 for a lease buyout, $18,793 in previously unamortized
      acquisition costs and $17,503 to write off inventory.

      The Company had a line of credit which had originally been secured by the
      assets associated with the Wisdom product line. In June 1999, the Company
      obtained a thirty-day extension of its $250,000 line of credit with some
      temporary modifications including a line reduction. On July 26, 1999, the
      Company notified its lender that the Company would no longer be utilizing
      the line and remitted the outstanding balance of $50,000.

      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 for the years ended December 31, 1998 and 1999.


                                      F-12
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE D (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, and 1,017 shares of Spintech were
      converted.

      Also, the Company 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, the Company exercised its option in 1997, 1998 and 1999. The
      option exercised in 1999 increased the Company's ownership in Spintech to
      75.9%. The value of the converted shares and associated offering costs are
      reflected in the accompanying balance sheet as patents.

      Subsequent to year end and as part of the resolution of the disputes
      between the Company and Dr. Ronald Spinello along with Glenn Spinello (See
      Note O), the Spinello's agreed to convey all of their equity interests in
      Spintech. The 5,025 shares conveyed increased Milestone's ownership in
      Spintech to 79.3%.

      In addition, the Company provides advances to Spintech. These advances are
      due on demand with interest at 8%. The balance of the advance account
      including interest as of December 31, 1998 and 1999 were $11,827,924 and
      $13,378,266, respectively.

NOTE E - 3% Convertible Notes And Other Borrowing

      3% Convertible Notes

      In March 1999, the Company concluded a $2 million institutional private
      placement with Cumberland Partners, other investment funds managed by or
      affiliated with Cumberland Associates and certain principals of Cumberland
      Associates. An additional $250,000 was raised from the Chairman and Chief
      Executive Officer of Milestone, on the same terms and conditions. The
      investors purchased, at face value, 3% Senior Convertible Notes Due 2003,
      convertible into Milestone Common Stock at prices increasing from $2.50
      per share in the first year to $6.00 per share in the fourth year, subject
      to anti-dilution protection in the event of stock dividends and certain
      capital changes. Purchasers of the Notes were granted rights to
      participate in certain future security offerings by Milestone.


                                      F-13
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE E - (continued)

      In December 1999, the holders of the 3% Convertible Notes agreed, and in
      February 2000 formalized the agreement to convert all $2,250,000 of such
      notes into common stock at a modified price of $1.25 per share. Of the
      1,800,000 shares which were to be issued, only the 200,000 shares to Mr.
      Osser are being held in escrow and pending shareholder approval.

      Since the scheduled conversion price was $2.50 per share, the Company
      recognized a non cash debt conversion expense of $731,250 in 1999.

      In September 1999, the Company issued 47,016 shares of Milestone Common
      Stock in lieu of cash of $36,438 in making the first semi annual interest
      payment, on the Senior Convertible Notes as permitted by the terms of the
      purchase agreement.

      Other Borrowings

      During the first quarter of 2000, the Company completed a $1,000,000
      private placement of 10% Senior Secured Promissory Notes due June 30, 2001
      and Warrants to purchase 142,857 shares of Milestone Common Stock (See
      Note O).

NOTE F - STOCKHOLDERS' EQUITY

      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
      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. The 207,231 warrants
      which were outstanding as of December 31, 1999, expired on March 13, 2000.


                                      F-14
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

      NOTE F (continued)

      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 anti-dilution provisions. All
      options were unexercised at December 31, 1999.

      During 1996, the Company issued 60,000 shares to a consultant for services
      provided to the Company. The agreement stipulated 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. During 1999, this agreement was
      amended so as to reduce the numbers of shares covered from 60,000 to
      20,000, limit the Company's obligation to $100,000 and to establish a
      specified four month period during 1999 when applicable. Subsequently, the
      consultant, a dentist sold 20,000 shares and the Company remitted $79,463
      to the consultant.

      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.


                                      F-15
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

      NOTE F (continued)

      Options and warrants, in aggregate, to purchase 252,000 shares of common
      stock at prices ranging from $1 to $6 per share, were issued in aggregate
      to three officers and certain key personnel during the year ended December
      31, 1999.

      Options and warrants, in aggregate, to purchase 272,000 shares of common
      stock at prices ranging from $1.56 to $23 per share were issued during the
      year ended December 31, 1998.

      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 by the amounts that follow:

                                                 1999                 1998
                                             -------------        -------------

      Net loss                               $  (2,674,703)       $  (1,103,000)
      Loss per common share                  $        (.31)       $        (.13)

      Because SFAS No. 123 is applicable only to options granted subsequent to
      December 31, 1994, and some options have a two- to five-year vesting
      period, the pro forma effect will not be fully reflected until 2001.


                                      F-16
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE F (continued)

      The weighted-average fair value of the individual options granted during
      1999 and 1998 was estimated as $1.45 and $15.25, respectively, on the date
      of grant. The fair value for 1999 and 1998 was determined using a
      Black-Scholes option-pricing model with the following assumptions:

                                                 1999                   1998
                                              -----------           -----------

      Dividend yield                              -                      -
      Volatility                                158.10%               126.13%
      Risk-free interest rate                     6.35                  5.60
      Forfeiture rate                             -                       -
      Expected life                            3 - 5 years            3-5 years

      Stock option activity during 1999 and 1998 is summarized below:

<TABLE>
<CAPTION>
                                             Shares of common       Weighted-average
                                          Stock attributable to     exercise price of
                                           Options and warrants   options and warrants
                                           --------------------   --------------------
<S>                                             <C>                      <C>
      Unexercised at December 31, 1997           2,404,121                 7.67
                                                ==========

      Granted                                      272,000                18.60
      Exercised                                   (156,016)                8.30
      Forfeited                                   (152,575)               11.36
                                                ----------

      Unexercised at December 31, 1998           2,367,530               $ 8.67
                                                ==========

      Granted                                      252,000                 2.39
      Exercised                                         --                   --
      Forfeited                                 (1,368,299)                8.96
                                                ----------

      Unexercised at December 31, 1999           1,251,231               $ 7.09
                                                ==========
</TABLE>


                                      F-17
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE F (continued)

      The following table summarizes information concerning outstanding and
      exercisable options at December 31, 1999.

<TABLE>
<CAPTION>
                        Options and warrants outstanding        Options and warrants exercisable
                    ----------------------------------------    --------------------------------
                                    Remaining
                       Number      Contractual    Exercise                             Exercise
Exercise prices     Outstanding    life (years)     price         Number                 price
---------------     -----------    ------------   ----------    -----------            ----------
<S>                   <C>                <C>        <C>           <C>                     <C>
     1                 50,000            4          $1                  0                 --
     1.25               5,000            5           1.25               0                 --
     1.5625             5,000            4           1.5625         1,666                  1.5625
     2                  5,000            4           2                  0                 --
     2.5              100,000            5           2.5                0                 --
     3                 87,500            4           3             27,666                  3
     4                  1,500            5           4                  0                 --
     4.72             207,231            0           4.72         207,231                  4.72
     5                 51,500            5           5             33,333                  5
     5.125            192,000            2           5.125        171,998                  5.125
     5.375             60,000            1           5.375         60,000                  5.375
     6                 31,500            0           6             30,000                  6
     6.5               73,000            3           6.5           53,665                  6.5
     6.875             15,000            3           6.875         15,000                  6.875
     7                106,500            3           7             71,000                  7
     7.56              43,500            3           7.56          29,000                  7.56
    15.825             10,000            3          15.825          3,333                 15.825
    16                 50,000            3          16                  0                 --
    16.3125            25,000            3          16.3125         8,333                 16.3125
    16.5               25,000            3          16.5            8,333                 16.5
    18.5               75,000            3          18.5           25,000                 18.5
    23                 32,000            3          23             10,666                 23
                    ---------                                     -------

                    1,251,231                                     756,224
                    =========                                     =======
</TABLE>

NOTE G - EMPLOYMENT CONTRACT

      In January 1998, the Company entered into a five-year employment contract
      with the Company's Chief Executive Officer providing for an increase in
      annual base compensation from $265,000 to $350,000, plus stock options and
      cash bonuses based upon the achievement of certain net income levels of
      the Company. These income levels were not achieved, and, therefore, the
      additional compensation provisions of the contract were not in effect for
      1998 and 1999.


                                      F-18
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE H - LITIGATION

      Spinello Lawsuits

      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 tortuous 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.

      As a result of various pretrial motions, the only claims remaining in the
      litigation with Dr. Spinello were Milestone's claims against Dr. Spinello
      and Dr. Spinello's counterclaim for unpaid salary for the period
      subsequent to his alleged wrongful termination, and a portion of his
      indemnification claim against Spintech.

      In January 2000, prior to trial, the Company agreed to settle with Dr.
      Spinello, the counterclaims asserted against Dr. Spinello and the claims
      asserted by Glenn Spinello. Various stipulations incorporating that
      settlement were executed in February 2000.

      Under the agreement, Dr. Spinello has assigned to Milestone any rights
      which he has to technology relating to "The Wand(R)" handpiece or
      technology developed while he was employed at Spintech and has agreed to
      cooperate in filing and to assign to Milestone any future patent
      applications covering that technology. Dr. Spinello and Glenn Spinello
      each also agreed to convey to Milestone all of his equity interests in
      Spintech. In return for the assignment of technology, the conveyance of
      Spintech equity and the resolution of all disputes between the parties,
      including the discontinuance with prejudice of pending legal actions,
      Milestone has paid $25,000 to Dr. Spinello and has agreed to issue to him
      a number of shares of Common Stock equal to the greater of 80,000 shares
      or shares with a market value of $80,000 and to issue to Glenn Spinello
      8,000 shares.


                                      F-19
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE H - (continued)

      Class Action Lawsuit

      In 1998, several class action lawsuits were commenced against the Company,
      certain present and former executive officers, one outside director and
      consultants in the United States District Court for the District of New
      Jersey. The District Judge before whom the cases are pending has entered
      an order consolidating all of the class actions into one consolidated
      action. The Complaints contain generally overlapping and similar
      allegations of violations of the Securities Exchange Act of 1934,
      including allegations that the Company and certain of the other defendants
      violated the Act by issuing false and misleading financial statements and
      disseminating misleading statements about, among other things, the demand
      for the Company's principal product, its expected sales growth, the
      acceptance of that product by dental professionals, shipments during
      certain time periods and misrepresentations as to third-party evaluations
      of the efficacy of the product through failure to disclose the issuance of
      stock options to certain consultants. On October 22, 1998, the District
      Judge entered an order appointing lead plaintiff to represent the
      interests of all class members. On March 28, 1999, the District Judge
      appointed lead counsel to represent the class. On April 28, 1999, the
      class filed a Consolidated and Amended Class Action Complaint, naming as
      defendants the Company and three present and former executive officer and
      director. The Consolidated Complaint alleges that the Company issued false
      and misleading statements concerning, among other things, certain studies
      and reports on the Company's products, the Company's backlog and the
      amount of reserve taken for returns. Milestone believes that the material
      allegations of the Consolidated Complaint does not state a cause of action
      under the Federal Securities Law and on May 21, 1999 served a motion to
      dismiss the Consolidated Complaint for failure to state a claim. The class
      has responded to the motion and the Company filed a reply. The Motion was
      submitted to the Court in September 1999, but no decision has yet been
      rendered. Instead, on March 1, 2000, the Court held oral argument on the
      Motion to Dismiss, at the end of which the court requested supplemental
      memoranda of law on one issue. The Supplemental Memoranda Of Law were
      filed on March 16 and 22, 2000. If the Motion to Dismiss is not granted,
      the company believes that the allegations contained in the class Action
      Complaint are without merit and it intends to vigorously defend the
      action. Specifically, Milestone believes that its financial statements
      presented fairly its results of operations, that the information which it
      has publicly disclosed did not contain any material misstatements or
      misrepresentations and that stock options issued to persons who published
      research reports were issued for other services for the Company,
      principally service as spokespersons and demonstrators of the Company's
      product. Further, the Company continues to believe that The Wand(R)
      embodies superior technology, is a major advance in dentistry and may
      ultimately become the accepted method for delivering local dental
      anesthesia.


                                      F-20
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1998

NOTE H (continued)

      Derivative Action Lawsuit

      In February 1999, a purported owner of Milestone stock, commenced a
      derivative action on behalf of the Company, in the Court of Chancery of
      the State of Delaware in Newcastle County, against certain present and
      former executive officers and directors. In the action, plaintiff alleges
      that, based on the same facts as the class actions described above, the
      defendants engaged in violations of the securities laws, committed fraud
      and securities fraud, wasted corporate assets and damaged the Company's
      reputation. As a derivative action, even if the plaintiff is successful,
      any award, after deduction of plaintiff's costs and disbursements, would
      be payable to the Company. Nevertheless, Milestone believes that the
      material allegations of the complaint lack merit and intends to provide a
      legal defense for its present and former officers and directors in
      accordance with the indemnification provisions of its Certificate of
      Incorporation. Because the allegations of the Derivative Complaint are so
      closely tied to the allegations of the Class Complaint, the Derivative
      Plaintiff's counsel has agreed with the Company that no response to the
      Derivative Complaint is due until 60 days after the Court in the Class
      Action decides the motion to dismiss.

      Insurance Broker and Carrier

      In January 1999, the Company filed a complaint against its insurance
      broker (Frank Crystal Financial Services) and the two excess insurers
      [American Alliance and St. Paul] in the United States District Court for
      the District of New Jersey. American Alliance and St. Paul were in dispute
      with the Company because they claim that the Company did not timely submit
      the appropriate application. As a result, American Alliance refused to
      issue a policy and St. Paul, which issued a policy, has refused to cover
      the class actions described above. In April 1999, the Company reached a
      settlement of this action, as a result of which American Alliance issued
      the Excess Director's and Officer's Insurance Policy; the Company agreed
      that claims arising prior to the date of the policy were not covered by
      the policy and the parties reserved all of their arguments and positions
      with respect to any other coverage issues including those that resulted
      from the Consolidated and Amended Class Action Complaint referred to
      above.


                                      F-21
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE H (continued)

      On June 24, 1999 American Alliance filed a complaint in the United States
      District Court for the Southern District of New York seeking a declaratory
      judgment that it is not liable under its policy for the claim asserted in
      the amended class complaint as well as the derivative complaint. The
      Company intends to vigorously defend against the American Alliance action
      and intends to move to dismiss that action. On July 9, 1999 the Company
      filed its own declaratory judgment action against American Alliance and
      St. Paul in the United States District Court for the District of New
      Jersey seeking a declaration that the claims asserted in the Consolidated
      Complaint in the Class Action and in the Derivative Action are covered by
      the Excess Director's and Officer's Insurance Policies. On August 4, 1999,
      the District Judge in New Jersey administratively terminated the Company's
      action until the previously filed New York Action was resolved or
      dismissed. Thereafter, the Company filed an answer and counterclaim in the
      New York Action seeking the same relief as it sought in its complaint in
      the New Jersey Action. Both American Alliance and the Company each
      requested leave from the Judge in the New York Action to make a motion for
      summary judgment and to dismiss the complaint, respectively. Instead,
      since any decision on the scope of coverage of the excess policies will,
      in large part, depend upon whether the Class Action complaint is
      dismissed, in whole or in part, the District Judge in the New York Action
      decided to hold in abeyance any action on American Alliance's complaint
      and Milestone's answer and counterclaim until a decision is rendered by
      the District Court in New Jersey in the Class Action.


                                      F-22
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE I - INCOME TAXES

      Deferred tax attributes resulting from differences between financial
      accounting amounts and tax bases of assets and liabilities at December 31,
      1999 and 1998 follow:

                                                        1999           1998
                                                     -----------    -----------

      Current assets and liabilities
          Allowance for doubtful accounts            $    39,000    $    64,000
          Inventory allowance                          1,000,000      1,015,000
          Other                                            6,000          4,500

      Valuation allowance                             (1,045,000)    (1,083,500)
                                                     -----------    -----------

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

      Noncurrent assets and liabilities
          Depreciation                               $   (57,000)   $  (213,000)
          Net operating loss carryforward              9,400,000      4,745,000
                                                     -----------    -----------

                                                       9,343,000      4,532,000
      Valuation allowance                             (9,343,000)    (4,532,000)
                                                     -----------    -----------

      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 realizable.

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, 1999, the Company had net operating loss carryforwards of
approximately $23,535,000, which expire in 2007 through 2019.


                                      F-23
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

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

      In November 1996, the Company signed a five-year-and-one-month lease
      agreement for its corporate headquarters. In October 1999, the company's
      distribution center was consolidated from 2 units to one larger unit in
      the same business complex. Furthermore, in April 1999 the Company closed
      its Telemarketing Department, and was able to opt out of a three-year
      lease agreement set to expire March 2000.

      The Company also leases equipment under operating leases.

      The following represents approximate minimum rental payments under such
      leases:

                       Year ending December 31,
                            2000                              $134,343
                            2001                               126,094
                            2002                                48,774
                            2003                                51,509
                                                              --------

                                                              $360,720
                                                              ========

      Rent expense was approximately $136,443 and $154,875, for the years ended
      December 31, 1999 and 1998, respectively.

NOTE K - RELATED PARTY TRANSACTIONS

      The Company paid approximately $131,632 and $239,000 in 1999 and 1998,
      respectively, to a law firm where one of the partners is also on the
      Company's Board of Directors. In addition, the law firm participated in
      the February 2000 private placement (Note O), purchasing $100,000 of 10%
      Senior Secured Promissory Notes and Warrants to purchase 14,286 shares of
      Milestone Common Stock.


                                      F-24
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE L - COMMITMENTS AND CONTINGENCIES

      1.    The Company has consulting agreements with two dentists, which
            provide for aggregate base compensation of $181,000 per annum. At
            the discretion of management, these agreements were amended in 1999
            and subsequently renewed. Furthermore, an amendment to one agreement
            limited one dentist's opportunity to receive, during a specified
            four month period, up to $100,000 in compensation for the difference
            between the proceeds received from the sale of up to 20,000 shares
            of Milestone Common Stock and the value of the shares if they had
            been sold at $5 per share, net of commission (See Note F).

      2.    The Company has informal arrangements for the manufacture of its
            products by separate domestic manufacturers as follows: The Wand(R)
            unit and system kit by Tricor Systems, Inc. ("Tricor"); The Wand(R)
            disposable handpiece by Nypro Inc.; SplatrFree(TM) prophy angles by
            Team Technologies, Inc.; and luer lock needles by Becton Dickinson.
            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.

      3.    The Company made advances to Tricor to fund certain inventory
            purchases. Tricor repays such advances from future purchases by the
            Company. At December 31, 1999, the Company had advanced net amounts
            of $1,707,789. The advances included in inventory, net of reserves,
            were $1,230,428. The Company has received a security interest in
            certain Tricor assets.

      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 fact that


                                      F-25
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

NOTE M - (continued)

      there exists no individually significant 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. In 1998, the Company had two
      customers who accounted for 24.6% and 22.6% of the Company's total sales.
      In 1999, since the Company changed its domestic sales approach to a direct
      effort, it had one customer who accounted for 15.7% of the Company's total
      sales. Of the $940,000 generated from foreign sales, no country comprised
      a significant amount thereof.

NOTE N - ADVERTISING

      The Company expenses its advertising costs as they occur. Advertising
      expense for 1999 and 1998 was approximately $1,053,000 and $1,761,000,
      respectively.

NOTE O - SUBSEQUENT EVENTS

      Private Placement

      As of February 1, 2000, the Company concluded a $1 million institutional
      private placement of 10% Senior Secured Promissory Notes due June 30, 2001
      and Warrants to purchase 142,857 shares of Milestone Common Stock with
      Cumberland Associates LLC, Strategic Restructuring Partnership L.P., a
      former principal of Cumberland Associates, two officers of the Corporation
      and an affiliate of one of its directors. The Notes are secured by all
      present and future inventories of Milestone and are prepayable out of a
      portion of the proceeds generated by sales of "Wand(R)" units. The
      Warrants are exercisable at prices increasing from $1.75 per share in the
      first year to $7.00 per share in the fifth year, subject to anti-dilution
      protection in the event of stock dividends and certain capital changes.
      Purchasers of the Warrants were granted rights to participate in certain
      future security offerings by Milestone.

      In a related transaction, holders of Milestone's 3% Convertible Notes have
      agreed to convert all $2,250,000 of such notes into common stock at a
      $1.25 per share. (See Note E)


                                      F-26
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998

      NOTE O - (continued)

      Resolution of Dispute with Dr. Ronald Spinello

      In February 2000, Milestone entered into an agreement with Dr. Ronald
      Spinello and Glenn Spinello, formerly Director of Research and Vice
      President of Operations, respectively of Milestone's Spintech subsidiary,
      resolving all disputes between the parties.

      Under the agreement, Dr. Spinello has assigned to Milestone any rights
      which he has to technology relating to "The Wand(R)" handpiece or
      technology developed while he was employed at Spintech and has agreed to
      cooperate in filing and to assign to Milestone any future patent
      applications covering that technology. Dr. Spinello and Glenn Spinello
      each also agreed to convey to Milestone all of his equity interests in
      Spintech. In return for the assignment of technology, the conveyance of
      Spintech equity and the resolution of all disputes between the parties,
      including the discontinuance with prejudice of pending legal actions,
      Milestone has paid $25,000 to Dr. Spinello and has agreed to issue to him
      a number of shares of Common Stock equal to the greater of 80,000 shares
      or shares with a market value of $80,000 and to issue to Glenn Spinello
      8,000 shares.