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, 2000

|_|   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, 2000, the revenues of the registrant were
$5,674,351.

      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 30, 2001 of $ 0.85 was approximately $9,581,920.

      As of March 30, 2001, the registrant has a total of 11,272,847 shares of
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


                                       2
<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 ...........   15

PART II
   Item 5.  Market for Common Equity and Related Stockholder Matters ......   16
   Item 6.  Management's Discussion and Analysis or Plan of Operations ....   19
   Item 7.  Financial Statements ..........................................   25
   Item 8.  Changes in and Disagreements With Accountants on
               Accounting and Financial Disclosure ........................   25

PART III
   Item 9.  Directors and Executive Officers, Promoters and
               Control Persons; Compliance with Section 16(a)
               of the Exchange Act ........................................   26
   Item 10. Executive Compensation ........................................   29
   Item 11. Security Ownership of Certain Beneficial Owners and Management    31
   Item 12. Certain Relationships and Related Transactions ................   33
   Item 13. Exhibits, List and Reports on Form 8-K ........................   33

                           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 87.0% 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)
originally was sold in the U.S. and Canada through major distributors of dental
products. A toll free number was established in January 1999, allowing dentists
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 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 until March 2000, when the Company signed a distribution agreement with
order minimums with Synca, a Canadian corporation.

      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 an agreement for the international distribution of The
Wand(R). In January 2000, the Company terminated its international distribution
agreement and entered a 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. In June,
Milestone entered distribution agreements for South and Central America,
including Mexico.

      In January 2001, Milestone entered into a three-year private equity line
of credit agreement with Hillgreen Investments Limited ("Hillgreen"), a British
Virgin Islands corporation, pursuant to which Hillgreen is obligated to
purchase, subject to the fulfillment of specified conditions, up to 2.1 million
shares of Milestone common stock, par value $.001 per share, (the "Common
Stock") over the next 36 months. Hillgreen has allocated up to $20 million to
fund its purchase obligations. The transaction was arranged by Jesup & Lamont
Securities Corporation, a New York-based investment banking firm. Milestone's
right to draw upon this facility is subject to a number of limitations and
conditions, including a limitation on the amounts sold to Hillgreen within
specified periods and the effectiveness of a resale registration statement
covering the securities to be purchased. Subject to these and other conditions
and limitations, Milestone will have full control over the timing of any
financing under the equity line and is under no obligation to sell any shares to
Hillgreen. Any shares that are sold will be priced at 87.5% of the volume
weighted average market price of Milestone Common Stock during a fixed period
prior to the sale. Milestone has discretion to establish a floor price below
which shares will not be sold to Hillgreen. The availability of this equity line
allows the Company to finance operations and move forward in developing its
medical product line.


                                       4
<PAGE>

      The Company also markets and sells (i)SplatrFree(TM) disposable prophy
angles and (ii) Luer Lock needles. Both currently are sold domestically,
directly to our 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 1999 and
2000, the Company increased its interest in Spintech to 87.0%, by exercising the
third and fourth 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 and by receiving shares from two former employees as part of a
settlement agreement. 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.

      In March 2001, Milestone was granted a broad new United States patent and
three related United States patents covering its CompuFlo(TM) technology, a new
technology for computer-controlled infusion of a wide array of liquid drugs and
other fluids, aspiration of bodily fluids and measurements of in-tissue
pressure. The CompuFlo(TM) technology is designed to reduce patient pain and
tissue tearing during injection procedures. Use of CompuFlo(TM) technology will
provide doctors with real time feed-back of flow rate, volume injected and
tissue pressure.

      The Company maintains its executive offices at 220 South Orange Avenue,
Livingston Corporate Park, Livingston, New Jersey 07039, and its telephone
number is (973) 535-2717.

Products

      The Wand(R) Computer Controlled Anesthetic Injection System is a computer
controlled local anesthetic delivery system developed by the Company. The
Company believes that The Wand(R) overcomes the typical problems associated with
conventional anesthetic injections. The slim, pencil-like shape of The Wand(R)
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 controlled rate of
anesthetic emission causes an anesthetic pathway, which anesthetizes the tissue
immediately ahead of the needle's penetration. 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
that 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 reducing the waiting time
required to see if the injection has taken effect before further anesthetic
injections. Also, with the October 1999 introduction of The Wand(R) Plus
disposable handpiece, aspiration time was reduced from 14 to 5 seconds. The
Company believes that The Wand(R) enables a dentist to provide virtually
painless injections, increases productivity, is more sanitary than traditional
methods of injections and that it provides important competitive advantages for
dentists trying to build and maintain their practices. While designed for use in
dentistry, The Wand(R) also may have uses in proctology, podiatry, urology and
possibly dermatology and plastic surgery. Although the Company has focused its
marketing of The Wand(R) on the dental market, it was granted approval in
September 1999 to sell The Wand(R) in Europe for medical use.

      While 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 administrating the injection. The resulting
uncontrolled


                                       5
<PAGE>

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 that 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) drive
unit, an initial supply of disposable handpieces and needles, an instructional
videotape and other educational material in January 1998. Prior thereto, a
pre-production prototype of The Wand(R) had been clinically tested in over 1,000
patients. Of those tested, 96% reported a "virtually painless" or significantly
less painful procedure than the traditional syringe injection. At that time,
three additional clinical studies were conducted on various aspects of The
Wand(R) performance and were published in major dental publications. Over the
last two years, three favorable evaluations were reported by independent testing
organizations. Additionally, ten domestic and nine international clinical
studies were completed in year 2000 and either published or submitted for
publication in major dental journals. To date, over 40 articles have been
published about The Wand(R).

      SplatrFree(TM) Prophy Angles. Prophy angles are dental accessories
incorporating a cup-like rubber 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
instruments 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
dental auxiliaries (including dental assistants).

      Since the Company began marketing The Wand(R), it has included Becton
Dickinson Luer Lock needles in its 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 advanced funds to Tricor. These
advances are reduced as Tricor makes shipments to the Company. Net advances to
Tricor as of December 31, 2000 and 1999 were $1,004,530 and 1,707,789,
respectively.

      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
of the ramp up of disposable handpiece sales.

      In 2000, the Company further evaluated the recoverability of its assets,
and as a result of continued losses from operations, it wrote off $956,546, the
remaining book value of its tooling equipment. The Company also wrote off
$1,247,175 in unamortized patents.

      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.


                                       6
<PAGE>

      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. Since December 1999, BD's dental partner, Crosstex
International, has handled needle purchases by the Company.

Marketing

      The Wand(R) originally was marketed to dental practitioners through a
group of dental distributors in the U.S. and Canada. In October 1999, 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 until March 2000, when the Company signed a distribution
agreement with order minimums with Synca, a Canadian corporation. In addition,
the Company has established regional sales territories in the U.S. and Canada.
As of December 31, 2000, these territories were staffed by twelve full time
sales people. 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 the
Company and its representatives. Currently, the Company has ten full time sales
people and two independent sales representatives.

      Marketing of The Wand(R) outside the U.S. is accomplished through
specified dental product distributors. The Company markets its other products
directly to its dental customers.

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's 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 17
schools providing degrees in dental hygiene.

Competition

      The Company faces intense competition from 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 improve its existing products,
bring its developmental products to market, and develop new products for its
related markets. In order to compete successfully, the Company must establish an
effective distribution network. Several regulatory authorities also must 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 succeed in improving 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


                                       7
<PAGE>

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. In
February 2001, a division of Dentsply International ("Dentsply") unveiled its
own "Computer Controlled Anesthetic Delivery System". The Company has not
completely assessed the competition presented by the produt but knows the
introduction of the Dentsply product serves to validate the technology implicit
in The Wand(R).

      SplatrFree(TM) prophy angles compete 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.

Dependence on a Few Major Customers

In 2000, the Company made sales to the following three customers in the
aggregate amount of approximately $1,891,000. Sales to New Image do Brasil
Import Export Ltda. (our distributor in Brazil), Milestone Medical Technologies
Ltd. (our distributor in Europe and Africa), and Yoshida Dental Manufacturing
Company (our distributor in Japan) represented 12%, 11% and 10% of sales for
2000, respectively. In addition, accounts receivable due from Milestone Medical
Technologies Ltd. at December 31, 2000 amount to approximately $354,000,
representing 67% of accounts receivable as of the end of the 2000. During the
year ended December 31, 1999, sales to one customer, AFP Imaging Corp., our
former international distributor, amounted to approximately $516,326 or 18% of
sales for that year. Each of the above named distributors resold the Company's
products to dental practitioners, principally in foreign markets.

Patents and Intellectual Property

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

<TABLE>
<CAPTION>
                                                                             U.S. Patent  Date of
                               Description                                     Number      Issue
                               -----------                                     ------      -----
<S>                                                                           <C>         <C>
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

Preservative Free Computer Controlled Drug Delivery System (The Wand(R)III)   6,200,289   3/13/01

Design for a Dental Anesthetic Delivery System Handle                          D427,314   6/27/00

Design for a Dental Anesthetic Delivery System Holder                          D422,361   4/4/00

Design for a Dental Anesthetic Delivery System Housing                         D423,665   4/25/00

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,
</TABLE>


                                       8
<PAGE>

<TABLE>
<S>                                                                           <C>         <C>
  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
</TABLE>

      The Company also has filed four additional United States utility patent
applications on improvements in The Wand(R) and its accessories, and two other
utility applications on related injection technology.

      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 has been approved and published by 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 products and information that the Company
regards as proprietary. Litigation may be necessary to protect the Company's
intellectual property rights and could result in substantial cost to and
diversion of effort by the Company with no guarantee of success. The failure of
the Company to protect its proprietary information and the expenses of doing so
could have a material adverse effect on the Company's operating results and
financial condition.

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


                                       9
<PAGE>

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 reasonably can be ensured through the use of special controls,
such as performance standards, post-market surveillance, patient registries, and
FDA guidelines. Class III devices are those 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.
However, the FDA may 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 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 their 510(k) Premarket Notification, there can be no
assurance that any of the Company's other products under


                                       10
<PAGE>

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,
whose regulations 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 also must 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.

      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 that 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 countries will require the Company to
obtain approvals, permits or licenses and comply with additional regulatory
schemes in those countries. 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), and The Wand(R) Plus, and the
Company has all necessary approvals, permits and licenses that are applicable to
its business, operations and products and services.


                                       11
<PAGE>

Product Liability

      Failure to use any of the Company's products in accordance with
recommended operating procedures potentially could 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. However, there can be no assurance that our insurance
coverage will be sufficient to pay products liability claims brought against the
Company. 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 2000 and 1999 fiscal years, the Company expensed $386,250 and
$455,332, respectively, on research and development activities.

Employees

      The Company had 34 full-time including three executive officers and 3
part-time employees at December 31, 2000. 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:

      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, 1999, and 2000 our revenues were approximately
$8.8 million, $2.9 million, and $5.7 million respectively. In addition, we have
had losses for each of the years ended December 31, 1995, 1996, 1997, 1998, 1999
and 2000 including a loss of approximately $7.5 million for 2000. At December
31, 2000, we had an accumulated deficit of approximately $35.4 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.

      Going Concern Limitation. The report of our independent auditors with
respect to our financial statements for the year ended December 31, 2000
included in this Annual Report states that there is substantial doubt regarding
our ability to continue as a going concern. There can be no assurance that our
existing operations will not continue to generate negative cash flows. However,
we believe that increased cash flows from operations during the current year,
coupled with savings from our post year end debt restructuring and new
financings, will increase to a level sufficient to satisfy our working capital
needs. See "Description of Business."

      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 unwilling 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 10,500 units of The Wand(R)
were sold in the U.S. over the past three years. The 1,900,000 in disposable
handpiece sales for 2000 reflect a low level of usage of The Wand(R). However,
from November 1999 through the present, the Company has experienced increased
disposable handpiece sales in the U.S. Since sales and rates of usage of our
products have not sufficiently improved, the Company has curtailed some
marketing efforts and relied on the gradual build-up of demand due to growing
awareness of the benefits of The Wand(R) technology resulting from additional
clinical studies. We cannot assure you that our current or proposed products
will be accepted by end users or that any of the current or proposed products
will be able to compete effectively against current and alternative products.


                                       12
<PAGE>

      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 debt restructuring and equity funding during the
first quarter of 2001, 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. We have no current arrangements for future
additional financing, except as disclosed herein. We cannot assure you that 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
diluted.

      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. In February 2001, a
division of Dentsply unveiled its own "Computer Controlled Anesthetic Delivery
System". The Company has not completely assessed the competition presented by
the product but knows the introduction of the Dentsply product serves to
validate the technology implicit in The Wand(R). Therefore, we must devote
substantial efforts and financial resources to improve our existing products,
bring our products to market quickly, and develop new products for related
markets. In addition, our ability to compete successfully requires 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
succeed in improving 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 depend on our ability to market and distribute The Wand(R)
successfully. During 1999, we relied, primarily on independent dental
distributors to sell The Wand(R) domestically and internationally. In January
2000, we terminated our international distribution agreement and entered into a
new one, giving our products entry into Japan, Great Britain, Germany, Israel,
South Africa, Scandinavia while retaining our presence in China and Taiwan.
Domestically, the efforts of our sales force in marketing The Wand(R) continued
to grow in 2000. As 2000 came to a close, the Company began to explore the use
of independent sales representatives to market The Wand(R) domestically, to
eliminate expenses associated with maintaining an in-house sales force.

      Patent and Intellectual Property Protection. We hold U.S. patents
applicable to the 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
products and information that 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 the existing or future patents
or proprietary rights of others. If so, 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 new manufacturing relationships could


                                       13
<PAGE>

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 on our business.

      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, financial
condition, and other relevant factors. We currently do not intend to declare any
dividends on our Common Stock in the foreseeable future.

      Control by Certain Persons. Our current officers and directors own
approximately 25% of the outstanding shares of our 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 that 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 that 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 marketed
commercially 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 also may be encountered in other countries. While
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


                                       14
<PAGE>

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 currently are 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 1,826,800 shares of our Common Stock at prices
ranging from $.875 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 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

Not applicable.

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

      (a)   Not applicable.

      (b)   Not applicable.

      (c)   Not applicable.


                                       15
<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 closing prices of our
Common Stock, 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.

                       Closing Price
                     High          Low
1999

First Quarter       $  3.00      $ .9375
Second Quarter      $ 1.875      $  1.00
Third Quarter       $  2.75      $ .6875
Fourth Quarter      $1.4375      $  .875

2000
First Quarter       $  6.00      $ .8125
Second Quarter      $4.1875      $1.0625
Third Quarter       $  3.25      $  1.75
Fourth Quarter      $2.1875      $  .875

      (b)   Holders

      As of February 26, 2001, the number of record holders of the Common Stock
of the Company was 141. The Company believes that there are more than 3,500
beneficial holders of the Common Stock.

      (c)   Dividends

      The holders of our 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.

Sales of Unregistered Securities

On January 31, 2000, the Company issued five-year warrants to purchase an
aggregate of 142,857 shares of Common Stock to holders of the Company's 10%
Secured Promissory Notes, including Cumberland Associates LLC, 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 warrants were issued as consideration for the loans made by
these investors to the Company at the time of issuance. Each of the warrants, as
originally issued, contained a provision gradually escalating its exercise price
from $1.75 in 2000 to a maximum of $7.00 in 2004. However, in April 2001, the
exercise price of these warrants was amended by


                                       16
<PAGE>

agreement between the Company and the warrantholders to provide for an exercise
price of $1.75 per share up to the date of maturity. The warrants were issued
pursuant to the exemption from registration under the Securities Act of 1933, as
amended (the "Act"), provided by Sections 4(2) and 4(6) of the Act.

Morse, Zelnick, Rose and Lander, LLP, legal counsel to the Company and the firm
in which Steve Zelnick, a Director and General Counsel to the Company, is
Partner, is the holder of warrants to purchase 118,000 shares of Common Stock
and warrants to purchase 83,333 units, each unit consisting of one share of
Common Stock and one warrant to purchase one share of Common Stock. On February
3, 2000, the Company reduced the exercise price of these warrants to $1.25 and
extended their exercise period to February 2, 2002. Consideration for the
amendments were legal services rendered to the Company by Morse, Zelnick, Rose &
Lander, LLP. The warrants originally were issued pursuant to the exemption from
registration under the Act provided by Sections 4(2) and 4(6) of the Act.

On July 31, 2000, the Company issued to a major existing investor a warrant to
purchase 70,000 shares of Common Stock at an exercise price of $3.00 per share.
On December 7, 2000, the Company issued to the investor a warrant to purchase
80,000 shares of the Common Stock at an exercise price of $1.25 per share. On
January 26, 2001, the Company issued to the investor an additional warrant to
purchase 20,000 shares of Common Stock at an exercise price of $1.875 per share.
Each of the aforementioned warrants are exercisable for five years from the date
of issuance and were issued as consideration for loans that the investor made to
the Company. The warrants were issued pursuant to the exemptions from
registration under the Act provided by Sections 4(2) and 4(6) of the Act.

On February 8, 2001, the Company issued to Cumberland Associates LLC, 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, an aggregate of 27,641 shares of Common Stock in payment of
interest on the 10% Secured Promissory Notes issued to these investors on
January 31, 2000. The stock was issued pursuant to the exemption from
registration under the Act provided by Sections 4(2) and 4(6) of the Act.

On January 22, 2001, the Company granted to Hillgreen Investments Limited
("Hillgreen") warrants to purchase 100,000 shares of Common Stock as
consideration for opening of an equity line of credit with the Company. In
addition, as consideration for the services rendered by Jesup & Lamont
Securities Corporation ("Jesup & Lamont") as placement agent in connection with
the equity line of credit, the Company granted to Jesup & Lamont warrants to
purchase 75,000 shares of Common Stock. The warrants issued to Hillgreen and
Jesup & Lamont are exercisable at any time prior to January 22, 2003 at a price
of $1.86 per share, and were issued pursuant to the exemptions from registration
under the Act provided by Sections 4(2) and 4(6) of the Act.

On January 30, 2001 the Company issued to Shaul Koren 92,308 shares of Common
Stock, as payment of consulting services performed by Mr. Koren, pursuant to
exemptions from registration under the Act provided by Sections 4(2) and 4(6) of
the Act.

On March 9, 2001, the Company issued to a major existing investor a warrant to
purchase 100,000 shares of Common Stock, exercisable at any time for five years
from the date of issuance at $1.10 per share, as consideration for the
investor's $500,000 loan to the Company. The warrants were issued pursuant to
the exemptions from registration under the Act provided by Sections 4(2) and
4(6) of the Act.

On March 30, 2001, the Company issued to a major existing investor 500,000
shares of Common Stock for $500,000 pursuant to exemptions from registration
under the Securities Act of 1933, as amended, provided by Sections 4(2) and 4(6)
of the Act. The stock was issued pursuant to the exemptions from registration
under the


                                       17
<PAGE>

Act provided by Sections 4(2) and 4(6) of the Act.

In March 2001, the Company signed an agreement with News USA, Inc. and Vested
Media Partners, Inc. to increase the awareness of healthcare professionals and
the public to the benefits of The Wand(R) and CompuFlo(TM) technologies. Under
the agreement, News USA, Inc. is required to prepare, write and seek to place in
newspapers and other media, articles about the Company's products and
technologies. As consideration for their services, the Company granted to News
USA, Inc. and Vested Media Partners, Inc. warrants to purchase an aggregate of
1,172,000 shares of the Company's Common Stock at prices increasing from $1.28
to $3.00 per share during the 3-year warrant term. The warrants were issued
pursuant to the exemptions from registration under the Act provided by Sections
4(2) and 4(6) of the Act.


                                       18
<PAGE>

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

During 2000, the Company took significant steps to grow The Wand(R) ownership
base and increase the daily utilization by domestic dentists. The Company
enlarged its direct sales force from 3 to 12 and increased its presence at
national, regional and local trade shows as part of its direct sales approach.

Internationally, the Company established additional distribution agreements,
which provide for the sale of The Wand(R) in Canada and throughout Central and
South America. The Company also received approval to sell The Wand(R) and its
disposable handpieces in Japan.

Furthermore, during this period of time, the Company received approval from the
FDA to market The Wand(R) to medical practitioners, raised $2,000,000 through a
private placement, established lines of credit totaling $1,200,000 and resolved
lawsuits pending against the Company.

Lastly, the Company recorded $2.2 million of aggregate writedowns of the
carrying values of tooling equipment and patents as a result of continued losses
and in accordance with generally accepted accounting principles.

Fiscal year ended December 31, 2000 compared to fiscal year ended December 31,
1999

Statement of Operations

Net sales for the year ended December 31, 2000 and December 31, 1999 were
$5,674,351 and $2,855,463, respectively. The $2,818,888 or 98.7% increase
reflects an approximate 124% increase in domestic sales of The Wand(R) and a 67%
increase in domestic sales of its disposable handpiece. For the twelve months
ended December 31, 2000, domestic sales of units of The Wand(R) increased by 960
to 1,737 and domestic disposable handpieces sales increased by 746,600 to
1,854,950, when compared to the same period in 1999. The increase in net sales
also includes an 81% aggregate increase in sales for foreign distributions. The
increase in foreign sales includes the shipment of 1000 units of The Wand(R) and
approximately 100,000 disposable handpieces to the Company's authorized dealer
in Japan. It also includes 2,100 units and 121,000 disposable handpieces for
distribution in Brazil and Mexico. These increases partially were offset by
$143,819 of net sales generated from the discontinued Wisdom toothbrush line
during 1999.

Cost of sales for the year ended December 31, 2000 and December 31, 1999 were $
3,626,786 and $1,572,319, respectively. The $2,054,467 increase is attributable
primarily to an increase in sales of The Wand(R) and its disposable handpieces
and a $956,546 writedown in the net book value of the Company's semi-automation
equipment and molds. The increase partially was offset by a $206,190 decrease in
cost of sales resulting from the termination of the Wisdom product line and the
effect of previously reserved inventory sold during the current year.

For the year ended December 31, 2000, the Company generated a gross profit of $
2,047,565 or 36% as compared to a gross profit of $1,283,144 or 44.9% for the
year ended December 31, 1999.

Selling, general and administrative expenses for the years ended December 31,
2000 and 1999 were $8,497,955 and $7,009,543, respectively. The $1,488,412
increase is attributable principally to the $1,247,175 patent writedown and
$520,975 in compensation expense representing 267,500 stock options issued to
consultants, which partially was offset by a $134,684 decrease in expenses
resulting from the termination of the Wisdom product line and other decreases in
legal and marketing expenses.


                                       19
<PAGE>

Research and development expenses for the year ended December 31, 2000 and
December 31, 1999 were $386,250 and $455,332, respectively. The $69,082
difference is attributable primarily to a decrease in costs associated with
product improvements.

In April 1999, the Company discontinued its selling effort with regard to the
Wisdom product line excluding Splatrfree(TM) prophy angles. Aggregate costs of
$76,345 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. During the fourth quarter
of 2000, the Company disposed of a trade show display for the Wisdom product
line with a net book value of $17,783.

Loss from operations for the years ended December 31, 2000 and 1999 were $
6,854,423 and $6,258,076, respectively.

The Company incurred interest expenses of $436,340 for the year ended December
31, 2000 as compared to $64,572 of interest expense for calendar 1999. The
$371,768 difference is attributable to a higher average interest rate on lower
average borrowings in 2000, $377,963 of non-cash interest representing
amortization of the debt discount, deferred financing costs associated with the
detachable warrants from the $1,000,000 credit line established in August, 2000,
the $1,000,000 private placement established by February 1, 2000, and certain
warrants issued to financing advisors that were extended and repriced by the
Company during 2000. Interest income generated from treasury bills during 1999
as compared to minimal investments during the same period in 2000, accounted for
the $72,188 decrease in interest income for the year ended December 31, 2000.
Also, as a result of a reduction in the conversion price of the 3% convertible
notes, the Company recorded a non-cash debt conversion expense of $731,250 in
1999.

In February 2000, the Company settled a lawsuit with two former employees,
Ronald Spinello, DDS, former Chairman and Director of Research of Spintech and
his son, Glen Spinello. Milestone paid $25,000 to Dr. Spinello and issued to him
80,000 shares and to Glen Spinello 8,000 shares. Since the market price of the
shares was $2.3125 per share, the Company recognized a $228,500 expense for the
settlement.

The net loss for the year ended December 31, 2000 was $7,509,855 as compared to
a net loss of $6,972,312 for the year ended December 31, 1999. The $537,543
increase in net loss is attributable to $2,203,721 in asset writedowns from
impairment, an increase in selling, general and administrative expenses, an
increase in interest expense, a decrease in interest income, and the cost to
settling litigation. The above items were offset partially by a 98.7% increase
in aggregate sales revenue for The Wand(R) and its disposable handpiece, the
recovery of a portion of previously reserved inventory, a reduction in research
and development expenses, debt conversion expenses of $731,250 recognized in
1999, and the elimination of expenses associated with the termination of the
Wisdom product line.

Liquidity and Capital Resources

At December 31, 2000, Milestone's working capital was $111,039.

For the year ended December 31, 2000, cash and cash equivalents decreased by
$69,976.

For the year ended December 31, 2000, the Company's net cash used in operating
activities was $2,842,677, attributable principally to a net loss of $7,509,855
adjusted for non-cash items of $244,549 for patent amortization, $377,913 for
non-cash interest, $474,071 for depreciation, $520,975 for non-cash consulting
expenses, a $956,546 loss on impairment of fixed assets, a $1,247,175 loss on
impairment of patents, a $17,783 loss on a disposed trade show display, and
$203,500 for the non-cash portion of a lawsuit settlement. Changes in operating
assets and liabilities consist of a $231,766 increase in accounts receivable, a
$373,187 net decrease in inventory and advances to a contract manufacturer, a
$39,924 decrease in prepaid expenses; an $11,953 decrease in accrued expenses, a
$141,346 increase in deferred compensation, a $130,416 increase in accrued
interest and a $152,407 increase in accounts payable.


                                       20
<PAGE>

For the year ended December 31, 2000, the Company used $51,773 in investing
activities. These expenditures covered retooling costs for product
modifications, leasehold improvements, and additional furniture and fixtures.

Financing activities provided $2,824,474 for the period. The Company, as
described below, raised $2,000,000 through private placements, drew down
$1,100,000 in aggregate from two credit lines (including $200,000 provided by
the Company's Chairman and Chief Executive Officer) and converted $2,250,000 of
debt to equity. As of December 31 2000, it made $243,005 in aggregate principal
payments and $58,727 in cash interest payments to these note holders. Additional
notes for $18,333 were issued in lieu of interest during 2000 and 27,641
additional shares were issued subsequent to year end in lieu of payment of
interest.

As of December 31, 2000, the Company had $172,867 in aggregate cash and cash
equivalents. In addition, as of March 31, 2001, the Company, as described below,
had received an additional $1,000,000 in new financing from existing major
investors and obtained an equity commitment subject to certain conditions for up
to 2.1 million shares of its Common Stock. 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 during the first quarter of 2001, it will have
sufficient cash to meet its needs over the next twelve months.

Private Placements

20% Promissory Notes

In August 2000, Milestone borrowed $1,000,000 from two funds managed by
Cumberland Associates LLC pursuant to a 2-year secured loan, bearing interest at
20% per year and payable in cash or through the issuance of additional 20% notes
on which both interest and principal are payable at the maturity of the loan.
The loan is prepayable in cash at any time, and is prepayable, with accrued
interest, in Milestone Common Stock after March 31, 2001. Stock issued in
payment of this debt will be valued at 85% of the then market prices.

8% Promissory Note

On July 31, 2000 the Company entered a $1,000,000 Purchase and Line of Credit
Agreement with a major existing investor. Initially, $500,000 was borrowed under
the line, which is due on June 30, 2003. In December 2000, the Company borrowed
an additional $400,000 under the line, which is due on December 31, 2003.
Pursuant to the agreement, the investor received a five-year warrant to purchase
70,000 shares of our Common Stock, exercisable at $3.00 per share, in connection
with the $500,000 loan and a five-year warrant to purchase 80,000 shares
exercisable at $1.25 per share in connection with the $400,000 loan.

9% Promissory Note

In April 2000, Leonard Osser, Chairman and CEO, agreed to provide to the Company
a $200,000 line of credit from which funds could be drawn until December 31,
2000, and having a maturity of February 2001. In July 2000, Milestone borrowed
the $200,000 under the line of credit. Mr. Osser has agreed to defer all
principal and interest payments until April 30, 2001.

10% Senior Secured Promissory Notes

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


                                       21
<PAGE>

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 The Wand(R). The warrants
originally were 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 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. In February 2000, the holders of the 3% Convertible Notes agreed to
convert all $2,250,000 of such notes into Common Stock at $1.25 per share. The
1,800,000 shares were registered by Milestone and issued in 2000.

DENTAL OPERATIONS

Domestic

In 2000, the Company continued steps aimed at growing and strengthening the end
user base, thereby increasing acceptance of The Wand(R) and translating into
increased revenue through higher disposable handpiece usage. Domestically, the
124% increase in The Wand(R) system sales and the 67% increase in disposable
handpiece sales is a direct result of the Company's October 1999 sales
initiative. It permitted 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. In September 2000, the
Company unveiled two domestic sales initiatives. It introduced a drive unit for
The Wand(R) Plus with several enhancements, including a cruise control feature.
Secondly, dental practitioners can now avail themselves of a 90 day trial
program, which requires a commitment to purchase specified quantities of
disposable handpieces and needles without any outlay for the unit during the
demonstration period. Of the 306 units of The Wand(R) active in the program at
year's end, 182 have been converted into sales. During 2000, the Company
increased its sales and customer service staffs and increased its presence at
trade shows. In addition, the Company has embarked on a campaign to increase the
number of national seminars it presents and to offer mini seminars in the
offices of proficient users. It also continues to a) provide assistance to
dental and dental hygiene schools which include The Wand(R) in their curriculum;
b) visit, obtain feedback from and provide further support to current users of
The Wand(R); c) distribute The Wand(R) technique videos and technical bulletins
to its current users; and d) sell additional units to current users of The
Wand(R).

Internationally

The Company continued to expand its presence overseas in 2000. In February 2000,
Milestone received approval to market The Wand(R) in Japan. Through December 31,
2000, the Company shipped 1,000 units and approximately 100,000 disposable
handpieces to its authorized dealers in Japan. During 2000, we entered
distribution agreements providing for sales of The Wand(R) in Canada, Mexico,
Brazil and remainder of Central and South America. Approximately, 2,500 units
and 300,000 disposable handpieces were shipped in aggregate to these areas in
2000. Previously, the Company had begun shipping The Wand(R) for distribution
throughout Europe and in Taiwan, China, Israel, and South Africa. Practitioners
in Great Britain, Germany and Italy make up the majority of the European end
users to date.


                                       22
<PAGE>

PROPOSED MEDICAL OPERATIONS

In June 2000, the Company received approval from the FDA to market The Wand(R)
for medical use. Once sufficient capital is raised, the Company intends to
create an independent sales and marketing staff for distribution to the medical
community. Further, a working prototype of a device for the delivery of
multi-volume medicaments and anesthetics, along with other added features of
interest to medical practitioners has been developed and was submitted to the
FDA for approval.

Subsequent Events

Subsequent to year-end, the Company achieved five major objectives. As mentioned
above, it received $1,000,000 in new financing from existing major investors,
restructured approximately $2,000,000 of existing debt and obtained an equity
commitment subject to certain conditions for up to 2.1 million shares of its
Common Stock. Furthermore, it reached an agreement with a media service company
to increase the awareness of healthcare professionals and the public to the
benefits of The Wand(R) and the Company's new CompuFlo(TM) technologies.
Finally, Milestone was granted a broad new U.S. patent covering the CompuFlo(TM)
technology.

EQUITY LINE COMMITMENT

In January 2001, Milestone entered a private equity line agreement with
Hillgreen Investments Limited ("Hillgreen"), a British Virgin Islands
corporation, pursuant to which Hillgreen is obligated to purchase, subject to
the fulfillment of specified conditions, up to 2.1 million shares of Milestone
Common Stock over the next 36 months. Hillgreen has allocated up to $20 million
to fund its purchase obligations. The transaction was arranged by Jesup & Lamont
Securities Corporation, a New York-based investment banking firm. Milestone's
right to draw upon this facility is subject to a number of limitations and
conditions, including a limitation on the amounts sold to Hillgreen within
specified periods, and the effectiveness of a resale registration statement
covering the securities to be purchased. Subject to these and other conditions
and limitations, Milestone will have full control over the timing of any
financing under the equity line and is under no obligation to sell any shares to
Hillgreen. Any shares that are sold will be priced at 87.5% of the volume
weighted average market price of Milestone Common Stock during a fixed period
prior to the sale. Milestone has discretion to establish a floor price below
which shares will not be sold to Hillgreen. The availability of this equity line
allows the Company to finance operations and move forward in developing its
medical product line.

$1,000,000 IN NEW FINANCING

During the first quarter of 2001, Milestone received $1,000,000 in new financing
from existing major investors: $500,000 pursuant to a line of credit in support
of its demo program for The Wand(R) and $500,000 from the private placement of
500,000 shares of Common Stock. Milestone will pay a 2% facility fee on the line
of credit and interest at the rate of 10% per annum on monies borrowed, less
interest earned on unborrowed funds. In addition, the lender received a warrant
for the purchase of up to 100,000 shares of Milestone's Common Stock at a per
share purchase price of $1.10.

DRAW DOWN ON EXISTING LINE OF CREDIT

On January 26, 2001, the Company borrowed the remaining $100,000 under its
Purchase and Line of Credit Agreement with a major existing investor, dated July
31, 2000. The loan is due on December 31, 2003. The Company granted to the
investor a five-year warrant to purchase 20,000 shares of our Common Stock,
exercisable at $1.875, as consideration for the loan.


                                       23
<PAGE>

ADDITIONAL PATENT PROTECTION FOR THE WAND(R)

In January 2001, Milestone was granted a new United States patent relating to
certain elements of the handpiece for The Wand(R). The improvements covered by
the new patent afford the user greater tactile control over the handpieces and
needle and thereby assure precise needle placement.

ISSUANCE OF BROAD NEW UNITED STATES PATENT

In March 2001, Milestone officially was granted a broad new United States patent
and three related United States patents covering its CompuFlo(TM) technology, a
new technology for computer-controlled infusion of a wide array of liquid drugs
and other fluids, aspiration of bodily fluids and measurement of in-tissue
pressure. The CompuFlo(TM) technology is designed to reduce patient pain and
tissue tearing during injection procedures. Use of the CompuFlo(TM) technology
will provide doctors with real time feed-back of flow rate, volume injected and
tissue pressure. The technology automatically will collect clinical data on the
volume of drugs injected and treatment performed, creating a treatment record
that should help reduce medical errors in hospitals and medical offices. The
technology also can be adapted for home use devices. Devices using the new
technology will employ a newly developed single-use disposable handpiece. The
new technology was developed for Milestone by Dr. Mark Hochman, Milestone's
Director of Research and Development.

AGREEMENT WITH MEDIA SERVICES COMPANY TO BOOST EXPOSURE

In March 2001, Milestone signed an agreement with News USA, Inc. and Vested
Media Partners, Inc. to increase the awareness of healthcare professionals and
the public to the benefits of its The Wand(R) and CompuFlo(TM) technologies
Under the agreement, News USA is required to prepare, write and seek to place in
newspapers and other media, articles about Milestone's products and
technologies. News USA has guaranteed 72,000 media placements during the
18-month term of the agreement. In return for their services, News USA and
Vested Media Partners have received warrants for an aggregate of approximately
1,172,000 shares exercisable at prices increasing from $1.28 to $3.00 during the
3-year warrant term.

RESTRUCTURING OF EXISITNG DEBT

      10% Senior Secured Promissory Notes

In April 2001, the Company restructured its obligations to the holders of its
10% Senior Secured Promissory Notes, which reduced the Company's cash burden.
Under the terms of the agreement, each of the Noteholders agreed to exchange his
10% Notes for a new, zero coupon note (the "Zero Coupon Note") (a) paying
interest at 20% per annum until maturity on March 31, 2002, (b) having a face
amount equal to the outstanding principal owed to the noteholders plus accrued
interest and interest payable until maturity, (c) giving Milestone the option to
pay the face amount of the Zero Coupon Note in cash or in shares of Common
Stock, provided that the shares have been registered under the Securities Act of
1933, (d) paying each noteholder 108% of the face amount of his Zero Coupon
Note, including unearned interest to maturity, if there is a change of control
of Milestone. Moreover, the warrants previously issued to the noteholders were
amended to provide for an exercise price of $1.75 per share up to the date of
maturity.

      20% Promissory Notes

In April 2001, the Company restructured its existing obligations to the holders
of its 20% Promissory Notes. The 20% Notes were amended to make them prepayable
with accrued interest (a) in cash at any time before maturity, (b) in shares of
Common Stock at any time after issuance but before July 31, 2002 if the Common
Stock, valued as set forth in the notes, is at least $5.00 per share, or (c) in
shares of Common Stock, valued as set forth in the notes, on or after July 31,
2002. Stock issued in payment of this debt will be valued at 85% of the then
market prices.


                                       24
<PAGE>

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


                                       25
<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, 2000 are as follows:

                                                                        Director
       Name                  Age             Position                    Since
--------------------------------------------------------------------------------
Leonard A. Osser             53   Chairman and Chief Executive            1991
                                  Officer of the Company and
                                  President and Chief Executive
                                  Officer of Spintech, a subsidiary

Thomas M. Stuckey            46   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)       62   Director of the Company                 1996

Paul Gregory                 63   Director of the Company                 1997

Louis I. Margolis (1) (2)    57   Director of the Company                 1997

Leonard M. Schiller(2)       59   Director of the Company                 1997

Daniel Martin                62   Director of the Company                 1998

----------

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


                                       26
<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 engaged primarily 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.

      Thomas M. Stuckey has been Chief Financial Officer and Vice President of
the Company and 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 product 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.

      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.

      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.


                                       27
<PAGE>

      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. All compensation
arrangements between the Company and its directors, officers and affiliates are
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. In July 2000, the five independent board
members were granted 12,422 options at an exercise price of $1.61.

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 2000.


                                       28
<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, 2000,
1999, and 1998 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 2000 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

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

Leonard A. Osser
    Chief Executive     2000    124,061(2)        50,000
    Officer and         1999    191,135(3)        50,000
    Chairman            1998    280,395(4)        50,000

Mitchell G Kuhn (1)     2000    183,789           45,000
    Chief Operating     1999     73,038          109,000
    Officer &
    President

Thomas M. Stuckey       2000    114,051           25,000
   Chief Financial      1999    119,922           21,000                  --
   Officer and Vice     1998     78,124           25,000              10,000(5)
   President

----------

(1)   Resigned as Chief Operating Officer and President on March 9, 2001.
(2)   Excludes $141,346 in deferred compensation but includes $21,000 earned as
      President and Chief Executive Officer of Spintech.
(3)   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.
(4)   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.
(5)   1999 Bonus.


                                       29
<PAGE>

Stock Options

      The following tables show certain information with respect to incentive
and non-qualified stock options granted in 2000 to Named Executives under the
Company's 1997 Stock Option Plan and the aggregate value at March 30, 2001 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.

                              Option Grants in 2000

Individual Grants of Options

                      Number of       Percent of
                      Shares of     Total Options
                     Common Stock     Granted to    Exercise
                      Underlying     Employees in     Price
      Name             Option #          2000        ($/Sh)     Expiration Date
-------------------  -------------  -------------------------  -----------------
Leonard A. Osser      50,000 (1)        21.8%       $  .875        01-01-05
Mitchell G. Kuhn      45,000 (2)        19.7%       $2.1875        07-13-05
Thomas A. Stuckey     21,000 (2)        10.9%       $2.1875        07-13-05

----------
(1)   Options vest 01-01-01
(2)   One third vesting on each anniversary.

                     Aggregated 2000 Year End Options Values
                  for Options granted prior to and During 2000

                        Number of Shares of Common
                       Stock Underlying Unexercised      Value of Unexercised
                                 Options at               In-The-Money Options
                                 12-31-2000                 At 12-31-2000 (1)
      Name               Exercisable/Unexercisable     Exercisable/Unexercisable
------------------       -------------------------     -------------------------
Leonard A. Osser            200,000 // 100,000                 $0 // $0
Mitchell G. Kuhn             36,333 // 117,667                 $0 // $0
Thomas M. Stuckey             30,666 // 40,334                 $0 // $0

----------

(1)   Based on the closing price on March 30, 2001 of $.85 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.


                                       30
<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 remained in effect until August 5,
2000. At that time, Mr. Osser began to defer his salary at the $350,000 annual
base. At December 31, 2000, his deferred compensation was $141,346.

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. On July 31, 2000, each of the five independent
board members were granted 12,422 options at an exercise price of $2.19 per
share. This equated to a fair market value of $20,000 using the Blad-Scholes
method. The options are five year options which vest in two years.

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The following table, together with the accompanying footnotes, sets forth
information, as of March 30, 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 .................................    2,436,775(3)      21.62%

Thomas M. Stuckey .............................       47,500(4)          *

Paul Gregory ..................................       26,361(5)          *

Louis I. Margolis .............................       90,211(6)          *

Leonard M. Schiller ...........................       46,805(7)          *

Stephen A. Zelnick ............................      173,974(8)       1.54%

Daniel R. Martin ..............................        8,311(9)          *

All Directors & Officers as a group ...........    2,829,937(10)     25.14%

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


                                       31
<PAGE>

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

   Cumberland Associates, LLC
   1114 Avenue of the Americas
   New York, New York 10036                    1,897,464(11)          17.6%

   Gintel Asset Management, Inc.
     6 Greenwich Office Park
     Greenwich, CT 06831                       1,374,700(12)          12.64%

(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, 23 Whippoorwill Rd., Armonk, NY 10504; 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 10,772,847
      were outstanding on March 9, 2001. The Gintel sales of 500,000 share
      occurred at the end of the March.
(3)   Includes (i) an aggregate of 300,000 shares issuable upon exercise of
      stock options within 60 days of the date hereof, 50,000 of which are
      exercisable at $16.00 per share and 50,000 of which are exercisable at
      $1.00 per share and 50,000 of which are exercisable at $.875 per share and
      106,000 of which are exercisable at $7.00 per share and 43,500 of which
      are exercisable at $7.56 per share and (ii) warrants immediately
      exercisable to purchase 35,714 shares at $1.75 per share.
(4)   Includes 21,000 shares subject to stock options, exercisable within 60
      days of the date hereof at $3.00 per share and 25,000 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, 20,000 shares subject to
      stock options, exercisable within 60 days of the date hereof at $5.125 per
      share and 6,211 shares subject to stock options, exercisable within 60
      days of the date hereof at $2.1875 per share.
(6)   Includes 20,000 shares subject to stock options, exercisable within 60
      days of the date hereof at $5.125 per share and 6,211 shares subject to
      stock options, exercisable within 60 days of the date hereof at $2.1875
      per share.
(7)   Includes 20,000 shares c $5.125 per share and 6,211 shares subject to
      stock options, exercisable within 60 days of the date hereof at $2.1875
      per share.


                                       32
<PAGE>

(8)   Includes (i) an aggregate of 56,211 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 6,211 of which are exercisable at $2.1875 per
      share and (ii) warrants immediately exercisable to purchase 7,143 shares
      at $1.75 per share.
(9)   Includes 6,211 shares subject to stock options exercisable within 60 days
      of the date hereof at $2.1875 per share.
(10)  Includes 484,055 shares subject to stock options and 42,857 shares subject
      to warrants all of which are exercisable within sixty (60) days of the
      date hereof.
(11)  Based solely upon an amendment to Schedule 13G filed by Cumberland
      Associates LLC with the Securities and Exchange Commission on 2/14/01.
(12)  Based solely upon an amendment to Schedule 13G filed by Gintel Asset
      Management, Inc. on 2/1/01.

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. 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. In April 2000, Mr. Osser provided the Company with a
$200,000 line of credit.

      Morse, Zelnick, Rose and Lander, LLP, legal counsel to the Company and the
firm in which Steve Zelnick, a Director and General Counsel to the Company, is
Partner, is the holder of warrants to purchase 118,000 shares of Common Stock
and warrants to purchase 83,333 units, each unit consisting of one share of
Common Stock and one warrant to purchase one share of Common Stock. On February
3, 2000, the Company reduced the exercise price of these warrants to $1.25 and
extended their exercise period to February 2, 2002. The Company paid $191,501
and $131,632 during the years ended December 31, 2000 and December 31, 1999,
respectively, to the same law firm noted above. The law firm and the Director
also participated in the February 2001 private placement, each purchasing
$50,000 of 10% Senior Secured Promissory Notes and warrants to purchase 7,143
shares of Milestone Common Stock.

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. (3)

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

   3.5      By-laws of the Company. (1)

   4.1      Specimen Stock Certificate. (2)

   4.2      Form of Purchase Agreement dated January 31, 2000 (4)

   4.3      Form of Registration Rights Agreement dated January 31, 2000 (4)

   4.4      Form of Security Agreement dated January 31, 2000 (4)

   4.5      Form of Agreement to convert 3% Senior convertible notes dated
            January 31, 2000 (4)


                                       33
<PAGE>

   4.6      Form of Warrant dated January 31, 2000 (4)

   4.7      Form of 10% Senior Promissory Note dated January 31, 2000 (4)

   4.8      $200,000 8% Secured Promissory Note dated July 31, 2000 (4)

   4.9      $300,000 8% Secured Promissory Note dated July 31, 2000 (4)

   4.10     Warrant dated July 31, 2000 (4)

   4.11     20% Secured Promissory Notes to LongView Partners A, L.P. and
            Cumberland Benchmarked Partners, L.P. each dated August 28, 2000 (4)

   4.12     Purchase and Line of Credit Agreement dated July 31, 2000 (4)

   4.13     Purchase Agreement dated August 25, 2000 (4)

   4.14     Private Equity Line of Credit Agreement between the Company and
            Hillgreen Investments Limited dated January 22, 2001. (5)

   4.15     Registration Rights Agreement, dated January 22, 2001, between
            Registrant and Hillgreen Investments Limited. (5)

   4.16     Escrow Agreement dated as of January 22, 2001, among Registrant,
            Hillgreen Investments Limited and Epstein Becker & Green, P.C. (5)

   4.19     Line of Credit Agreement dated March 9, 2001.

   4.20     Form of 10% Promissory Note, dated March 9, 2001.

   4.21     Registration Rights Agreement dated March 9, 2001.

   4.22     Amendment to Purchase Agreement Dated January 31, 2000, dated March
            16, 2001.

   4.23     Form of Senior Secured Promissory Note, dated March 16, 2001.

   4.24     Letter Agreement among the Company, Cumberland Benchmarked Partners,
            L.P. and LongView Partners A, L.P., dated March 23, 2001

   4.25     Form of revised 20% Secured Promissory Notes to LongView Partners A,
            L.P. and Cumberland Benchmarked Partners, L.P. dated August 28, 2000

   4.26     Letter Agreement, dated March 27, 2001, regarding the sale of
            500,000 shares of the Company's Common Stock.

   10.1     Lease dated November 25, 1996 between Livingston Corporate Park
            Associates, L.L.C. and the Company. (3)

   10.2     Form of Underwriter's Warrant. (2)


                                       34
<PAGE>

   10.3     Financial Advisory and Investment Banking Agreement entered into
            July 1, 1996 between GKN Securities Corp. and the Company. (3)

   10.4     Employment Agreement dated November 1, 1996 by and between the
            Company and Gregory Volok. (3)

   10.5     Lease, as amended, dated November 6, 1991 between Raybec Management
            Co. and Wisdom. (3)

   10.6     Employment Agreement made as of December 23, 1996 by and between
            Sagacity I, Inc. and Joel D. Warady. (3)

   10.7     Agreement for SDS Product dated September 1, 1996 between Spintech
            and Princeton PMC. (3)

   10.8     Agreement for The Wand(R)Product dated September 1, 1996 between
            Spintech and Princeton PMC. (3)

   10.9     Exclusive Distributorship Agreement between Wisdom Toothbrushes
            Limited and Sagacity I, Inc. (3)

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

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

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

   10.13    Purchase and Line of Credit Agreement dated July 31, 2000 (4)

   10.14    Purchase Agreement dated August 25, 2000 (4)

   10.15    Private Equity Line of Credit Agreement between the Company and
            Hillgreen Investments Limited dated January 22, 2001. (5)

   10.16    Registration Rights Agreement, dated January 22, 2001, between
            Registrant and Hillgreen Investments Limited. (5)

   10.17    Escrow Agreement dated as of January 22, 2001, among Registrant,
            Hillgreen Investments Limited and Epstein Becker & Green, P.C. (5)

   10.18    Line of Credit Agreement dated March 9, 2001 (provided as Exhibit
            4.19).

   10.19    Registration Rights Agreement dated March 9, 2001 (provided as
            Exhibit 4.21).

   10.20    Amendment to Purchase Agreement Dated January 31, 2000, dated March
            16, 2001 (provided as Exhibit 4.22).

   10.21    Letter Agreement, dated March 27, 2001, regarding the sale of
            500,000 shares of Common Stock (provided as Exhibit 4.26).


                                       35
<PAGE>

   10.22    Agreement among the Company, News USA, Inc. and Vested Media
            Partners, Inc., dated March 22, 2001.

   10.23    Letter from Leonard Osser and S Morse, Zelnick, Rose & Lander, LLP,
            dated April 9, 2000

   21.1     Subsidiaries of the Registrant. (3)

   23.1     Consent of Grant Thornton LLP

----------
   (1)      Incorporated by reference to the Company's Registration Statement on
            Form SB-2 No. 333-92324.

   (2)      Incorporated by reference to Amendment No. 1 to the Company's
            Registration Statement on Form SB-2 No. 333-92324.

   (3)      Incorporated by reference to the Company's Form 10-KSB for the year
            ended December 31, 1996.

   (4)      Incorporated by reference to the Company's Registration Statement on
            Form S-3 No. 333-39784.

   (5)      Incorporated by reference to the Company's Registration Statement on
            Form S-2 No. 333-54732.

   (6)      Incorporated by reference to the Company's Form 10-KSB for the year
            ended December 31, 1999.

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


                                       36
<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:  April 16,  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                   April 16, 2001        Chairman, and Chief
   ------------------------                               Executive Officer
         Leonard Osser

/s/Thomas M. Stuckey               April 16, 2001     Vice President and Chief
   ------------------------                               Financial Officer
         Thomas M. Stuckey

/s/Daniel R. Martin                April 16, 2001             Director
   ------------------------
         Daniel R. Martin

/s/Stephen A. Zelnick              April 16, 2001             Director
   ------------------------
         Stephen A. Zelnick

/s/Louis Margolis                  April 16, 2001             Director
   ------------------------
          Louis Margolis

/s/Leonard Schiller                April 16, 2001             Director
   ------------------------
         Leonard Schiller

/s/Paul Gregory                    April 16, 2001             Director
   ------------------------
         Paul Gregory


                                       37

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
    Milestone Scientific Inc.

We have audited the accompanying consolidated balance sheets of Milestone
Scientific Inc. and Subsidiaries as of December 31, 2000 and 1999 and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for each of the two years in the period ended December
31, 2000. 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 of America. 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, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company incurred net losses of $7,509,855 and
$6,972,312 for the years ended December 31, 2000 and 1999, respectively. Cash
used in operations amounted to $2,842,677 and $5,332,997 for the years ended
December 31, 2000 and 1999, respectively. As of December 31, 2000, the Company
also has a stockholders' deficit of $1,702,335 and its working capital is
$111,039. The Company's losses and limited capital resources raise substantial
doubt about its ability to continue as a going concern. Management's plans and
intentions regarding these matters are also discussed in Note B. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


GRANT THORNTON LLP

New York, New York
April 16, 2001


                                      F-1
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,

<TABLE>
<CAPTION>
                                     ASSETS                             2000              1999
                                                                    ------------      ------------
<S>                                                                 <C>               <C>
CURRENT ASSETS
    Cash and cash equivalents                                       $    172,867      $    242,843
    Accounts receivable, net of allowance for
       doubtful accounts of $160,244 and
       $79,814 in 2000 and 1999, respectively                            529,544           297,778
    Inventories                                                        1,039,377           709,305
    Deferred financing costs                                              71,328
    Prepaid expenses                                                     152,712           192,636
                                                                    ------------      ------------
           Total current assets                                        1,965,828         1,442,562
PROPERTY AND EQUIPMENT, net                                              273,141         1,669,769
ADVANCES TO CONTRACT MANUFACTURER                                        304,530         1,007,789
PATENTS, net                                                                             1,491,724
OTHER ASSETS                                                              10,318            10,318
                                                                    ------------      ------------
           Total assets                                             $  2,553,817      $  5,622,162
                                                                    ============      ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
    Account payable                                                 $  1,148,527      $    996,120
    Accrued expenses                                                     214,437           226,390
    Accrued interest                                                     150,479            20,063
    Note payable - officer/stockholder                                   200,000
    Deferred compensation payable to
        officer/stockholder                                              141,346
                                                                    ------------      ------------
           Total current liabilities                                   1,854,789         1,242,573
                                                                    ------------      ------------
NOTES PAYABLE - LONG TERM                                              2,401,363         2,250,000
                                                                    ------------      ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock, par value $.001; authorized,
       25,000,000 shares; 10,752,898 shares issued as of
       December 31, 2000 and 8,864,898 shares issued
       as of December 31, 1999                                            10,753             8,865
    Additional paid-in capital                                        34,584,473        30,877,375
    Accumulated deficit                                              (35,354,990)      (27,845,135)
    Deferred compensation                                                (31,055)
    Treasury stock, at cost, 100,000 shares                             (911,516)         (911,516)
                                                                    ------------      ------------
           Total stockholders' equity (deficit)                       (1,702,335)        2,129,589
                                                                    ------------      ------------
           Total liabilities and stockholders' equity (deficit)     $  2,553,817      $  5,662,162
                                                                    ============      ============
</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>
                                                                  2000             1999
                                                              ------------      -----------
<S>                                                           <C>               <C>
Revenues                                                      $  5,674,351      $ 2,855,463
Cost of sales (including a $956,546 impairment charge for
    tooling equipment)                                           3,626,786        1,572,319
                                                              ------------      -----------

         Gross profit                                            2,047,565        1,283,144
                                                              ------------      -----------

Selling, general and administrative expense (including a
    $1,247,175 impairment charge for patents)                    8,497,955        7,009,543
Research and development expense                                   386,250          455,332
Loss from termination of Wisdom product line                        17,783           76,345
                                                              ------------      -----------

                                                                (8,901,988)      (7,541,220)
                                                              ------------      -----------

         Loss from operations                                   (6,854,423)      (6,258,076)
                                                              ------------      -----------

Interest income                                                      9,408           81,586
Interest expense                                                  (436,340)         (64,572)
Debt conversion expense                                                            (731,250)
Litigation settlement                                             (228,500)
                                                              ------------      -----------

         NET LOSS                                             $ (7,509,855)     $(6,972,312)
                                                              ============      ===========

Loss per common share - basic and diluted                     $       (.72)     $      (.80)
                                                              ============      ===========

Weighted-average shares outstanding - basic and diluted         10,489,689        8,729,905
                                                              ============      ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                     Years ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                               Common stock           Additional
                                                         -----------------------       paid-in          Treasury
                                                            Shares       Amount        capital            stock
                                                         ----------     --------     ------------      -----------
<S>                                                      <C>            <C>          <C>               <C>
Balance, December 31, 1998                                8,817,882     $  8,818     $ 30,111,734      $  (911,516)

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

Net loss for the year ended December 31, 1999
                                                         ----------     --------     ------------      -----------

Balance, December 31, 1999                                8,864,898        8,865       30,877,375         (911,516)
                                                         ----------     --------     ------------      -----------

Warrants issued to consultants                                                            520,975
Common stock issued in settlement of litigation              88,000           88          203,412
Conversion of note payable into common stock              1,800,000        1,800        2,248,200
Costs associated with registering common stock                                            (32,521)
Options issued to directors                                                                62,110
Warrants issued with convertible notes                                                    502,830
Repricing of warrants issued to financing advisers                                        202,092
Net loss for the year ended December 31, 2000
                                                         ----------     --------     ------------      -----------

Balance, December 31, 2000                               10,752,898     $ 10,753     $ 34,584,473      $  (911,516)
                                                         ==========     ========     ============      ===========
<CAPTION>
                                                          Accumulated        Deferred
                                                            deficit        compensation         Total
                                                         ------------      -------------     -----------
<S>                                                      <C>               <C>               <C>
Balance, December 31, 1998                               $(20,872,823)                       $ 8,336,213

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

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

Balance, December 31, 1999                                (27,845,135)                         2,129,589
                                                         ------------                        -----------

Warrants issued to consultants                                                                   520,975
Common stock issued in settlement of litigation                                                  203,500
Conversion of note payable into common stock                                                   2,250,000
Costs associated with registering common stock                                                   (32,521)
Options issued to directors                                                $    (31,055)          31,055
Warrants issued with convertible notes                                                           502,830
Repricing of warrants issued to financing advisers                                               202,092
Net loss for the year ended December 31, 2000              (7,509,855)                        (7,509,855)
                                                         ------------      ------------      -----------

Balance, December 31, 2000                               $(35,354,990)     $    (31,055)     $(1,702,335)
                                                         ============      ============      ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                   2000             1999
                                                               -----------      -----------
<S>                                                            <C>              <C>
Cash flows from operating activities
    Net loss                                                   $(7,509,855)     $(6,972,312)
    Adjustments to reconcile net loss to net cash used in
      operating activities
        Patent amortization                                        244,549          263,950
        Noncash interest                                           377,963           36,438
        Depreciation                                               474,071          468,907
        Stock options issued to directors                           31,055
        Warrants issued to consultants                             520,975
        Common stock issued in litigation settlement               203,500
        Debt conversion expense                                                     731,250
        Loss on impairment of fixed assets                         956,546
        Loss on impairment of patents                            1,247,175
        Loss on disposal of fixed asset                             17,783
        Changes in assets and liabilities
          (Increase) decrease  in accounts receivable             (231,766)         133,129
          Increase in inventories                                 (330,072)        (944,043)
          Decrease in advances to contract manufacturer            703,259          482,211
          Decrease (increase) in prepaid expenses                   39,924          (65,373)
          Decrease in other assets                                                      280
          Increase in accounts payable                             152,407          451,415
          Increase in accrued interest                             130,416
          (Decrease) increase in accrued expenses                  (11,953)          81,151
          Increase in deferred compensation                        141,346
                                                               -----------      -----------
       Net cash used in operating activities                    (2,842,677)      (5,332,997)
                                                               -----------      -----------
Cash flows from investing activities
    Purchase of Treasury bills                                                   (3,753,000)
    Sale of Treasury bills                                                        7,020,940
    Capital expenditures                                           (51,773)        (106,806)
                                                               -----------      -----------
       Net cash (used in) provided by investing activities         (51,773)       3,161,134
                                                               -----------      -----------
Cash flows from financing activities
    Proceeds from note payable - officer/stockholder               200,000
    Proceeds from issuance of notes and lines of credit          2,900,000        2,250,000
    Principal payments on notes payable                           (243,005)        (150,000)
    Costs associated with registering shares                       (32,521)          (2,000)
                                                               -----------      -----------

       Net cash provided by financing activities                 2,824,474        2,098,000
                                                               ===========      ===========

       NET DECREASE IN CASH AND
          CASH EQUIVALENTS                                         (69,976)         (73,863)

Cash and cash equivalents at beginning of year                     242,843          316,706
                                                               -----------      -----------

Cash and cash equivalents at end of year                       $   172,867      $   242,843
                                                               ===========      ===========
</TABLE>


                                      F-5
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                             Year ended December 31,

                                                                  2000      1999
                                                                -------     ----

Supplemental disclosures of cash flow information:
   Cash paid during the year for
     Interest                                                   $58,727     $316
                                                                =======     ====

Supplemental schedule of noncash investing and financing activities:

      On February 1, 2000, warrants to purchase 142,857 shares at $1.75 per
      share were issued in connection with a $1,000,000 private placement of 10%
      notes. This resulted in a $226,519 debt discount and an equal increase in
      additional paid-in capital.

      Also in connection with the issuance of 10% notes on February 1, 2000, the
      Company repriced and extended the contractual life of 201,333 common stock
      purchase warrants (originally issued to advisors in 1997) and recorded
      $202,092 of deferred financing costs and an increase to additional paid-in
      capital.

      During 2000, warrants to purchase 70,000 shares at $3.00 per share (July
      31, 2000) and 80,000 shares at $1.25 per share (December 8, 2000) were
      issued in connection with the aggregate draw down of $900,000 of a
      $1,000,000 line of credit. This resulted in debt discounts of $136,046 and
      $76,375, respectively, and equal increases in additional paid-in capital.

      In December 1999, the Company recognized a $731,250 loss relating to the
      conversion of $2,250,000 of notes payable into common stock in January
      2000.

The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2000 and 1999

NOTE A - ORGANIZATION

      Milestone Scientific Inc. (formerly U.S. Opportunity Search, Inc.) (the
      "Company") was incorporated in the State of Delaware in August 1989. The
      Company has developed a patented dental anesthetic delivery system that it
      markets directly to dental practitioners in the United States and to
      distributors in nondomestic markets for sale to practitioners principally
      in Canada, South Africa and Asia. The Company's products are manufactured
      by third-party contract manufacturers under agreements expiring at various
      times through 2001 and 2002.

NOTE B - LIQUIDITY AND FINANCIAL CONDITION

      The Company incurred net losses of $7,509,855 and $6,972,312 for the years
      ended December 31, 2000 and December 31, 1999, respectively. Cash used in
      operations amounted to $2,842,677 and $5,332,997 for the years ended
      December 31, 2000 and December 31, 1999, respectively. As of December 31,
      2000, the Company also has a stockholders' deficit of $1,702,335 and its
      working capital is $111,039. These matters raise substantial doubt about
      the Company's ability to continue as a going concern. The Company's
      continued existence is dependent upon several factors, including its
      ability to generate operating cash flow via execution of its business
      plan, and secure financing sufficient to provide for its immediate working
      capital needs.

      The Company's policy is to continually evaluate the recoverability of its
      assets in accordance with accounting principles generally accepted in the
      United States of America. Due to the Company's history of generating
      losses on sales of its principal product, The Wand(R) , and uncertainty
      with respect to the predictability of future cash flows on product sales,
      the recoverability of a major portion of the recorded asset amounts shown
      in the accompanying balance sheets is in doubt. As a result of continued
      losses from operations, the Company determined that an impairment of
      certain assets has occurred. Accordingly, the Company recorded noncash
      charges of approximately $2,203,721 for the year ended December 31, 2000,
      representing the write-down of tooling equipment in the amount of $956,546
      and the unamortized portion of patents in the amount of $1,247,175.

      The Company is continuing to execute the business model described in Note
      A based on its belief that The Wand(R) is a major advance in dentistry and
      that it may ultimately become the preferred method of delivering local
      dental anesthesia. Accordingly, the Company has taken certain steps aimed
      at growing and strengthening the end user base of The Wand(R) including
      (i) restructuring its sales initiative in the United States by eliminating
      the use of distributors thereby permitting dentists in the United States
      to order The Wand(R) directly from the Company at more favorable prices,
      (ii) introducing The Wand(R) Plus drive unit with several enhancements
      including a cruise control feature and (iii) establishing relationships


                                      F-7
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE B (continued)

      with distributors in markets in Canada, South Africa and Asia in an effort
      to increase sales in foreign markets. The Company has also initiated a
      cost reduction program including eliminating a key executive position and
      the Chief Executive Officer has voluntarily agreed to a deferral of his
      salary. Management believes that the above steps are critical to the
      realization of the Company's long-term business strategy; however,
      substantial funding is still required to execute the Company's business
      plan and there can be no assurance that the successful execution of such
      business plan will actually improve the Company's operating results.

      As of December 31, 2000, the Company has a $1,000,000 line of credit with
      a significant investor who is also the holder of a 10% secured promissory
      note. Such line of credit had availability of $100,000 as of December 31,
      2000 that was drawn down in January 2001. In addition, the Company also
      restructured its obligations to the holders of its 10% Secured Promissory
      Notes (Notes H and O), which has had the effect of reducing the Company's
      immediate cash needs relating to the repayment of principal and obtained
      $1,000,000 in new financing from existing major investors, including
      $500,000 under a line of credit in support of its demo program for The
      Wand(R)  and $500,000 from the private placement of 500,000 shares of
      common stock.

      Additional financing is still required in order for the Company to sustain
      its operations through December 31, 2001. Management believes it has
      access to potential sources of capital including the possible issuance of
      additional debt and equity securities to existing and new investors;
      however, there are currently no firm commitments in place for sufficient
      financing and there can be no assurance that the Company will be
      successful in its efforts to raise sufficient capital needed within the
      time frame needed to sustain its operations through December 31, 2001.

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      1.    Principles of Consolidation

            The consolidated financial statements include the accounts of the
            Company and of its wholly-owned subsidiaries and its majority-owned
            subsidiary, Spintech. All significant intercompany balances and
            transactions have been eliminated in consolidation.

      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.


                                      F-8
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE C (continued)

      3.    Inventories

            Inventories principally consist of the current portion of advances
            to Tricor, the Company's contract manufacturer, in the amount of
            $700,000 for each of the years presented. Such advances will be
            drawn down as the Company places purchase orders with Tricor for the
            production of finished goods intended to be resold to dental
            practitioners. The remainder principally represents finished goods
            and component parts stated at the lower of cost (first-in, first-out
            method) or market.

      4.    Property and Equipment

            Property and equipment are recorded at cost, less accumulated
            depreciation. Depreciation expense is computed using the
            straight-line method over the estimated useful lives of the assets,
            which range from 3 to 7 years. The costs of maintenance and repairs
            are charged to operations as incurred.

      5.    Patents

            The excess of the Company's costs over the tangible net assets of
            Spintech has been allocated to patents and is being amortized over a
            period of ten years using the straight-line method (Note C-6).

      6.    Impairment of Long-Lived Assets

            The Company reviews long-lived assets for impairment whenever
            circumstances and situations change such that there is an indication
            that the carrying amounts may not be recovered. As indicated in Note
            B, the Company believes that an impairment of certain assets has
            occurred. Accordingly, the Company recorded, in the fourth quarter,
            a noncash charge of $2,203,731 for the year ended December 31, 2000,
            representing the write-down of tooling equipment and patents
            resulting from losses relating to sales of its principal product,
            The Wand(R) .

      7.    Revenue Recognition

            Revenue is recognized when title passes at the time of shipment.


                                      F-9
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE C (continued)

      8.    Research and Development

            Research and development costs are expensed as incurred

      9.    Income Taxes

            The Company uses the liability method of accounting for income
            taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes."
            Under this method, deferred income taxes, when required, are
            provided on the basis of the difference between the financial
            reporting and income tax bases of assets and liabilities at the
            statutory rates enacted for future periods.

      10.   Loss Per Common Share

            Net loss per share is presented under Statement of Financial
            Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share."
            In accordance with SFAS No. 128, basic and diluted net loss per
            share has been computed using the weighted-average number of shares
            of common stock outstanding during the period. Potentially dilutive
            securities have been excluded from the computation, as their effect
            is antidilutive. If the Company had reported net income, diluted
            earnings per share would have included the shares used in the
            computation of net loss per share plus common equivalent shares
            related to 1,708,801 and 1,251,231 outstanding options and warrants
            for the years ended December 31, 2000 and 1999, respectively.

      11.   Use of Estimates

            The preparation of the financial statements in conformity with
            accounting principles generally accepted in the United States of
            America requires management to make estimates and assumptions in
            determining the reported amounts of assets and liabilities and
            disclosure of contingent assets and liabilities at the date of the
            financial statements and reported amounts of revenues and expenses
            during the reporting period. Actual results could differ from those
            estimates.

      12.   Fair Value of Financial Instruments

            The carrying amounts reported in the balance sheet for cash,
            accounts payable and accrued expenses approximate fair value based
            on the short-term maturity of these instruments. Notes payable to
            officer/stockholder and long-term notes payable approximate fair
            value due to the fact that the effective interest rates are
            comparable among the various noteholders.


                                      F-10
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE C (continued)

      13.   Accounting for Stock-Based Compensation

            The Company has adopted the disclosure provisions of Statements of
            Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting
            for Stock Based Compensation," and therefore applies the intrinsic
            value method of accounting for employee stock options as prescribed
            under Accounting Principles Board Opinion No. 25 ("APB No. 25"),
            "Accounting for Stock Issued to Employees." Under APB No. 25, when
            the exercise price of an employee stock option granted by the
            Company is equal to or greater than the market price of the
            underlying stock on the date of grant, no compensation expense is
            recognized.

            Compensation is recognized on options and warrants issued to
            nonemployees based upon the fair value of the consideration received
            or the fair value of the equity instruments, whichever is more
            reliably measurable.

      14.   Concentration of Credit Risk

            The Company's financial instruments that are exposed to
            concentrations of credit risk consist primarily of cash and cash
            equivalents and trade accounts receivable. The Company places its
            cash and cash equivalents with high quality credit institutions. At
            times, such investments may be in excess of the Federal Deposit
            Insurance Corporation insurance limit. The Company has not
            experienced any losses in such accounts and believes it is not
            exposed to any significant credit risks. Financial instruments which
            potentially subject the Company to concentrations of credit risk
            consist principally of trade accounts receivable as the Company does
            not require collateral or other securities to support customer
            receivables.

      15.   Reclassification

            The Company has reclassified certain amounts in the December 31,
            1999 financial statements in order to conform to the December 31,
            2000 presentation.

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


                                      F-11
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE D (continued)

      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 regard 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. 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. During 2000, the Company disposed of Wisdom's trade show
      display and recognized a loss of $17,783.

      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
      was 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
      losses of Spintech have been included in the Company's consolidated
      financial statements since the date of acquisition. Because of recurring
      losses, the minority interest has been valued at zero for the years ended
      December 31, 2000 and 1999.

      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 shares. The conversion offer
      ranged from 6.1 to 24.43 shares of Milestone common stock for 1 share of
      Spintech common stock. These offers were for restricted shares, and 1,017
      shares of Spintech were converted.


                                      F-12
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE D (continued)

      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 since 1997 has annually exercised this option. The
      option exercised in 2000 increased the Company's ownership in Spintech to
      87.0%. Milestone's ownership was 75.9% as of December 31, 1999. The
      Company's ownership increased to 79.3% on February 10, 2000 when Ronald
      and Glen Spinello surrendered their 5,025 shares as part of a settlement
      agreement. The values of the converted shares and associated offering
      costs were recorded as patents.

NOTE E - INVENTORY

      Inventory consists of the following:

                                                            December 31,
                                                   ----------------------------
                                                       2000              1999
                                                   -----------        ---------

The Wand(R) units and handpieces                   $   393,488        $ 369,129
Component parts and other materials                     50,818          314,249
                                                   -----------        ---------

                                                       444,306          683,378
Reserve                                               (104,929)        (674,073)
                                                   -----------        ---------

Inventory, net of reserves                             339,377            9,305

      Advances to Tricor                               700,000          700,000
                                                   -----------        ---------

                                                   $ 1,039,377        $ 709,305
                                                   ===========        =========

      Advances to Tricor, the Company's contract manufacturer, represent funds
      deposited with Tricor to fund future inventory purchase commitments. The
      aggregate amount of the advances (including the estimated current portion
      of $700,000 classified with inventory in each year presented) amounts to
      $1,004,530 and $1,707,789 at December 31, 2000 and 1999, respectively.


                                      F-13
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE F - PROPERTY AND EQUIPMENT

      Property and equipment consist of the following:

                                                          December 31,
                                                -------------------------------
                                                    2000                1999
                                                -----------         -----------

Furniture and fixtures                          $   204,457         $   196,263
Office equipment                                    168,864             168,864
Trade show displays                                  81,800             130,135
Tooling equipment                                                     2,082,995
Computer servers and software                       105,653              67,557
                                                -----------         -----------

                                                    560,774           2,645,814

Less accumulated depreciation                      (287,633)           (976,045)
                                                -----------         -----------

                                                $   273,141         $ 1,669,769
                                                ===========         ===========

NOTE G - NOTE PAYABLE TO OFFICER/STOCKHOLDER

      Note payable to officer/stockholder represents a note payable to the
      Company's Chief Executive Officer with interest payable at 9% per annum.
      The $200,000 principal balance of the note was originally due on February
      1, 2001. In January 2001, the Chief Executive Officer agreed to extend the
      due date for the payment of principal to April 1, 2001 and then, effective
      April 1, 2001, extended the due date a second time to April 30, 2001.


                                      F-14
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE H - NOTES PAYABLE - LONG-TERM

      Notes payable - long-term consist of the following:

                                                             December 31,
                                                     ---------------------------
                                                         2000            1999
                                                     -----------      ----------

Senior convertible notes, with interest payable at
    3% per annum                                                      $2,250,000
Senior secured promissory notes, with interest
    payable at 10% per annum                         $   756,995
Promissory note payable with interest payable at
    8% per annum                                         900,000
Secured promissory note payable with interest
    payable at 20% per annum                           1,018,333
                                                     -----------      ----------

                                                       2,675,328       2,250,000

         Less debt discount                             (273,965)
                                                     -----------      ----------

                                                     $ 2,401,363      $2,250,000
                                                     ===========      ==========

      Substantially all assets of the Company are pledged as collateral for the
      above obligations.

      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 Scientific
      Inc. and Subsidiaries.


                                      F-15
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE H (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 noncash 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 semiannual interest
      payment, on the Senior Convertible Notes as permitted by the terms of the
      purchase agreement.

      10% Senior Secured Notes

      As of February 1, 2000, the Company concluded a $1,000,000 institutional
      private placement of its 10% Senior Secured Promissory Notes due June 30,
      2001 and warrants to purchase 142,857 shares of Milestone Common Stock
      with Cumberland Associates LLC, Strategic Restructuring Partnership L.P.,
      a former principal of Cumberland Associates, the Chief Executive Officer
      and another key executive of the Corporation, an affiliate of one of its
      directors and six other individuals. These notes are secured by all
      present and future inventories of Milestone and are prepayable out of a
      portion of the proceeds generated by sales of The Wand(R).

      The warrants are exercisable at prices ranging from $1.75 per share in the
      first year to $7.00 per share in the fifth year, subject to antidilution
      protection, if approved by the Board of Directors, in the event of stock
      dividends and certain capital changes. The relative fair market value of
      the warrants, which amounted to $292,857, was recorded as debt discount
      and is being amortized over the life of the related note obligations.
      Purchasers of the notes and warrants were also granted rights to
      participate in certain future security offerings by the Company.

      In addition, the Company also extended and repriced, to $1.25 per share,
      warrants for purchase of 201,333 shares of the Company's stock that were
      originally issued to the Company's law firm (in which a Director is a
      partner) for services they performed in connection with assisting the
      Company in obtaining the financing. The aggregate increase in the fair
      market value of the warrants, which amounts to $202,092, was recorded as a
      deferred financing cost and is being amortized over the life of the
      related note obligations.


                                      F-16
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE H (continued)

      On April 5, 2000, the Company's Chief Executive Officer and the Director
      holding notes in the aggregate principal amounts of $250,000 and $50,000,
      respectively, agreed to defer all payments of principal and interest due
      to them until January 3, 2001.

      In April 2001, the Company entered into an agreement to restructure the
      remaining principal balance of $756,995 plus accrued interest (through the
      date of the restructuring agreement) as described in Note O.

      8% Promissory Note

      On July 31, 2000, the Company established a $1,000,000 credit facility
      with K. Tucker Andersen, a major investor. Initially, $500,000 was
      borrowed under the line. In December 2000, the Company borrowed an
      additional $400,000 and subsequently, in January 2001, the Company
      borrowed the remaining $100,000. The original $500,000 drawn down in July
      2000 is due on June 30, 2003 and the remaining $500,000 drawn down in
      December 2000 and January 2001 is due on December 31, 2003.

      In addition, the investor was also issued two separate five-year warrants
      for the purchase of 70,000 shares and 80,000 shares of common stock at
      exercise prices of $3.00 per share and $1.25 per share, respectively. The
      relative fair market value of the warrants, which in the aggregate
      amounted to $212,421 was recorded as a debt discount and is being
      amortized as additional interest expense over the term of the related
      notes. The investors were also granted additional warrants for 20,000
      shares exercisable at $1.25 per share in conjunction with the remaining
      $100,000 drawn down in January 2001.

      The Company may, at its own option, elect to convert $200,000 of the above
      notes into equity securities at any time up through May 31, 2003 in the
      event the Company completes a sale of such equity resulting in gross
      proceeds of at least $1,800,000, at a price per share substantially the
      same as those sold in such equity offering.

      20% Promissory Notes

      In August 2000, Milestone borrowed $1,000,000 from two funds managed by
      Cumberland Associates LLC pursuant to a two-year secured loan, bearing
      interest at 20% per annum, payable in cash, or through the issuance of
      additional 20% notes on which both interest and principal are payable at
      the maturity of the two-year secured loan. The loan is prepayable in cash
      at any time and is prepayable, with accrued interest, in Milestone common
      stock after March 31, 2001. Stock issued in payment of this debt will be
      valued at 85% of the then market prices.


                                      F-17
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE H (continued)

      In October 2000, Milestone converted $18,333 in accrued into additional
      principal with interest payable at 20% per annum as provided for in the
      note agreement.

      In April 2001, the Company restructured its existing obligations to the
      holders of its 20% Promissory Notes as described in Note O.

NOTE I - 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. In 1999,
      the Plan was amended, providing for the grant of options to purchase up to
      1,000,000 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.

      The Company has adopted the disclosure provisions of Statement of
      Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
      Stock-Based Compensation." SFAS No. 123 establishes financial accounting
      and reporting standards for stock-based employee compensation plans. The
      Company applies the intrinsic value method prescribed under Accounting
      Principles Board Opinion No. 25 and related interpretations in accounting
      for its stock-based compensation plans. Accordingly, the Company recorded
      compensation expense of $31,055 representing the fair market value of the
      Company's common stock in excess of the exercise price relating to the
      vested portion of stock options issued to Directors during the year ended
      December 31, 2000. No compensation expense was recorded during the year
      ended December 31, 1999, since the exercise prices of stock options issued
      to employees and Directors were equal to the fair market values of the
      Company's common stock on the date of grant.

      If the Company had elected to recognize compensation expense based upon
      the fair value at the grant date, consistent with the methodology
      prescribed by SFAS No. 123, pro forma net loss and net loss per share to
      common stockholders for the years ended December 31, 2000 and 1999 would
      have increased to the following pro forma amounts:


                                      F-18
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE I (continued)

                                                         December 31,
                                              ---------------------------------
                                                   2000                1999
                                              -------------       -------------

Net loss as reported                          $  (7,509,855)      $  (6,972,312)
Pro forma net loss                               (9,018,851)         (9,647,015)
Loss per share as reported                    $        (.72)      $        (.80)
Pro forma loss per share                               (.86)               (.80)

      The weighted-average fair value of the individual options granted during
      2000 and 1999 was estimated as $1.73 and $1.45, respectively, on the date
      of grant. The fair value for 2000 and 1999 was determined using a
      Black-Scholes option-pricing model with the following assumptions:

                                                                December 31,
                                                           ---------------------
                                                            2000          1999
                                                           -------       -------

Volatility                                                   140%        158.10%
Risk-free interest rate                                        6%          6.35%
Expected life                                              5 years       5 years

      Stock option activity during 2000 and 1999 is summarized below:

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

Options outstanding at December 31, 1998            541,000         $ 9.85

Granted                                             252,000           2.39
Forfeited                                           (15,000)         (5.38)
                                                   --------

Options outstanding at December 31, 1999            778,000         $ 7.51

Granted                                             291,110           1.79
Forfeited                                          (140,000)        (11.62)
                                                   --------

Options outstanding at December 31, 2000            929,110         $ 5.11
                                                   ========

      No options were exercised during each of the years presented.


                                      F-19
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE I (continued)

      The following table summarizes information concerning outstanding and
      exercisable options at December 31, 2000.

                                                 Remaining
                            Number              contractual           Number
 Exercise prices          outstanding           life (years)        exercisable
 ---------------          -----------           ------------        -----------

    $  .88                   50,000                 4.00               16,667
      1.00                   50,000                 3.00               50,000
      1.25                    5,000                 3.75                1,667
      1.56                    5,000                 2.75                3,333
      1.61                   62,110                 4.50               31,055
      1.81                   34,000                 4.00               10,389
      2.19                  136,000                 4.50               21,542
      2.50                  100,000                 3.75               33,333
      3.00                   51,500                 3.50               32,833
      4.00                    1,500                 3.50                  500
      5.00                    1,500                 3.50                  500
      5.13                  152,000                 1.25              152,000
      5.38                   20,000                 1.00               20,000
      6.00                    1,500                 3.50                  500
      6.50                    4,000                 1.50                4,000
      7.00                  106,500                 1.50              106,500
      7.56                   43,500                 1.50               43,500
     16.00                   50,000                 2.00               50,000
     16.50                   25,000                 2.00               16,666
     23.00                   30,000                 2.00               20,000
                            -------                                   -------

                            929,110                                   614,985
                            =======                                   =======

      The weighted-average exercise price of options exercisable at December 31,
      2000 is $6.34.

      The Company also charged $520,975 to operations during the year ended
      December 31, 2000, representing the fair market value of 267,500 common
      stock purchase warrants issued to consultants.


                                      F-20
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE J - EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION

      The Company has a five-year employment contract with its Chief Executive
      Officer ("CEO") providing for an annual base compensation of up to
      $350,000, plus stock options and cash bonuses based upon attaining certain
      earnings levels, which the Company has not yet achieved.

      In July 1998, the CEO agreed to a voluntary reduction of his annual base
      salary from $350,000 to approximately $188,000 that remained in effect
      through August 2000. At that time, the CEO agreed to defer his annual
      salary on a discretionary basis. Accordingly, the Company has recorded
      deferred compensation payable to the CEO in the amount of $141,346 that is
      payable upon demand. The CEO reserves the right to resume his normal
      salary payments (pursuant to the terms of his employment agreement) at any
      time.

NOTE K - INCOME TAXES

      Deferred tax attributes resulting from differences between financial
      accounting amounts and tax bases of assets and liabilities are as follows:

                                                           December 31,
                                                  -----------------------------
                                                       2000              1999
                                                  ------------      -----------

Current assets and liabilities
    Allowance for doubtful accounts               $     99,000      $    39,000
    Inventory allowance                                821,000        1,000,000
    Warrants issued to consultants                     260,000
    Other                                               58,000            6,000

Valuation allowance                                 (1,238,000)      (1,045,000)
                                                  ------------      -----------

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

Noncurrent assets and liabilities
    Depreciation                                  $   (720,000)     $   (57,000)
    Asset impairment charge                            770,000
    Net operating loss carryforward                 11,600,000        9,400,000
    Other                                               12,000               --
                                                  ------------      -----------

                                                    11,662,000        9,343,000
Valuation allowance                                (11,622,000)      (9,343,000)
                                                  ------------      -----------

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


                                      F-21
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE K (continued)

      As of December 31, 2000, the Company has Federal and State net operating
      loss carryforwards of approximately $29,000,000 that will be available to
      offset future taxable income, if any through December 2020. The
      utilization of the Company's net operating losses may be subject to a
      substantial limitation due to the "change of ownership provisions" under
      Section 382 of the Internal Revenue Code and similar state provisions.
      Such limitation may result in the expiration of the net operating loss
      carryforwards before their utilization. The Company has established a 100%
      valuation allowance to reserve for all of its net deferred tax assets due
      to the uncertainty that their benefit will be realized in the future.

      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.

NOTE L - PRODUCT SALES AND SIGNIFICANT CUSTOMERS

      The Company's sales by product and by geographical region are as follows:

                                                            December 31,
                                                     ---------------------------
                                                        2000             1999
                                                     ----------       ----------

The Wand(R) system kits and System Kits              $3,551,075       $1,562,850
The Wand(R) handpieces                                1,916,354        1,000,820
Prophy angles                                            76,680           75,700
Dental needles                                          121,760           31,240
Wisdom products excluding prophy angles                                  174,086
Other                                                     8,482           10,767
                                                     ----------       ----------

                                                     $5,674,351       $2,855,463
                                                     ==========       ==========

United States                                        $3,458,522       $1,585,733
Canada                                                  205,314          118,040
Other foreign countries                               2,010,515        1,151,690
                                                     ----------       ----------

                                                     $5,674,351       $2,855,463
                                                     ==========       ==========


                                      F-22
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE L (continued)

      During the year ended December 31, 2000, aggregate sales to three
      customers amounted to approximately $1,891,000, each representing 12%, 11%
      and 10% of the year's sales, respectively. Accounts receivable due from
      one of these customers (a worldwide distributor of the Company's products
      based in South Africa) amounted to approximately $360,000 representing 68%
      of net accounts receivable due at December 31, 2000. During the year ended
      December 31, 1999, sales to one customer amounted to approximately
      $516,000 representing 18% of sales for the year.

NOTE M - COMMITMENTS AND CONTINGENCIES

      Lease Commitments

      The Company leases office space and warehouse facilities under
      noncancelable operating leases expiring at various times through 2004.
      These leases also provide for escalations of the Company's share of
      utilities and operating expenses.

      Aggregate minimum rental commitments under noncancelable operating leases
      are as follows:

Year ending December 31,
    2001                                                            $129,000
    2002                                                              52,000
    2003                                                              55,000
    2004                                                              18,000
                                                                    --------

                                                                    $254,000
                                                                    ========

      Rent expense amounted to approximately $143,000 and $136,000 for the years
      ended December 31, 2000 and 1999, respectively.

      Contract Manufacturing Agreements

      The Company has informal arrangements for the manufacture of The Wand(R)
      unit and system kit with Tricor Systems, Inc. ("Tricor") and for the
      manufacture of The Wand(R) disposable handpiece by Nypro Inc. under
      thirty-day cancelable agreements expiring in January 2002 and December
      2001, respectively, but renewable annually unless otherwise terminated by
      either party.


                                      F-23
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE M (continued)

      The termination of the manufacturing relationship with any of the above
      manufacturers could have a material adverse effect on 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.

NOTE N - RELATED PARTY TRANSACTIONS

      The Company paid $191,501 and $131,632 during the years ended December 31,
      2000 and December 31, 1999, respectively, to a law firm where one of the
      partners is also on the Company's Board of Directors. The law firm and the
      Director also participated in the February 2001 private placement (Note
      H), each purchasing $50,000 of 10% Senior Secured Promissory Notes and
      warrants to purchase 7,143 shares of Milestone Common Stock.

NOTE O - SUBSEQUENT EVENTS

      DEBT RESTRUCTURING

      10% Senior Secured Promissory Notes

      In April 2001, the Company restructured its obligations to the holders of
      its 10% Senior Secured Promissory Notes. Under the terms of the agreement,
      each of the noteholders agreed to exchange their 10% Notes for a new, zero
      coupon note (the "Zero Coupon Note") (a) paying interest at 20% per annum
      until maturity on March 31, 2002, (b) having a face amount equal to the
      outstanding principal owed to the noteholders plus accrued interest and
      interest payable until maturity, (c) giving Milestone the option to pay
      the face value of the notes in cash or in shares of common stock, provided
      that the shares have been registered under the Securities Act of 1933, and
      (d) paying each noteholder 108% of the face value of his Zero Coupon Note,
      including unearned interest to maturity, if there is a change of control
      of Milestone. Moreover, the warrants previously issued to the noteholders
      were amended to provide for an exercise price of $1.75 per share up to the
      date of maturity.


                                      F-24
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE O (continued)

      20% Promissory Notes

      In April 2001, the Company restructured its existing obligations to the
      holders of its 20% Promissory Notes. The 20% Promissory Notes were amended
      to make them prepayable with accrued interest (a) in cash at any time
      before maturity, (b) in shares of common stock at any time after issuance
      but before July 31, 2002 if the common stock, valued as set forth in the
      notes, is at least $5.00 per share, or (c) in shares of common stock,
      valued as set forth in the notes, on or after July 31, 2002. Stock issued
      in payment of this debt will be valued at 85% of then market prices.

      $1,000,000 IN NEW FINANCING

      During the first quarter of 2001, Milestone received $1,000,000 in new
      financing from existing major investors, $500,000 pursuant to a line of
      credit in support of its demo program for The Wand(R) and $500,000 from
      the private placement of 500,000 shares of common stock. Milestone will
      pay a 2% facility fee on the line of credit and interest at the rate of
      10% per annum on monies borrowed. In addition, the lender received a
      warrant for the purchase of up to 100,000 shares of Milestone's common
      stock at a per share purchase price of $1.10.

      EQUITY LINE COMMITMENT

      In January 2001, Milestone entered into a three-year private equity line
      agreement with Hillgreen Investments Limited ("Hillgreen"), a British
      Virgin Islands corporation, pursuant to which Hillgreen is obligated to
      purchase, subject to the fulfillment of specified conditions, up to 2.1
      million shares of Milestone common stock over the next 36 months.
      Hillgreen has allocated up to $20 million to fund its purchase
      obligations. The transaction was arranged by Jesup & Lamont Securities
      Corporation, a New York-based investment banking firm. Milestone's right
      to draw upon this facility is subject to a number of limitations and
      conditions, including a limitation on the amounts sold to Hillgreen within
      specified periods, and the effectiveness of a resale registration
      statement covering the securities to be purchased. Subject to these and
      other conditions and limitations, Milestone will have full control over
      the timing of any financing under the equity line and is under no
      obligation to sell any shares to Hilllgreen. Any shares that are sold will
      be priced at 87.5% of the volume weighted average market price of
      Milestone common stock during a fixed period prior to the sale. Milestone
      has discretion to establish a floor price below which shares will not be
      sold by Milestone to Hillgreen.


                                      F-25
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE O (continued)

      AGREEMENT WITH MEDIA SERVICES COMPANY TO BOOST EXPOSURE

      In March 2001, Milestone signed an agreement with News USA, Inc. and
      Vested Media Partners, Inc. to increase the awareness of healthcare
      professionals and the public to the benefits of its The Wand(R) and
      CompuFlo(TM) technologies. Under the agreement, News USA is required to
      prepare, write and seek to place in newspapers and other media, articles
      about Milestone's products and technologies. News USA has guaranteed
      72,000 media placements during the 18-month term of the agreement. In
      return for their services, News USA and Vested Media Partners have
      received warrants for an aggregate of approximately 1,172,000 shares
      exercisable at prices increasing from $1.28 to $3.00 during the three-year
      warrant term.


                                      F-26