UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year ended December 31, 2004

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from __________________ to ___________________

                        Commission File Number 001-14053

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

              Delaware                                        13-3545623
   (State or other jurisdiction of                         (I.R.S. Employer
    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:

<TABLE>
<CAPTION>
                                                                         Name of Each Exchange
            Title of Each Class                                           on Which Registered
            -------------------                                           -------------------
<S>                                                       <C>
Common Stock, par value $.001 per share                   American Stock Exchange and Pacific Stock Exchange
Warrants, each to purchase one share of common stock                    American Stock Exchange
</TABLE>

         Securities registered under Section 12(g) of the Exchange Act:
                                      None

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

      Check if there is no disclosure of delinquent  filers pursuant to Item 405
of Regulation S-B is contained herein, and will 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, 2004, the revenues of the registrant  were
$4,751,186.

      The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant, computed by reference to the price at which
the common  equity was sold,  or the  average bid and asked price of such common
equity,  on the  American  Stock  Exchange,  on  March  29,  2005  of  $3.45  as
approximately $23,346,047

      As of March 29, 2005 the  registrant  has a total of 10,462,334  shares of
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


<PAGE>

                           MILESTONE SCIENTIFIC, INC.

                            Form 10-KSB Annual Report

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      ----
<S>                                                                                                    <C>
PART I
      Item 1.  Description of Business...............................................................   3
      Item 2.  Description of Property...............................................................  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 Operation.............................  19
      Item 7.  Consolidated Financial Statements.....................................................  28
      Item 8.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..  28
      Item 8A.  Controls and Procedures..............................................................  28

PART III
      Item 9.  Directors, Executive Officers, Promoters and Control Persons;
                                 Compliance with Section 16 (s) of the Exchange Act  ................  29
      Item 10. Executive Compensation................................................................  31
      Item 11. Security Ownership of Certain Beneficial Owners and Management and Related
                                Stockholder Matters..................................................  33
      Item 12. Certain Relationships and Related Transactions........................................  35
      Item 13. Exhibits .............................................................................  36
      Item 14. Principal Accountant Fees and Services................................................  39

SIGNATURES...........................................................................................  40

EXHIBITS.............................................................................................  41
</TABLE>

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 Milestone to be materially  different from any future  results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements.  The forward-looking statements included herein are based on current
expectations  that involve numerous risks and  uncertainties.  Milestone's plans
and  objectives  are based,  in part,  on  assumptions  involving  the continued
expansion of business.  Assumptions  relating to the foregoing involve judgments
with respect to, among other things,  future  economic,  competitive  and market
conditions  and  future  business  decisions,  all of  which  are  difficult  or
impossible  to predict  accurately  and many of which are beyond the  control of
Milestone.  Although  Milestone  believes that its  assumptions  underlying  the
forward-looking  statements are reasonable,  any of the assumptions  could prove
inaccurate 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  Milestone's  early  stage  operations,  the
inclusion  of such  information  should not be regarded as a  representation  by
Milestone or any other person that the objectives and plans of Milestone will be
achieved.


                                       2
<PAGE>

                                     PART I

Item 1. Description of Business

      All references in this report to "we," "us," "our" or "Milestone" refer to
Milestone   Scientific  Inc.,  and  its  former   subsidiary,   Spintech,   Inc.
("Spintech"),  unless the  context  otherwise  indicates.  We have rights to the
following trademarks: CompuDent(R),  CompuMed(R), CompuFlo(TM), The Wand(R), The
WandPlus(R),The SafetyWand(TM) and CoolBlue(TM) Wand. Milestone was incorporated
in the State of Delaware in 1989.  On December  10, 2004,  Milestone  merged its
three subsidiaries into itself in order to reduce administrative  expenses.  Two
of the  subsidiaries  were wholly owned.  The third,  Spintech,  was merged into
Milestone by a short-form merger. Also on December 10, 2004 we purchased a 19.9%
interest  in a German  wholesale  distributorship  that  sells  dental  products
including our CompuDent  technology and CoolBlue  product lines in Germany,  the
world's 3rd largest dental market.

      All share  number and share  price  information  in this  report have been
retroactively  adjusted to reflect the 1-for-3  reverse stock split  effected in
January 2004.

                                    BUSINESS

Background

      Milestone  Scientific  Inc.  is the  world  leader in  advanced  injection
technology.  Its principal  product, a computer  controlled,  precision metered,
local  anesthetic  injection  system  (the  "CompuDent"),  enables a dentist  to
consistently administer safe, effective and painless injections.  CompuDent is a
revolutionary  device,  considered one of the major advances in dentistry of the
twentieth  century.  It has been favorably  evaluated in  approximately  50 peer
reviewed or independent  clinical  research  reports.  In 2004 the CompuDent was
prominently featured in the leading textbook on dental anesthesia, the "Handbook
of Local Anesthesia" by Stanley F. Malamed, DDS.(1)

      CompuDent,  including its  ergonomically  designed  single use  hand-piece
("The Wand"), provides numerous, well documented benefits:

      o     CompuDent  minimizes the pain  associated  with palatal,  mandibular
            block  and  other  injections,   resulting  in  a  more  comfortable
            injection experience for the patient;

      o     the pencil grip used with The Wand  handpiece  allows  unprecedented
            tactile sense and accurate control;

      o     new injections made possible with the CompuDent technology eliminate
            collateral numbness of the tongue, lips and facial muscles;

      o     bi-directional  rotation  of The Wand  handpiece  eliminates  needle
            deflection  resulting  in greater  success  and more rapid  onset of
            anesthesia in mandibular block injections;

      o     the use of a single patient use, disposable  handpiece minimizes the
            risk of cross contamination;

      o     the ergonomic design of The Wand handpiece makes an injection easier
            and less stressful to administer, lowering the risk of carpal tunnel
            syndrome.

      Milestone  also believes that use of CompuDent  reduces tissue tearing and
necrosis  and results in less  post-operative  or  post-procedure  pain,  but is
awaiting further clinical evidence before publicly making these claims.

----------
(1)   Dr.  Malamed is widely  recognized as the  preeminent  authority on dental
      anesthesia.  New  editions  of his  "Handbook  of  Local  Anesthesia"  are
      published  once every seven years and are used in all major U.S.  and many
      foreign  dental  schools.  It is the  largest  selling  textbook in dental
      anesthesia and is the third largest selling dental  textbook.  The current
      edition  recommends  use of the CompuDent and devotes 62 paragraphs to the
      device and its application.  Milestone  understands that this is the first
      instance in which Dr. Malamed's text has recommended a particular device.


                                       3
<PAGE>

      Despite  CompuDent's  many  benefits,   including  the  administration  of
painless  injections,  dentists in the United States have been reluctant to give
up the use of  traditional  syringes.  Dentists  have  all been  trained  to use
syringes in dental school and often have become  accustomed  and  comfortable in
their use during many years of clinical practice.  Thus,  following a successful
launch in early 1998 to "new  adopters,"  sales were below  expectations in 1999
and 2000. By the end of 2000,  Milestone had limited financial  resources(2) and
was forced to choose between  maintaining  its  leadership  position in advanced
injection technology or continuing to promote sales through high levels of sales
and marketing  expense,  including  trade show  appearances.  Milestone chose to
maintain its technology  leadership  position and drastically  reduced marketing
and sales expense, thus allowing domestic sales of new units to suffer. However,
despite  limited  marketing  efforts,  foreign  sales  continued  to grow.  Also
increasing  handpiece  use by the  domestic  customer  base  resulted  in rising
handpiece sales.

Technology Development

      After  curtailing  sales  and  marketing  efforts,  Milestone  focused  on
maintaining  its  technological  leadership.  First,  it  addressed  a number of
customer  needs for its CompuDent  unit by  developing  such  improvements  as a
holster  component for its handpiece which more effectively  pierced  anesthetic
cartridge membranes,  an overflow reservoir in the unit that eliminated problems
occasionally  caused by fluid from  broken  anesthetic  cartridges  shorting-out
control  components,  a dual  speed  flow rate foot  control  pedal and an audio
signal to alert the dentist to the speed at which the unit was operating.  These
and other  improvements  essentially  eliminated all field  complaints  with the
CompuDent unit before 2003.

      To enhance its role as the world leader in advanced injection  technology,
Milestone has developed the following  array of other  technologically  advanced
products for the delivery of local anesthetics and liquid medicaments.

      CompuMed

      Milestone  developed and in 2001 began limited marketing of "CompuMed(R)",
a computer controlled injection system geared to the needs of the medical market
and providing  benefits  similar to the CompuDent.  CompuMed allows many medical
procedures,  now  requiring  IV  sedation,  to  be  performed  with  only  local
anesthesia  because  of the  dramatic  pain  reduction.  Also,  dosages of local
anesthetic  can often be  significantly  reduced,  thus  reducing  side effects,
accelerating  recovery  times,  lowering  costs and  eliminating  complications.
CompuMed is now gaining growing  clinical  evidence showing benefits from use in
colorectal  surgery,  podiatry,  dermatology,  including  MOH's  surgery for the
removal of basal cell carcinomas and other oncological  dermatologic procedures,
nasal and sinus surgery, including rhinoplasty, hair transplantation and plastic
surgery.

      SafetyWand

      Following  adoption of the Federal  Needlestick  Safety and Prevention Act
Milestone  developed,  and in  September  2003 the FDA  approved  marketing  of,
Milestone's  SafetyWand disposable  handpiece,  a patented injection device that
incorporates  safety  engineering  sharps  protection  features  to  aid  in the
prevention  of  needlesticks.  The  SafetyWand is the first  patented  injection
device to be fully compliant with OSHA regulations under the federal Needlestick
Safety Act while meeting the clinical needs of dentists.

      The SafetyWand  represents the culmination of two years' effort to develop
a safer injection device for dentists,  physicians and hygienists.  While safety
injection devices have been mandated since 2000 under federal law, OSHA had been
unable to  enforce  this law  against  dentists  because  of the  inadequacy  of
existing devices to meet both the requirements of the law and the clinical needs
of  dentists.  The  SafetyWand  meets these  requirements  and  provides  dental
practitioners  with  a  safer  retractable  needle  device,   with  single  hand
activation,  which is reusable multiple times during a single patient visit, yet
small and sleek enough not to obscure the dentist's  sometimes  limited field of
view. Since SafetyWand is now available commercially,

----------
(2)   It received a going concern limitation in its 2000 financial report.


                                       4
<PAGE>

OSHA has  begun to  enforce  existing  regulations  requiring  the use of safety
engineered  devices.  OSHA is empowered to levy substantial fines for failure to
use these devices.  We believe the Safety Wand will promote increased  handpiece
use by the more than 15,000 CompuDent  anesthetic  delivery  systems  previously
sold in the United  States while also  providing new impetus for the purchase of
these systems by new users.

      CompuFlo

      "CompuFlo",  developed by Milestone, is a revolutionary new technology for
injections.  CompuFlo enables health care practitioners to monitor and precisely
control "pressure", "rate" and "volume" during all injections and can be used to
inject all liquid medicaments as well as anesthetics.  CompuFlo can also be used
to aspirate body fluids.

      Risk of death,  transient or permanent paralysis,  pain, tissue damage and
post-operative  complications  have long been tolerated as negative side effects
from the use of traditional  hypodermic drug delivery injection systems. This is
well documented in dental and medical literature. The pain and tissue damage are
a direct result of uncontrolled flow rates and pressures that are created during
the   administration  of  drug  solutions  into  human  tissue.   While  several
technologies  have been  capable  of  controlling  flow  rate,  the  ability  to
accurately  and  precisely  control  pressure  has been  unobtainable  until our
development of CompuFlo.

      In September  2004,  Milestone  Scientific was issued United States Patent
No.  6,786,885  (date of issue  September  14,  2004)  on  CompuFlo  technology,
entitled  "Pressure/Force  Computer  Controlled  Drug Delivery  System with Exit
Pressure.  Proprietary software working with an innovative technology allows the
system to  continuously  monitor and control the exit  pressure of fluid  and/or
medication  during an injection.  This same  technology  also enables doctors to
accurately  identify  different  tissue types based on exit  pressure  during an
injection. The technology appears to have many applications in both medicine and
dentistry including epidural injections.

      In December  2004,  the United  States  Patent  Office issued a "Notice of
Allowance"  for patent  protection on two  additional  critical  elements of the
CompuFlo  automated  drug  delivery  technology:   "Drug  Delivery  System  with
Profiles" and  "Pressure/Force  Computer Controlled Drug Delivery with Automated
Charging".

      The Drug Delivery  System with Profiles  standardizes  and  simplifies the
drug  delivery  process,  while  reducing the risk of medical  complications  by
controlling  parameters  that  are  essential  for the safe  injection  of local
anesthetics and other  medications,  as well as the aspiration of bodily fluids.
This is accomplished  through an integrated  injection  database in the CompuFlo
technology that contains the critical  components of specific drugs,  parameters
of needles,  tubing and syringes and all pertinent  components  for the safe and
efficacious  delivery  of  medications,  including  procedures  such as epidural
injections.

      Pressure/Force  Computer  Controlled Drug Delivery with Automated Charging
-- provides the means to deliver any volume of medication or infused fluid, such
as a saline  solution,  into the human body.  In many  instances,  the volume of
medication or other liquid that is required for a medical  procedure exceeds the
capacity of the normal vessels used. This  technology  allows the smaller vessel
to be automatically  refilled from a larger one without interrupting the surgery
or medical procedure.

      Epidurals.  In 2004,  successful results of two independent pilot clinical
studies  confirmed  the  efficacy  of  the  CompuFlo   pressure/force   computer
controlled  anesthetic  delivery  system  in  identifying  the  epidural  space.
Identifying  when a  hypodermic  needle  has  entered  the  epidural  space is a
critically  important  factor in the  safety  and  effectiveness  of  anesthetic
injections  administered  during childbirth and in the course of pain management
therapy. A report on the results of the study,  conducted through the University
of Texas  Health  Science  Center at Houston  under the  guidance  of Dr.  Oscar
Ghelber, Assistant Professor of Anesthesiology, was presented at the Society for
Technology  in  Anesthesia  (STA)  meeting on  October  28th,


                                       5
<PAGE>

2004.  Proper and consistent  identification  of the epidural space represents a
critical  step  towards  the  adoption  of   Milestone's   technology   for  the
administration of epidural anesthesia.

                                   ----------

      In addition  to  products  enhancing  its  position in advanced  injection
technology,   in  2004  Milestone   acquired  rights  to  a  proprietary  dental
enhancement system now named the CoolBlue Wand(TM).

      CoolBlue Wand Dental Enhancement System

      The CoolBlue Wand(TM) dental  enhancement  system uses blue light emitting
diodes for fast curing of dental composite material, trans-illumination of teeth
and  activation of whitening  gels and pastes.  Initially  Milestone  viewed the
CoolBlue Wand as an aid to its sales force in gaining  access to dental  offices
for sales of CompuDent.  However,  in view of the burgeoning consumer demand for
tooth  whitening,  the  professional  product will also provide  Milestone  with
access to the consumer tooth whitening market.

      Consumer Tooth Whitening

      In October 2004, Milestone announced the planned launch of its proprietary
tooth  whitening  system,  for the  home-use  consumer  market.  The  system and
consumable  gels and  rinses  used  with the  system  will be  manufactured  for
Milestone by United Systems, Inc. under an exclusive license agreement requiring
the purchase of a minimum of 1 million system Starter Kits from Milestone during
the four year term of the agreement.

      The $400 million (annual revenues) consumer segment of the $1 billion-plus
tooth  whitening  market is one of the fastest growing areas in the oral hygiene
industry.  Milestone's  system  utilizes  a  unique  blue LED  intra-oral  light
(incorporated into a hand held  battery-powered  device) to activate proprietary
tooth-whitening  gels. The system is designed to provide a safe,  convenient and
time  saving  method of  whitening  teeth.  When used on a regular  basis with a
specially formulated rinse, also to be offered by the licensee,  the system will
maintain the brightness of teeth on an ongoing basis.

      The consumer  tooth  whitening  product  line  includes a Starter Kit that
contains the gels, the rinse and the intra-oral  light.  Continuity  Kits with a
30-day supply of the  specially  formulated  rinse will also be  available.  The
product will be marketed through television spots, infomercials, print media and
ultimately through retail outlets.  Television  infomercials began running in 23
markets on March 13, 2005.


                                       6
<PAGE>

Milestone Renaissance

      In 2003 we recognized  that the domestic market had become ready to accept
our CompuDent technology. An authoritative and growing body of peer reviewed and
other  independent  clinical  studies had  established  the  superiority  of the
CompuDent to the traditional  syringe in administering  dental  anesthesia;  the
CompuDent  had been  readily  accepted  in first  world  international  markets,
despite limited marketing efforts;  and more than 16 million injections had been
administered  with  CompuDent  creating  growing  professional   acceptance  and
consumer demand for the  administration  of painless  injections by their dental
practitioners.  Two ingredients were missing, a new marketing approach and funds
to support the new sales effort required by this marketing approach.

      During  2003  we  tested  the  use of our  own  highly  trained  force  of
independent  sales  representatives  and inside sales support and sales staff to
generate  additional sales to our existing base, to increase handpiece usage and
to both generate leads and to sell to new customers. Based on our pilot programs
and studies we  determined  that a new sales  program built around the following
components could be successful:

      o     An increased  base price for  CompuDent to new  customers to provide
            sufficient  gross  profit to allow  adequate  compensation  to a new
            sales force.

      o     An  inside  sales  support  staff  to  generate  leads  for  outside
            independent  sales  representatives  and  also to set  appointments,
            provide  technical support and customer service and foster increased
            handpiece use.

      o     Providing ancillary products to its outside sales force, such as the
            CoolBlue  Wand,  to assist  that force in  gaining  access to dental
            offices for sales of CompuDent.

      o     Primary reliance on an inside sales force in the domestic market.

      o     Use  of   independent   highly  trained   exclusive   outside  sales
            representatives  only in high density  markets to prevent  excessive
            costs.

      The plan also contemplated  increased marketing and promotional activities
including increasing trade show appearances, advertising directed towards dental
professionals and, possibly, to consumer advertising.

      To fund this new  marketing  plan,  we  arranged  for new  equity  funding
through  Paulson  Investment  Company,  Inc.  This offering was  consummated  in
February,  2004 with a raise of gross  proceeds of  $9,388,000  from the sale of
1,440,000  units,  each consisting of two shares of common stock and one warrant
to purchase an additional share of common stock at $4.89 per share.

      As  contemplated  in the offering,  we used the proceeds to  significantly
expand the Company's sales capability by taking the following steps:

      o     Expanding significantly its independent sales force, both inside and
            outside sales reps, and our sales support staff.

      o     Conducting extensive training programs for our new sales force.

      o     Beginning to  implement  new  marketing  and  advertising  campaigns
            directed  at the  professional  dental  market  and,  possibly,  the
            consumer market.

      o     Completing the final production, tooling and other work necessary to
            launch the SafetyWand

      o     Taking the initial steps  necessary to  re-establish  our dental and
            hygiene school teaching programs.

      Because  of the  time  required  to rent  additional  facilities,  install
computer lines and an internal computer  network,  obtain high traffic telephone
lines  and  otherwise  create  the  essential  infrastructure,  hire  and  train
managers,  allow managers to hire or engage sales  representatives  and then the
long training time necessary to provide the sales force with the skills required
to sell CompuDent,  the effects of these new initiatives only became apparent in
the fourth quarter of 2004.


                                       7
<PAGE>

Competition

      Our  anesthetic  delivery  systems  compete with  disposable  and reusable
syringes  that  generally  sell at lower  prices  and that use  established  and
well-understood  methodologies and other local anesthetic  delivery systems,  in
both the  dental and  medical  marketplaces.  When  SafetyWand  is  commercially
available,  it will compete with other safety engineered products in the medical
market  and  against  a  single  product  claiming  to be  compliant  with  OSHA
regulations under the Needle Stick Act in the dental market.

      Our systems compete on the basis of their performance  characteristics and
the benefits provided to both the practitioner and the patient. Clinical studies
have shown that our systems reduce fear, pain and anxiety for some patients, and
we believe that they can also reduce practitioner  stress levels.  CompuDent can
be used  for all  local  anesthesia  techniques  that  can be  performed  with a
syringe.  CompuDent can also be used for new and modified techniques that cannot
be  performed  with  traditional  syringes.  These new  techniques  allow faster
procedures  shortening  chair  time,  while  minimizing  numbing of the lips and
facial muscles, enhance productivity, reduce stress and virtually eliminate pain
and anxiety.

      The Luer Lock needle,  sold by us,  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.  We compete on the basis
of  convenience  since we can package the product  with an order for  disposable
handpieces.

      We face intense  competition from many companies in the medical and dental
device  industry,   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  products.  Current  or new  competitors  could,  at any  time,
introduce  new or enhanced  products with features that render our products less
marketable or even obsolete.  Therefore,  we must devote substantial efforts and
financial  resources  to 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.  New products must be approved by regulatory  authorities
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.

Patents And Intellectual Property

      We hold the following U.S. utility and design patents:

<TABLE>
<CAPTION>
                                                                                   U.S. PATENT   DATE OF
                                                                                   NUMBER        ISSUE
                                                                                                 -----
<S>                                                                                <C>          <C>
                                    COMPUDENT
Hypodermic Anesthetic Injection Method .........................................   4,747,824     5/31/88
Hypodermic Anesthetic Injection Apparatus & Method .............................   5,180,371     1/19/93
  (CompuFlo, CompuMed, and CompuDent )
Dental Anesthetic and Delivery Injection Unit ..................................   6,022,337      2/8/00
Dental Anesthetic Delivery Injection Unit (continuation of No. 6,022,337) ......   6,152,734    11/28/00
Dental Anesthetic Delivery Injection Unit (continuation of No. 6,022,337) ......   6,132,414    10/17/00
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
Dental Anesthetic and Delivery Injection Unit with Automated Rate Control ......   6,652,482    11/25/03

                                   SAFETYWAND
Handpiece for Injection Device with a Retractable and Rotating Needle ..........   6,428,517      8/6/02
Safety IV Catheter Device ......................................................   6,726,658     4/27/04
</TABLE>


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                    COMPUFLO
<S>                                                                                <C>          <C>
Pressure/Force Computer Controlled Drug Delivery System ........................   6,200,289     3/13/01
Pressure/Force Computer Controlled Drug Delivery System with Exit Pressure .....   6,786,885     9/14/04

                                      OTHER
Hypodermic Syringe and Method ..................................................   4,877,934    12/19/88
Apparatus and Method for Sterilizing, Destroying and Encapsulating
Medical Implement Wastes .......................................................   4,992,217     2/12/91
Apparatus and Method for Verifiably Sterilizing Destroying and
Encapsulating Regulated Medical Wastes .........................................   5,078,924      1/7/92
Apparatus and Method for Verifiably Sterilizing, Destroying and
Encapsulating Regulated Medical Wastes .........................................   5,401,444     3/28/95
Self-Sterilizing Hypodermic Syringe and Method .................................   5,512,730     4/30/96
Self-Sterilizing Hypodermic Syringe and Method .................................   5,693,026     12/2/97
</TABLE>

      In December  2004,  the United  States  Patent  Office issued a "Notice of
Allowance"  for patent  protection  on two  critical  elements  of its  CompuFlo
automated drug delivery  technology:  "Drug  Delivery  System With Profiles" and
"Pressure/Force Computer Controlled Drug Delivery with Automated Charging".

      The Drug Delivery  System with Profiles  standardizes  and  simplifies the
drug  delivery  process,  while  reducing the risk of medical  complications  by
controlling  parameters  that  are  essential  for the safe  injection  of local
anesthetics and other medications,  as well as aspiration of bodily fluids. This
is  accomplished  through  an  integrated  injection  database  in the  CompuFlo
technology that contains the critical  components of specific drugs,  parameters
of needles,  tubing and syringes and all pertinent  components  for the safe and
efficacious delivery of medications, particularly in procedures such as epidural
injections.

      The  Pressure/Force  Computer  Controlled  Drug  Delivery  with  Automated
Charging  provides  the means to  deliver  any volume of  medication  or infused
fluid,  such as a saline solution,  into the human body. In many instances,  the
volume of  medication  or other liquid that is required for a medical  procedure
exceeds the capacity of the normal  vessels  used.  This  technology  allows the
smaller  vessel  to  be  automatically   refilled  from  a  larger  one  without
interrupting the surgery or medical procedure.

      We also have several patent  applications  pending before the U.S.  Patent
and Trademark Office,  and hold a number of corresponding  patents in Europe and
other major markets.

      During the 2004 and 2003 fiscal years, we expensed  $187,992 and $131,015,
respectively,  on research and development activities. The higher costs incurred
during 2004 were primarily associated with the development of the SafetyWand.

      We rely on a combination of patent, copyright, trade secret, and trademark
laws and  employee  and third  party  nondisclosure  agreements  to protect  our
intellectual property rights. Despite the precautions taken by us to protect our
products,  unauthorized parties may attempt to reverse engineer, copy, or obtain
and use products and information  that we regard as  proprietary,  or may design
products  serving  similar  purposes  that  do  not  infringe  on  our  patents.
Litigation  may be necessary  to protect our  intellectual  property  rights and
could  result in  substantial  cost to us and  diversion  of our efforts with no
guarantee of success. Our failure to protect our proprietary information and the
expenses  of doing so could  have a  material  adverse  effect on our  operating
results and financial condition.

      While  there  are  no  current  claims  that  our  products  infringe  the
proprietary  rights of third  parties,  there  can be no  assurance  that  third
parties  will not assert  infringement  claims  against  us in the  future  with
respect to current or future products or that any such assertion may not require
us to cease selling such products, or to enter into arrangements that require us
to pay royalties,  or to engage in costly litigation.  Although we have 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 our
products  infringe  upon  patent  or  proprietary  rights of  others,  we may be
required to modify our processes or to obtain a license. There can be


                                       9
<PAGE>

no assurance that we 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 us.

Government Regulation

      The  FDA  cleared  CompuDent  system  and  its  disposable  handpiece  for
marketing in the U.S., for dental applications in July 1996, the CompuMed system
for  marketing  in the  U.S.  for  medical  applications  in May  2001  and  the
SafetyWand for marketing in the U.S. for dental  applications in September 2003.
For us to commercialize our other products in the United States, we will have to
submit additional 510(k) applications with the FDA.

      The manufacture and sale of medical devices and other medical products 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 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 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  market
introduction of our products and could have a material  adverse effect on us. 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 of 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 more difficult  procedure requiring
extensive data, including pre-clinical and human clinical trial data, as well as
extensive literature, to prove the safety and efficacy of the device.


                                       10
<PAGE>

      Though CompuDent,  the SafetyWand and CompuMed have received FDA marketing
clearance,  there  can be no  assurance  that any of our  other  products  under
development will obtain the required regulatory  clearance on a timely basis, or
at all. If  regulatory  clearance of a product is granted,  such  clearance  may
entail  limitations on the indicated uses for which the product may be marketed.
In  addition,  modifications  may be made to 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 our  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 us.

      We are subject to pervasive and  continuing  regulation by the FDA,  whose
regulations  require  manufacturers  of medical devices to adhere to certain QSR
requirements 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 us 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 we are 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 us,
our officers or  employees.  Any action by the FDA could result in disruption of
our operations for an undetermined time.

      In  June  2003 we  received  CE mark in the  European  Common  Market  for
marketing in Europe of the SafetyWand  and The Wand  Handpiece  with Needle.  In
July 2003, we obtained  regulatory approval to sell CompuDent and its handpieces
in Australia and New Zealand.

Product Liability

      Failure  to  use  any of  our  products  in  accordance  with  recommended
operating  procedures  potentially  could result in  subjecting  users to health
hazards or injury.  Failures of our products to function  properly could subject
us to claims of liability.  We maintain liability insurance in an amount that we
believe is  adequate.  However,  there can be no  assurance  that our  insurance
coverage will be sufficient to pay product  liability claims brought against us.
A partially or completely  uninsured  claim,  if successful  and of  significant
magnitude, could have a material adverse effect on us.

Employees

      On December 31, 2004,  Milestone  had 31  full-time  employees,  including
three executive  officers,  a clinical director,  three domestic sales managers,
five sales support  representatives,  fifteen inside sales  representatives,  an
international  sales  manager,  an assistant  controller,  a bookkeeper,  and an
administrative assistant. In addition, 14 independent sales representatives sell
our CompuDent system.


                                       11
<PAGE>

CERTAIN RISK FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY

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

We have no history of profitable operations. Continuing losses could exhaust our
capital resources and force us to discontinue operations.

      Although  our  operations  commenced in November  1995,  until 1998 we had
limited revenues. For the years ended December 31, 1998, 1999, 2000, 2001, 2002,
2003, and 2004, our revenues were approximately $8.8 million, $2.9 million, $5.7
million,   $4.1  million,   $4.1  million,   $4.0  million,   and  4.8  million,
respectively.  In  addition,  we  have  had  losses  for  each  year  since  the
commencement of operations,  including net losses of approximately  $2.4 million
and $3 million for 2003 and 2004, respectively.  At December 31, 2004, we had an
accumulated  deficit of approximately  $47 million.  Unless we can significantly
increase sales of our CompuDent units, handpieces or other injection devices, we
expect to incur losses for the foreseeable future.

We cannot become  successful  unless we gain greater  market  acceptance for our
products and technology.

      As with any new technology, there is substantial risk that the marketplace
will not accept the potential benefits of this technology or be unwilling to pay
for any cost differential with the existing  technologies.  Market acceptance of
CompuDent,  the SafetyWand,  CompuMed and CompuFlo depends,  in large part, upon
our ability to educate potential customers of their distinctive  characteristics
and benefits and will require  substantial  marketing efforts and expense.  More
than 26,000 units of the CompuDent or its predecessors  have been sold worldwide
since 1998. Sales of disposable  handpieces in 2003 reflect a moderate  increase
in the world wide usage of our dental and medical systems.  We cannot assure you
that our current or proposed  products will be accepted by practitioners or that
any of the  current or  proposed  products  will be able to compete  effectively
against current and alternative products.

Our limited distribution channels must be expanded for us to become successful.

      Our future  revenues  depend on our ability to market and  distribute  our
anesthetic injection technology successfully. In the United States, we rely on a
limited number of independent representatives and in-house sales people. Abroad,
we lack distributors in many markets.  To be successful we will need to hire and
retain additional sales personnel,  provide for their proper training and ensure
adequate customer support. We cannot assure you that we will be able to hire and
retain an adequate  sales  force or engage  suitable  distributors,  or that our
sales force or  distributors  will be able to  successfully  market and sell our
products.

We depend on two  principal  manufacturers.  If we cannot  maintain our existing
relationships or develop new ones, we may have to cease our operations.

      We have informal  arrangements  with the manufacturer of our CompuDent and
CompuMed units and the principal  manufacturer of our handpieces for those units
pursuant to which they manufacture these products under specific purchase orders
but without any long-term contract or minimum purchase commitment.  We have been
supplied by these  manufacturers  since the  commencement of production in 1998.
However,  termination  of the  manufacturing  relationship  with  any  of  these
manufacturers  could  significantly  and adversely affect our ability to produce
and sell our products.  Though we have established an alternate source of supply
for our  handpieces in China and other  alternate  sources of supply  exist,  we
would need to recover our existing tools or have new tools produced to establish
relationships with new suppliers.  Establishing new manufacturing  relationships
could involve significant expense and delay. Any curtailment or interruptions of
the supply, whether or not as a result or termination of the relationship, would
adversely affect us.


                                       12
<PAGE>

We may be subject to product  liability claims that are not fully covered by our
insurance and that could put us under financial strain.

      We could be  subject  to  claims  for  personal  injury  from the  alleged
malfunction  or  misuse  of our  dental  and  medical  products.  While we carry
liability  insurance that we believe is adequate,  we cannot assure you that the
insurance  coverage  will  be  sufficient  to pay  such  claims  should  they be
successful.  A partially or completely  uninsured  claim,  if successful  and of
significant magnitude, could have a material adverse effect on us.

We rely on the continuing  services of our chairman and chief executive officer,
president and director of clinical affairs.

      We depend on the personal  efforts and abilities of our Chairman and Chief
Executive Officer,  our President who was promoted to this position from that of
Senior Vice President in September  2003, and our Director of Clinical  Affairs.
We maintain a key man life  insurance  policy in the amount of $1,000,000 on the
life of our  Chairman  and Chief  Executive  Officer.  However,  the loss of his
services  or the  services  of each of our  President  or  Director  of Clinical
Affairs,  on whom we  maintain no  insurance,  could have a  materially  adverse
effect on our business.

The market  price of our common  stock has been  volatile  and may  continue  to
fluctuate significantly because of various factors, some of which are beyond our
control.

      Our stock price has been  extremely  volatile,  fluctuating  over the last
three years between closing prices of $.42 and $7.77.  These  fluctuations  have
been unrelated to or disproportionately  affected by our operating  performance.
The market price of our common shares could continue to fluctuate  significantly
in response to a variety of factors, some of which may be beyond our control.

      We currently have outstanding  options,  warrants and series A convertible
preferred  stock to  purchase  3,229,407  shares of our  common  stock at prices
ranging  from $.87 to $13.50  per share  with a  weighted  average  exercise  or
conversion  price of $4.86.  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.  The market price of our common shares
has been volatile and may continue to fluctuate significantly because of various
factors, some of which are beyond our control.

We are controlled by a limited number of shareholders.

      Our  principal  shareholders,  Leonard Osser and K. Tucker  Andersen,  own
30.97% of the issued and  outstanding  shares of our common stock.  As a result,
they have the  ability to  exercise  substantial  control  over our  affairs and
corporate actions requiring shareholder approval,  including electing directors,
selling all or substantially  all of our assets,  merging with another entity or
amending our  certificate of  incorporation.  This de facto control could delay,
deter or prevent a change in control and could  adversely  affect the price that
investors might be willing to pay in the future for our securities.

Future sales or the potential for sale of a substantial  number of shares of our
common  stock could cause the trading  price of our common stock and warrants to
decline and could impair our ability to raise capital through  subsequent equity
offerings.

      Sales of a substantial  number of shares of our common stock in the public
markets,  or the perception  that these sales may occur,  could cause the market
price of our stock to decline and could  materially  impair our ability to raise
capital  through the sale of additional  equity  securities.  We currently  have
outstanding  options and  warrants to  purchase  3,225,017  shares of our common
stock at prices ranging


                                       13
<PAGE>

from $.87 to $13.50 per share with a weighted  average  exercise  or  conversion
price of $4.86.  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.  The market  price of our common  shares has been  volatile  and may
continue to fluctuate  significantly  because of various factors,  some of which
are beyond our control.  Currently,  there are 9,824,287  shares of common stock
actually issued and 9,790,954  outstanding.  Also,  there are another  4,246,292
shares of common stock reserved for future issuance as follows:

      o     up to 1,440,000 shares  underlying the warrants issued in the Public
            Offering;

      o     up  to  335,614  shares  underlying   warrants  granted  to  satisfy
            obligations in connection with the 2004 public offering;

      o     up to 432,000 shares underlying the representative's warrants issued
            in the Public Offering, including the shares underlying the warrants
            included in the representative's warrants;

      o     up to 314,333 shares underlying stock options previously granted, or
            to be granted, under our 1997 Stock Option Plan

      o     up to 500,000  shares  underlying  stock options to be granted under
            our 2004 Stock Option Plan;

      o     up to 1,219,955  shares  underlying other stock options and warrants
            that were granted and remained outstanding as of December 31, 2004;

      o     and

      o     4,390 shares of common  stock  underlying  our series A  convertible
            preferred stock;

      We have 9,790,954 shares of common stock  outstanding,  of which 5,824,287
are  freely  tradable.   The  remaining   3,966,667shares  are  either  held  by
"affiliates",  as defined  by the rules and  regulations  promulgated  under the
Securities  Act of 1933, or are  "restricted  securities" as defined in Rule 144
promulgated under the Securities Act of 1933. Of this amount, 271,303 restricted
shares not held by affiliates and 3,695,364 restricted or non-restricted  shares
held by "affiliates,"  can only be sold in compliance with the timing and volume
limitations of Rule 144 promulgated under the Securities Act of 1933.

The decrease of our  outstanding  shares as a result of the reverse stock split,
without  change to our authorized  capitalization,  increased the ability of our
board of directors to issue shares  without  stockholder  approval.  Issuance of
shares may dilute the value of our outstanding  shares or have a negative impact
on the trading price of the common stock.

      The 1-for-3 stock split  effected in January 2004 reduced our  outstanding
shares from 18,338,033 to 6,112,678 (9,663,907 shares after giving effect to the
consummation of the Public Offering and related  issuances of units).  Since the
reverse stock split was effected  without change in our authorized  shares,  the
differential  between  outstanding shares and authorized shares increased,  thus
providing the Board of Directors with increased  ability to effect  issuances of
stock without stockholder  authorization.  For example,  shares may be issued in
capital  raising  transactions,  mergers  or  acquisitions  or for  compensatory
reasons  where  other  governing  rules or statutes  do not  separately  require
stockholder  approval.  The  issuance  of these  shares for less than their book
value or for less  than  value  paid by  purchasers  in the  recently  completed
offering could have a dilutive effective on purchasers in this offering. Further
the  issuance  of the shares  could also have a negative  impact on the  trading
price of our then  outstanding  common stock,  including the stock issued in the
recently completed offering


                                       14
<PAGE>

Implementation of procedures to comply with the Sarbanes-Oxley Act and SEC rules
concerning  internal  controls  may be so costly that  compliance  could have an
adverse effect on us.

      We must comply with  Sarbanes-Oxley  requirements  requiring a  management
report on internal control over financial reporting  disclosure  requirements in
our annual  report for our  financial  year ending  December 31, 2006. It may be
time-consuming,  costly  and  difficult  for us to  develop  and  implement  the
necessary internal controls and reporting  procedures,  possibly requiring us to
hire additional  personnel.  These additional costs could have an adverse effect
on our profitability.

If  we  are  unable  to  satisfy  the  American   Stock   Exchange   maintenance
requirements,  our common stock may be delisted from the American Stock Exchange
and,  as a  result,  our  liquidity  and the  value of our  common  stock may be
impaired.

      Shares of our common  stock are  currently  listed on the  American  Stock
Exchange.  Continued  listing on the American  Stock  Exchange  requires that we
maintain at least  $6,000,000 in  stockholders'  equity since we have  sustained
losses in our five  most  recent  fiscal  years.  We  received  notice  from the
American  Stock  Exchange on January 4, 2005  indicating  that we were below the
Exchange's  continued listing  standards  requiring  stockholders'  equity of $6
million.  On January 14, 2005 we submitted a plan to the Exchange for  regaining
compliance with the Exchange's  stockholder equity continued listing requirement
by the end of the plan period on June 30, 2005. On January 27, 2005 the Exchange
determined  that this plan made a  reasonable  demonstration  of our  ability to
regain  compliance with the continued  listing  standards by the end of the plan
period. As a result of the acceptance of this plan, we will remain listed on the
Exchange  until the end of the plan  period,  subject to periodic  review by the
Exchange  to  determine  whether we are  progressing  consistent  with the plan.
However,  failure  to make such  progress  could  result  in our being  delisted
earlier from the  Exchange.  If our  securities  are delisted from the Exchange,
trading,  if any, in our  securities  would be conducted in the over the counter
market on the NASD's "OTC Bulletin  Board".  Consequently,  the liquidity of our
securities could be impaired, not only in the number of securities that could be
bought  and  sold,  but also  through  delays  in the  timing  of  transactions,
reduction in security  analyst and news media  coverage of Milestone,  and lower
prices for our securities than might otherwise be obtained.

Item 2. Description of Property

Our offices are located in Livingston Corporate Park in Livingston,  New Jersey.
We lease  approximately 4,503 square feet of office space including 1,810 square
feet  of  additional  office  space  acquired  in  April  2004.  As part of this
expansion,  the lease term was extended  through June 30, 2009 at a monthly cost
of $7,317 which we believe to be competitive. We may have to increase our office
space again in the future,  and we believe that we will be able to find adequate
premises on comparable terms. A third party distribution and logistics center in
Pennsylvania handles shipping and order fulfillment on a month to month basis.

Item 3. Legal Proceedings

      Not applicable

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

      Not applicable.


                                       15
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

      Milestone's  Common Stock is traded on the American  Stock  Exchange under
the symbol  "MS" and the Pacific  Stock  Exchange  under the symbol  "MS." As of
March 18, 2004,  Milestone's  warrants are traded on the American Stock Exchange
under the symbol "MS.WS".  Milestone's  units,  each consisting of two shares of
common stock and one warrant to purchase one share of common stock traded, under
the symbol  "MSE.U" for a limited 30 day period  beginning  on February 18, 2004
and ending on March 17, 2004 at prices ranging from $5.50 to $5.62.

      Common Stock

      The following table sets forth the high and low sales prices of our Common
Stock, as quoted by the American Stock Exchange after adjustment for the 1-for-3
reverse stock split in January 2004.

                                                                  HIGH     LOW
                                                                  ----     ---

     2003
     First Quarter.............................................   $0.96    $0.45
     Second Quarter............................................   $1.20    $0.54
     Third Quarter.............................................   $4.98    $0.81
     Fourth Quarter............................................   $7.77    $3.09
     2004
     First Quarter ............................................   $4.20    $2.38
     Second Quarter............................................   $2.46    $1.75
     Third Quarter.............................................   $2.48    $1.67
     Fourth Quarter............................................   $1.85    $1.55

         Warrants

         The following table sets forth the high and low sales prices of our
warrants, each to purchase one share of common stock, as quoted by the American
Stock Exchange, commencing on March 18, 2004, their first day of trading.

     2004
                                                                  HIGH     LOW
                                                                  ----     ---
     First Quarter (Commencing March 18 and ending March 31)...   $.65     $.55
     Second Quarter............................................   $.70     $.25
     Third Quarter.............................................   $.60     $.26
     Fourth Quarter............................................   $.52     $.26


                                       16
<PAGE>

Holders

      According to the records of our transfer agent,  there were  approximately
3,000 holders of record of our common stock as of December 31, 2004.

Dividends

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

Sales of Unregistered Securities

      In July 2002,  we issued  62,500 units  consisting  of one share of common
stock and one  warrant to  purchase  an  additional  share of common  stock to a
vendor in accordance with the agreement valued at $150,000.

      In August 2002,  we issued  66,667  shares of common stock in exchange for
payment of $90,000 of outstanding legal fees.

      On August  13,  2002 we  received  a  binding  commitment  (modifying  and
confirming  a March  29,  2002  undertaking),  requiring  our legal  counsel  to
purchase equity securities,  valued at fair market value, in payment of $200,000
of then accrued legal fees. The specific  timing of this issuance is governed by
a  December  22,  2003  agreement.  Pursuant  to the  agreement,  we issued  and
delivered 30,675 Units in February 2004. The investor is an accredited investor.

      In June 2003 we issued a 6% convertible  note in the amount of $50,000 and
warrants to purchase 53,419 shares of our common stock at $1.56 per share.

      In September 2003 we issued a 6% convertible note in the amount of $50,000
and warrants to purchase 5,000 shares of our common stock at $6.00 per share.

      In October 2003 we issued 1,646,419 shares of common stock in satisfaction
of 6% / 12%  Secured  and  Senior  Secured  Notes  in the  aggregate  amount  of
approximately  $5  million.  We also  committed  to issue  25,365  shares  of 8%
convertible  preferred stock in satisfaction of $25,365 of principal and accrued
interest.  The preferred  stock will be convertible  into 4,390 shares of common
stock at $5.79. Subsequently, we issued 94,327 additional shares of common stock
to these former  noteholders  as  consideration  for their  previous  consent to
extend the maturity date of these notes.

      On October 9, 2003 we entered into a binding  agreement with our CEO and a
major investor  under which we have sold and issued to them 246,044 units,  each
consisting  of two shares of common  stock and one warrant to purchase one share
of common stock (the  "Units") in payment of $1,604,204 of debt and interest due
to our CEO and a major investor,  and  approximately  58,896 Units in payment of
$384,000 of accrued  compensation  due to our CEO.  The Units were issued on the
date of our offering. Both investors are accredited investors.

      On  October  31,  2003 we issued  102,195  shares of our  common  stock to
principal vendors,  in satisfaction of trade payables in the aggregate amount of
approximately $503,000.

      In April,  2004,  we issued to Marina Co., a nominee of partners of Morse,
Zelnick,  Rose & Lander LLP, our legal counsel,  options expiring April 16, 2009
for the purchase of 160,000 shares of our common stock,  at an exercise price of
$3.26 per share,  and  warrants,  expiring  April 16, 2009,  to purchase  80,000
shares of our common  stock at $4.89 per share,  as  partial  consideration  for
services rendered in connection with our February, 2004 public offering.


                                       17
<PAGE>

      In April  2004,  pursuant to an  agreement  to  purchase  media  placement
services, we issued 1,106 shares of common stock valued at $2,500.

      In May of 2004, we issued 1,133 options for consulting  services valued at
$1,548.

      On May 10, 2004, our Board of Directors granted options,  expiring May 10,
2009,  to purchase  40,000  shares of our common  stock at an exercise  price of
$2.25 per share, to our investor  relations  consultant as consideration for the
provision of consulting services.  On the same date, the Board of Directors also
granted options,  expiring May 10, 2009, for the purchase of an aggregate number
of 59,668  shares of common  stock at an exercise  price of $4.92 per share,  to
certain vendors in payment of services.

      On August 31, 2004, we issued 36,331 shares to a vendor, LC Mold, Inc., in
satisfaction of $70,410 of payables owed in connection with the manufacturing of
product molds for our Safety Wand product.

      In November  2004,  we satisfied the $50,000  promissory  note and accrued
interest at 6% of $4,475 by issuing 58,200 shares of common stock.

      In December  2004 we issued 6,060 shares having a fair value of $10,000 to
two employees and 9,091shares to a distributor having a fair value of $15,000.

      The foregoing  securities  were issued in reliance upon the exemption from
the  registration  requirements  of the  Securities  Act of  1933,  as  amended,
provided in Section 4(2) thereof,  as a transaction by an issuer not involving a
Public Offering. The registrant reasonably believed that each purchaser had such
knowledge  and  experience  in financial  and business  matters to be capable of
evaluating the merits and risks of the investment, each purchaser represented an
intention to acquire the securities  for investment  only and not with a view to
distribution   thereof  and  appropriate  legends  were  affixed  to  the  stock
certificates  or warrants.  No  commissions  were paid in  connection  with such
issuances.


                                       18
<PAGE>

ITEM 6. Management's Discussion and Analysis or Plan of Operation.

      You should read the following  discussions of our financial  condition and
results of operations in conjunction with the financial statements and the notes
to those statements  included elsewhere in this Form 10-KSB. This discussion may
contain  forward-looking  statements that involve risks and  uncertainties.  Our
actual  results  may  differ   materially   from  those   anticipated  in  these
forward-looking  statements  as a result of certain  factors,  such as those set
forth under "Risk Factors" and elsewhere in this Form 10-KSB.

OVERVIEW

We began 2004 with a six point plan to penetrate the dental and medical  markets
with our computer controlled injection technologies as outlined below:

      o     Complete the equity raise necessary to fund the business operations.

      o     Develop  a  domestic  sales  organization  to  market  and  sell our
            products

      o     Develop new product  offerings to  compliment  the existing  product
            lines and generate higher revenues. Secure patent protection for all
            new technologies.

      o     Continue to invest in our core technology platform.

      o     Grow our sales  volume by double digit  amounts over the  comparable
            period of the previous year.

      o     Manage our spending to achieve cash flow breakeven within the second
            quarter 2005.

Based upon the  results  to date,  we believe  that we have  achieved  or are in
position  to achieve  all of the above  objectives.  We have  developed a highly
trained  domestic  sales  organization  to  penetrate  31  markets in the United
States.  We have thus far covered 25 markets.  Accordingly we have increased our
spending  and  incurred  losses,  all of which  were  planned  in line  with our
projections.  We believe  that the return on this  investment  has been and will
continue to be increased  revenues.  From the second quarter 2004, revenues have
increased by double digit percentages  compared to the comparable quarter in the
previous year.

During  2004,  we  developed a new  consumer  tooth  whitening  product line and
entered into a manufacturing and distribution  agreement with a third party. The
third party has in turn entered into a marketing  agreement,  which provides for
the sale of the  products  through  infomercials  followed  by  major  worldwide
retailers.  We expect these  arrangements to generate revenues for us commencing
in early 2005 on a no-risk basis, as all costs, including tooling, marketing and
the infomercial expenses, will be incurred by the third parties.

During 2004, we continued  development of our  Professional  Whitening  product,
which is targeted to the dental  office.  This product also targets a very large
market  and offers a lower  priced,  safer  alternative  to  existing  whitening
products.  We anticipate  significant margins on the whitening gels in excess of
70% while also  commanding a strong margin on the equipment used to activate the
gels of over 50%.  The  launch of this  product  is  expected  within the second
quarter of 2005.

We have also developed new advanced sophisticated technology,  for which we have
been  granted  patent  protection  that  can be used  for a  number  of  medical
purposes,  including  the  delivery of epidural  injections.  A prototype of the
epidural injection device has been successfully reviewed in two clinical studies
at a major university connected hospital.

      Our focus on sales and  marketing  initatives  are reflected in the strong
revenue  growth  in  2004.   Revenues  have  increased  both   domestically  and
internationally, generated from increases in all product lines


                                       19
<PAGE>

including  CompuDent  units, an increasing base of handpiece sales and the sales
from CoolBlue  products.  CompuDent unit sales increased by 25% domestically and
12.8% internationally. Worldwide handpiece sales increased by 20.7% over 2003.

      The following  table shows a breakdown of our revenues,  domestically  and
internationally,  by product  category,  and the  percentage of total revenue by
each product category:

                                              Year Ended December 31,
                                             -------------------------
                                           2004                    2003
                                           ----                    ----
DOMESTIC
 CompuDent                        $  813,610      24.1%   $  649,156       23.2%
 Handpieces                        2,334,297      69.1%    1,933,052       69.1%
 Other                               230,627       6.8%      214,245        7.7%
                                  ----------   -------    ----------   --------
Total Domestic                    $3,378,534     100.0%   $2,796,453      100.0%
                                  ----------   -------    ----------   --------

INTERNATIONAL
 CompuDent                        $  682,708      49.7%   $  605,378       51.5%
 Handpieces                          682,968      49.8%      567,302       48.3%
 Other                                 6,976       0.5%        2,574        0.2%
                                  ----------   -------    ----------   --------
Total International               $1,372,652     100.0%   $1,175,254      100.0%
                                  ----------   -------    ----------   --------

DOMESTIC/INTERNATIONAL ANALYSIS
 Domestic                         $3,378,534      71.1%   $2,796,453       70.4%
 International                     1,372,652      28.9%    1,175,254       29.6%
                                  ----------   -------    ----------   --------
Totals                            $4,751,186     100.0%   $3,971,707      100.0%
                                  ==========   =======    ==========   =======

      We have  earned  gross  profits  of 49.2%  and  49.6% in the  years  ended
December 31, 2004 and 2003,  respectively.  However,  our revenues have not been
sufficient  to support  our  overhead,  research  and  development  expense  and
interest on our debt. We have therefore reported  substantial losses for each of
those  periods.  We have taken  steps to cut our  overhead,  increase  sales and
reduce our interest expense.

      In  contrast  to the cost  containment  measures  in place  through  2003,
because of cash constraints, 2004 was a period of planned expansion with a focus
on investing in revenue  generating  opportunities.  The completed February 2004
public offering  enabled us to execute our strategic plan of creating a domestic
sales organization,  expand marketing and advertising programs and invest in new
product  development.  During 2004, our operating  results  reflected  increased
spending in the following areas:

            o     Hired and trained 3 new sales managers and 19 combined  inside
                  and outside sales  representatives  to penetrate the US dental
                  market.

            o     Contracted  with  advertising  placement  agencies  and market
                  research firm to maximize the  effectiveness  of our sales and
                  marketing efforts.

            o     Invested in research and development and patent  protection on
                  new and existing products including  SafetyWand,  CoolBlue and
                  CompuFlo products.

      During 2003, we took several  steps to reduce our  operating  overhead and
improve our utilization of cash. These included  reconfiguring  our sales force,
cutting  marketing  expenses,  closing our Illinois facility and outsourcing the
receiving,  shipping and storage functions  previously  conducted there. We also
took several steps to reduce our debt burden,  including  cutting interest rates
on some of our Notes and  satisfying  certain  debts.  We took steps intended to
increase  future  revenues,  one of which  was to  complete  development  of the
SafetyWand and make it available commercially.


                                       20
<PAGE>

Since our public  offering  in  February  2004 we have  invested  heavily in the
development of a national sales organization  implementing the new marketing and
sales plan successfully tested in 2003. This sales force is currently configured
as follows:

      o     Manager of Outside Sales Representatives

                  Seven outside sales representatives

      o     Manager of Inside Sales

                  Seventeen  inside  sales  representatives  communicating  with
                  customers primarily by telephone, e-mail and fax

                  Four sales support representatives working in conjunction with
                  our outside sales representatives

      We anticipate eventually having 10 outside sales representatives, while we
plan to  increase  our inside  sales  representatives  to a total of 21. In both
cases,  however,  we have experienced an attrition rate of approximately 35% per
year.

      We plan to further  support our  increased  sales and  marketing  activity
through an increase in trade show appearances,  increased  advertising to dental
professionals  and, perhaps,  direct to consumer  advertising.  Since our public
offering we have provided  further support for our expanded  activities  through
added investment in the following areas:

SafetyWand

      o     Purchase of multi-cavity production tooling enabling the manufacture
            of adequate  inventory levels of the SafetyWand at manageable costs.
            This  tooling  cost  approximately  $291,000  and is now in use  for
            production.  Since  SafetyWand  can only be used with our  CompuDent
            unit and since the Federal  Needle Stick Safety Act requires the use
            of safety engineered sharps, we believe that SafetyWand will provide
            additional  motivation for dentists in the United States to purchase
            CompuDent.

Tooth Whitening and Curing

      o     Acquisition of inventory component parts to manufacture our CoolBlue
            Light System

                  Inventory cost of approximately $95,000 is currently in use to
                  manufacture our CoolBlue product for the dental market.

      o     Acquisition for tooling for this product line.

                  The cost of  tooling to ensure  adequate  supply of the molded
                  plastic parts was approximately  $64,000,  and is currently in
                  use

CompuFlo

      o     Development of new software for the epidural clinical studies

                  Required  additional  engineering  effort to make the software
                  suitable for clinical studies

      o     Research related activities to support the software  development and
            clinical trials

                  Conducted a focus group in  addition  to other  marketing  and
                  clinical research

Current Condition of Milestone

      With the progress  achieved in 2004, we believe that we are now positioned
to seize the market  opportunities  that we believe are  available to us through
our patent protected  products.  We believe that our ownership of the SafetyWand
technology in the light of OSHA  regulations  issued  pursuant to recent federal
and  state  government  legislation  mandating  needle  stick  safety  standards
positions  us to become a leading  provider  for  dentists and other health care
professionals  in the  administration  of  local  anesthesia.  We have  used the
financial  resources  gained in the Public Offering to build the  infrastructure
necessary to market our products  throughout the United States. Our goal in 2005
is to carry  out the plan we  initiated  in 2004  and grow our  revenue  base of
CompuDent users,  thereby increasing our recurring revenue stream from the sales


                                       21
<PAGE>

of our consumable hand piece products.

      New Sales Promotion Program:

      One of the persistent  issues that prevents  dentists from  purchasing the
CompuDent  system is the recurring cost for handpieces.  Milestone has not faced
pricing pressures on the drive unit,  raising prices several times from a low of
$1,000 in 1998 to the $2,495 current retail price. However,  Milestone has found
that once dentists begin using CompuDent in a regular way their concern with the
$1.50  cost  of  each  handpiece  disappears.  Accordingly,  in  December  2004,
Milestone  piloted a program  whereby  the  dentist  would  purchase a CompuDent
system at full retail  price and receive a one year supply of  handpieces  free.
This program was very  successful,  with 31 new customers  participating in this
program.

      Based on the success of this  program and taking into  account the lack of
pricing resistance on the purchase of the drive unit,  Milestone has implemented
a sales program in the first quarter of 2005 designed to drive revenues from the
sale of the CompuDent unit. The program particulars follow:

      1.    After upgrading the CompuDent  system,  increase its retail price in
            the U.S. to $2,495 from $2,195.  This will increase the gross margin
            on the unit to 87%.

      2     Offer to  first-time  buyers of CompuDent at the retail price a free
            one  year  supply  of  handpieces,   including  our  new  SafetyWand
            handpiece.

      3     Additional new programs have been implemented.

      The premise of this  program is to increase the  installed  base of users,
eliminate  the initial cost issue  associated  with  handpieces  and nurture the
customer so that they will begin purchasing handpieces when they run out.

      Enhanced CompuDent

      o     A  software   enhancement   to  the  current   CompuDent   will  add
            TurboFlo(TM) , enabling a practitioner to deliver medication using a
            third speed.  This eliminates one of the few remaining  obstacles to
            the sale of the product,  as some  practitioners  are concerned that
            the system takes  longer to deliver  medication  than a  traditional
            syringe.

      o     The retail price of the CompuDent has been  increased to $2,495,  as
            the enhanced feature will add significant value to the sale.

      SafetyWand

      This product has been launched in January 2005 in California,  Chicago and
the New York  metropolitan  areas and will be  launched  in the rest of the U.S.
during the second  quarter.  Plans for the  introduction of this product include
advertising in professional  journals,  promotional activity during trade shows,
website enhancement and awareness campaigns targeted to existing users.

      Professional Tooth Whitening Product

      There are two basic methods used to whiten teeth in the dental office. The
first method, which varies in price from $600 to $900, utilizes a high intensity
plasma arc light to illuminate a very potent gel material on the teeth. The heat
from this light  accelerates  the whitening  process.  After  application of the
gels,  the teeth are  illuminated  for 20 minutes and then the gels are removed.
This is repeated at least twice. This method typically takes between one and two
hours.  The patient is given a home kit which  consists of custom  molded  trays
which the dentist must produce  requiring  approximately  30 minutes of time for
their teeth and enough gel material to continue the treatment for several days.


                                       22
<PAGE>

      The second  method,  which costs  between  $300 and $500,  consists of the
dentist  making  custom molds of the  patient's  teeth and providing the patient
with gel  material  which is applied for one hour per day over a period of three
to five weeks.

      The CoolBlue Tooth  Whitening  system is a professional  whitening  system
marketed  directly to dental  offices.  The  technique  used with this system is
differentiated from the competition in the following manner.

      1.    It uses blue Light Emitting Diodes (LED) to accelerate the whitening
            process.

      2.    It  requires a minimum  amount of time in the dental  chair,  as the
            teeth are  illuminated for only ten seconds which is enough to begin
            the whitening process.

      3.    The patient goes home with our proprietary  whitening  rinse,  which
            does  not  require  custom  trays,  again  reducing  the time in the
            dentist's office.

      This  method has  advantages  for both the dentist  and  patient.  For the
dentist,  it requires less chair time,  which increases the number of patients a
dentist can see. It will also cost  considerably less than the methods described
above,  and thus has the  potential to increase the dentist's  margin.  From the
patients' perspective, less chair time and lower costs are both very attractive.

      We believe  that the sales  initiative  for this product will enable us to
access an expanded  number of dental  offices,  thereby  providing an opening to
sell our core product - the  CompuDent  system.  It is our intention to make the
CoolBlue Tooth Whitening system available in the second quarter of 2005.

      Consumer Tooth Whitening Product

      Ionic White(TM) Tooth Whitening  system is a consumer  product designed to
whiten and  brighten  teeth.  This  product uses a  proprietary  formulation  of
whitening gels in  conjunction  with an intra-oral  mouthpiece  which contains a
series of blue LEDs used to accelerate the whitening process.  There are patents
pending  in the US and  internationally  on both the  design  and method of this
product

      What  differentiates  this  product  from  other  over the  counter  (OTC)
consumer products can be summed up in the following points:

      o     The  formulation  of the whitening gels uses micropore gel, which is
            1/10th the size of the  typical  molecules  used in tooth  whitening
            products.  This  allows  the gels to enter the  dentin  tubules  for
            superior whitening.

      o     The unique construction of the intra-oral mouthpiece allows the gels
            to  migrate  to the top and bottom of the teeth as well as the front
            and back. OTC products, including whitening strips, typically whiten
            only the front of the teeth. As teeth are  translucent,  if the back
            of the teeth are stained, the teeth will not look white.

      o     The  initial  process  takes  only  21  minutes.  There  will  be  a
            noticeable  difference in the  brightness of the teeth after just 21
            minutes, and once the customer begins using the whitening rinse on a
            regular basis, their teeth will continue to whiten.

      o     Following  any  whitening  procedure,  teeth will continue to stain,
            primarily due to coffee,  tea and other items that cause chromagenic
            stain.  The Ionic  White  system also uses a  proprietary  whitening
            rinse,  which when used with the  intra-oral  mouthpiece,  maintains
            white, bright teeth.

      There will be two  products  marketed.  The first is the starter kit which
will contain 3 applications of the whitening gels, the intra-oral  mouthpiece as
well as a 30 day supply of the  whitening  rinse.  The second kit will include 3
applications  of the  whitening  gels  and  another  30 - 60 day  supply  of the
whitening rinse.  The recurring  revenue will come from customer who begin using
the starter kit and want to maintain white, bright teeth.


                                       23
<PAGE>

      Milestone  has  reached an  agreement  with  United  Systems,  a specialty
manufacturer, to produce the Ionic White as well as to distribute the product on
an exclusive,  world wide basis.  The agreement  with United Systems calls for a
minimum of one  million  starter  kits over the first four years of the  initial
twenty-year  contract  period.  United  Systems  in  turn  has  entered  into  a
distribution  agreement  with a major  marketing  company  that  specializes  in
television  infomercials.  This  agreement  calls for a minimum  of two  million
starter kits over the four year term of the  agreement.  The  marketing  company
also has access to retail slots with the major retailers in the US for products.
The  marketing  company's  goal is to begin  placing the product into the retail
outlets once the product has received adequate exposure via infomercials.

      Ionic White was launched via television infomercials in March 2005.

      The technology underlying our SafetyWand,  the CompuFlo and an improvement
to the controls for CompuDent were developed by our Director of Clinical Affairs
and assigned to us. We purchased this technology  pursuant to an agreement dated
January 1, 2005, for,  43,424 shares of restricted  common stock and $145,000 in
cash, payable on April 1, 2005. In addition, he will receive additional deferred
contingent  payments of 2.5% of the total sales price of products  using certain
of these technologies, and 5% of the total sales price of products using certain
other of the  technologies.  If products  produced  by third  parties use any of
these   technologies   (under   license  from  us)  then  he  will  receive  the
corresponding  percentage of the  consideration  received by us for such sale or
license.

      The technology  underlying our CoolBlue  Professional  Whitening and Ionic
White Consumer Whitening Products was acquired from DaVinci Systems. We will pay
a 7% royalty to Da Vinci  Systems on the amounts paid to us by our joint venture
partner as a result of its sale of the consumer whitening product.

      We will also pay a 5% fee to Strider Inc. on the amounts paid to us by our
joint venture partner as a result of its sale of the consumer whitening product.
Strider  assisted in bringing  the  CoolBlue  and Ionic White  product  lines to
Milestone.

      Summary of Significant Accounting Policies

      Our  discussion  and analysis of our  financial  condition  and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of  America.  The  preparation  of these  consolidated  financial
statements  requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent  assets and  liabilities.  On an  on-going  basis,  we  evaluate  our
estimates,  including those related to accounts receivable,  inventories,  stock
based  compensation  and  contingencies.  We base our  estimates  on  historical
experience and on various other  assumptions  that are believed to be reasonable
under  the  circumstances,  the  results  of which  form the  basis  for  making
judgments  about the  carrying  values of assets  and  liabilities  that are not
readily  apparent  from other  sources.  Actual  results  may differ  from those
estimates under different assumptions or conditions.

Inventory

      Inventories  principally  consist of finished  goods and  component  parts
stated at the lower of cost (first-in, first-out method) or market.

Impairment of Long-Lived Assets

      We review  long-lived  assets for impairment  whenever  circumstances  and
situations change such that there is an indication that the carrying amounts may
not be recovered.

Revenue Recognition

      Revenue  is  recognized  when  title  passes at the time of  shipment  and
collectibility is reasonably assured.


                                       24
<PAGE>

Results of Operations

      The  consolidated  results of operations  for the year ended  December 31,
2004 compared to 2003 reflect our focus on the development and implementation of
our strategic sales and marketing  initiatives in the United States. During 2004
we recruited and trained 22 sales  personnel  including three new sales managers
and 19 inside and outside sales representatives.  Our spending on marketing also
increased through more aggressive advertising and greater attendance at industry
tradeshows.  Increased expenses  associated with this expansion are in line with
management's expectations and contribute to a greater loss compared to 2003.

      The  following  table sets forth for the periods  presented,  statement of
operations data as a percentage of revenues.  The trends suggested by this table
may not be indicative of future operating results.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                  ----------------------------------------------
                                                           2004                      2003
                                                  ----------------------    ---------------------
<S>                                               <C>             <C>       <C>            <C>
Net sales                                         $ 4,751,186     100.0%    $ 3,971,707    100.0%
Cost of Sales                                       2,415,826      50.8%      2,003,139     50.4%
Gross Profit                                        2,335,360      49.2%      1,968,568     49.6%
Selling, general and administration expenses        5,155,569     108.5%      3,483,439     87.7%
Closing of Deerfield facility                              --       0.0%         86,165      2.2%
Research & development                                187,992       4.0%        131,015      3.3%
Loss from operations                               (3,008,201)    -63.3%     (1,732,051)   -43.6%
</TABLE>

Fiscal Year ended December 31, 2004 compared to year ended December 31, 2003

      Net sales for the years ended  December 31, 2004 and 2003 were  $4,751,186
and  $3,971,707,  respectively.  The  $779,479 or 19.6%  increase  is  primarily
related to a $164,454  or 25.3%  increase  in domestic  sales of  CompuDent  and
CompuMed,  an  increase  of  $77,330  or 12.8% in  international  CompuDent  and
CompuMed sales and a $516,910 or 20.7%  increase in worldwide  sales of the Wand
handpieces. Total domestic sales, including CompuDent, CompuMed, handpieces, and
our new CoolBlue  products  increased  20.8%,  while total  international  sales
increased by 16.8% in 2004.

      Cost of sales  for the  years  ended  December  31,  2004  and  2003  were
$2,415,826  and  $2,003,139,  respectively.  The $412,687  increase is primarily
attributable  to the  additional  cost of  goods  sold for the  higher  revenues
previously discussed.

      For the year ended December 31, 2004,  Milestone  generated a gross profit
of  $2,335,360 or 49.2% as compared to a gross profit of $1,968,568 or 49.6% for
the year ended  December 31, 2003. The increase in total gross profit is related
to the  19.6%  increase  in  revenues.  The  slight  decrease  in  gross  profit
percentage is the net result of improved  margins from increased  domestic sales
as a percentage of total sales,  offset by lower margins associated with bundled
pricing offerings.  Sales to foreign  distributors are of higher volume but at a
reduced margin.

      Selling,  general and administrative expenses for the years ended December
31, 2004 and 2003 were $5,155,569 and $3,483,439,  respectively.  The $1,672,130
or 48.0% increase is primarily  attributable to Milestone's  continued execution
of its strategy to develop our domestic sales force and  distribution  capacity.
Sales  headcount  increased  from 1  manager,  3  sales  representatives  and 10
independent   contractors  in  2003  to  4  sales  managers,   19  inside  sales
representatives and 14 independent contractors.  Accordingly, hiring and related
employee expenses increased by $674,000, a 46.1% increase over the prior period.
Legal and  professional  fees  increased  by  $369,000  or 74.5% for legal  fees
relating to divisional patent  protection for CompuFlo and SafetyWand  products,
advertising  and marketing  initiatives  and investor  relations  expenses.  The
increases  in these  expenses  were  anticipated  and in line with  management's
strategy of investing in revenue generating areas of the business.


                                       25
<PAGE>

      Research and  development  expenses for the years ended  December 31, 2004
and 2003 were  $187,992 and $131,015  respectively.  These costs are  associated
with the development of Milestone's SafetyWand, CoolBlue and CompuFlo products.

      The loss from  operations  for the years ended  December 31, 2004 and 2003
was $3,008,201 and  $1,732,051,  respectively.  The $1,276,150  increase in loss
from operations is explained above.

      Interest  income of $80,867 was earned through  December 31, 2004 compared
with no  interest  income for the prior  year.  This  difference  was due to the
change in cash balances related to the February equity placement.

      Interest  expense of $69,530 was incurred for the year ended  December 31,
2004 as compared to $680,857 for the year ended  December 31, 2003. The decrease
is mainly  attributable  to a $5 million debt to equity  conversion on September
30, 2003 and a $1.4 million retirement of debt in the first quarter of 2004.

      The net  loss for the year  ended  December  31,  2004 was  $2,996,864  as
compared to a net loss of $2,412,908  for the year ended  December 31, 2003. The
$583,956  increase in net loss is the result of planned  increases  in operating
expenses explained above offset by lower debt service costs.

Liquidity and Capital Resources

      Public  Offering.  On February 17,  2004,  we  significantly  improved our
liquidity  position by completing a $9.4 million  public  offering ($7.6 million
after underwriter  discount,  underwriter non accountable  expense allowance and
other  expenses).  Overall,  for the year ended  December 31, 2004, we generated
$7,818,919  from financing  activities.  This amount  consisted of $7,868,919 of
proceeds  from the  public  offering,  reduced  by a  $50,000  payment  of notes
payable.  Additional  costs of $248,815 related to the Public Offering were paid
in 2003. The public offering consisted of the sale of 1,440,000 units at a price
of $6.52 per unit.  Each unit  consisted  of two shares of common  stock and one
warrant.  The warrants  included in the units are  exercisable at any time after
they become  separately  tradable until their  expiration date, five years after
the date of the closing of the public  offering  at an  exercise  price equal to
$4.89 Some or all of the  warrants may be redeemed by us at a price of $0.01 per
warrant,  by giving not less than 30 days notice to the holders of the warrants,
which we may do at any time,  beginning 6 months from the effective  date of the
offering after the closing price for our common stock on the principal  exchange
on which it trades (i.e.  AMEX) has equaled or exceeded 200% of the price of our
common stock on the effective date of the offering.

      Restructuring  and  additional  financing.  We also improved our liquidity
position in 2004 by continuing  the process,  begun in 2003, of satisfying  debt
and  paying  liabilities  through  issuance  of equity  securities.  We  reached
agreements  with a major investor and our CEO and a principal  vendor to satisfy
approximately  $2,541,000 of promissory notes, accrued interest,  trade payables
and deferred compensation through the issuance of common stock and proceeds from
the  public  offering.  In  February  2004,  to  satisfy  $640,000  of  deferred
compensation to the Company's CEO, approximately  $1,700,000 in promissory notes
and $200,000 of accounts  payable,  we issued  335,614 units at a price of $6.52
per unit and paid approximately $353,000 from the net proceeds received from the
Public  Offering.  In April of 2004 we issued  1,106  shares of our common stock
having a fair value of $2,500 to principal vendors in payment of trade payables.
In August of 2004 we issued  36,331  shares of our  common  stock  having a fair
value of $70,411 to a principal vendor as partial payment for equipment.  In May
2004 we paid out $52,033 in connection with the  satisfaction of a 6% short term
note payable of $50,000 plus accrued interest. In November 2004 we issued 58,200
shares of our common  stock in  satisfaction  of a 6% short term note payable of
$50,000 plus accrued interest.  Lastly, in December 2004 we issued 15,151 shares
of common  stock  having a fair  value of  $25,000  to two key  employees  and a
principal vendor in recognition of contributions made during 2004.

      Use of proceeds of public offering; sales expansion efforts. The completed
February  2004  public  offering  enabled us to execute  our  strategic  plan of
creating  a  domestic  sales  organization,  expand  marketing  and  advertising
programs and invest in new product development.  Some of the net proceeds of the
offering


                                       26
<PAGE>

were used to pay down  promissory  notes,  the credit  facilities,  interest and
deferred  compensation  as discussed  above.  The  remainder of the proceeds are
being used  primarily  to expand and support our  domestic  sales and  marketing
efforts for CompuDent and  professional  CoolBlue  products,  including a market
focused sales  organization  penetrating the top 31 dental markets in the United
States,  new  marketing  and  advertising  campaigns,  support the launch of the
recently announced  SafetyWand product line, expand  international sales efforts
and develop commercial models of products using other new subcutaneous injection
technologies.

      The costs  incurred in connection  with  execution of our sales  expansion
plan had near term negative  effects on our  liquidity.  In contrast to the cost
containment  measures implemented in 2003, in 2004 our operating results reflect
increased spending in the following areas:

            o     Hired and trained 3 new sales managers and 19 combined  inside
                  and  outside  sales  representatives  to  penetrate  US dental
                  market.

            o     Contracted  with  advertising  placement  agencies  and market
                  research firm to maximize the  effectiveness  of our sales and
                  marketing efforts.

            o     Invested in research and development and patent  protection on
                  new and existing products including  SafetyWand,  CoolBlue and
                  CompuFlo products.

      Operating  overhead  and  cash  flow  results  for  2004.  As shown in the
accompanying  consolidated  financial  statements,  we  incurred  a net  loss of
approximately  $2,997,000 and a negative cash flow from operating  activities of
approximately   $4,285,000  during  the  year  ended  December  31,  2004,  both
representing  increases  against 2003.  Facilitated  by the increased  liquidity
resulting from the proceeds of our February 2004 public  offering,  our selling,
general and administrative expense for 2004 of $5,155,569 represents an increase
in spending of $1,672,130 or 48%. As a percentage of revenue,  selling,  general
and  administrative  expense  grew  from 88% in 2003 to  1.09%  in  2004.  As of
December 31, 2004, we had cash and cash equivalents of $3,041,306.  For the year
ended  December  31,  2004,  our net  cash  used  in  operating  activities  was
$4,284,869. This was attributable primarily to a net loss of $2,996,864 adjusted
for noncash items of $135,264 and a change in operating  assets and  liabilities
amounting to $1,423,269.

      For the year ended  December  31,  2004,  we used  $496,021  in  investing
activities.  These expenditures  included a $350,529 purchase of fixed assets, a
$75,536 payment to Spintech's  shareholders,  a subsidiary company of Milestone,
to acquire Spintech's patent rights, and a $69,956 payment for the investment in
a German based distributor.

      Need for  additional  capital.  Although  at  December  31, 2004 our total
stockholders'  equity was $4,520,707,  we need a net worth of $6,000,000 at June
30, 2005 to remain in compliance  with  continued  listing  requirements  of the
American Stock Exchange. Accordingly, during 2005, we intend to seek new sources
of equity  funding.  However,  we can give no assurance  that we will be able to
find new sources of funding on  acceptable  terms.  The  issuance of  additional
equity  securities  may impair the value of our  stock.  Further,  if we fail to
satisfy the  American  Stock  Exchange's  listing  requirements  with respect to
stockholder  equity,  we could be delisted from the Exchange after June 30, 2005
or earlier if we fail to make progress consistent with the plan of recovery that
we  submitted  to the  Exchange.  Any  delisting  would,  in turn,  make it more
difficult for us to raise capital in the public markets.

Recent Accounting Pronouncements

      In January 2003, the Financial  Accounting Standards Board ("FASB") issued
Interpretation   No.  46,   Consolidation  of  Variable   Interest   Entities-an
Interpretation  of ARB No.  51 ("FIN  46"),  which  addresses  consolidation  of
variable  interest  entities.  FIN 46 expands the criteria for  consideration in
determining  whether a variable  interest  entity  should be  consolidated  by a
business entity, and requires existing unconsolidated variable interest entities
(which include, but are not limited to, special purpose entities, or SPEs) to be
consolidated by their primary  beneficiaries  if the entities do not effectively
disperse risks among parties involved. On October 9, 2003, the FASB issued Staff
Position No. 46-6 which  deferred the effective date for applying the provisions
of FIN 46 for interests held by public entities in variable interest entities or
potential  variable  interest  entities  created  before  February  1, 2003.  On
December 24, 2003, the FASB issued


                                       27
<PAGE>

a revision to FIN 46. Under the revised  interpretation,  the effective date was
delayed  to  periods  ending  after  March 15,  2004 for all  variable  interest
entities,  other than SPEs. The adoption of FIN 46 did not have an impact on our
financial condition, results of operations or cash flows.

      In  December  2004,   the  FASB  issued  SFAS  No.  123  (revised   2004),
Shared-Based  Payment ("FAS 123R"), which replace FAS 123 and supercedes APB No.
25. FAS 123R requires all share-based payments to employees, including grants of
employee stock options,  to be recognized in the financial  statements  based on
their fair values  beginning  with the first interim or annual period after June
15, 2005, with early adoption encouraged.  The pro forma disclosures  previously
permitted under FAS 123 no longer will be an alternative to financial  statement
recognition.  The Company is required to adopt FAS 123R  beginning July 1, 2005.
Under FAS 123R, the Company must determine the  appropriate  fair value model to
be  used  for  valuing  share-based   payments,   the  amortization  method  for
compensation cost and the transition method to be used at date of adoption.  The
transition  methods include  prospective and retroactive  adoption options.  The
Company is currently assessing the impact that FAS 123R will have on our results
of operations.

      In  November  2004,  the FASB issued SFAS No.  151,  Inventory  Costs,  an
amendment  of ARB No.  43,  Chapter 4 ("FAS  151").  FAS 151  amends  Accounting
Research  Bulletin no. 43,  Chapter 4, to clarify that abnormal  amounts of idle
facility expense, freight, handling costs and wasted materials (spoilage) should
be recognized as current-period  charges. In addition,  FAS No 151 requires that
allocation  of fixed  production  overhead to  inventory  be based on the normal
capacity  of the  production  facilities.  FAS  151  is  effective  for  periods
beginning  January 1, 2006 and is not expected to have a  significant  impact on
the Company's results of operations or financial position.

      In December  2004,  the FASB issued SFAS No. 153,  Exchange of Nonmonetary
Assets,  an amendment of APB No. 29,  Accounting  for  Nonmonetary  Transactions
("FAS  153").  FAS  153  amends  APB  No.  29 to  eliminate  the  exception  for
nonmonetary  exchanges  of  similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial  substance.  A nonmonetary  exchange has commercial  substance if the
future cash flows of the entity are expected to change significantly as a result
of the  exchange.  Adoption of FAS 153 is required on a prospective  basis,  for
nonmonetary  exchanges  beginning  after June 15,  2005.  We do not expect  this
standard to have any impact on the Company's  results of operations or financial
position.

Item 7. Consolidated Financial Statements

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

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

      Not applicable.

Item 8A. Controls and Procedures

      A)    Evaluation  of  Disclosure  Controls  and  Procedures.   Milestone's
            management,  with the  participation of the chief executive  officer
            and the chief  financial  officer,  carried out an evaluation of the
            effectiveness  of Milestone's  "disclosure  controls and procedures"
            (as defined in the Securities Exchange Act, Rule 13a-14a. Based upon
            that  evaluation,  the Chief  Executive  Officer and Chief Financial
            Officer   concluded  that   Milestone's   disclosure   controls  and
            procedures were effective,  as of the date of their evaluation,  for
            purposes of recording, processing,  summarizing and timely reporting
            material  information  required to be disclosed in reports  filed by
            Milestone under the Securities  Exchange Act of 1934.  There were no
            changes  in our  internal  control  over  financial  reporting  that
            occurred  during  Milestone's  most recent fiscal  quarter that have
            materially affected,  or are reasonably likely to materially affect,
            Milestone's internal control over fiscal reporting.


                                       28
<PAGE>

                                    PART III

Item 9. Directors and Executive Officers of the Registrant

      The current executive  officers,  directors and key personnel of Milestone
and their respective ages as of March 30, 2005 are as follows:

<TABLE>
<CAPTION>
NAME                                AGE                  POSITION                         DIRECTOR SINCE
<S>                                 <C>   <C>                                                  <C>
Leonard A. Osser.................   57    Chairman and Chief Executive Officer                 1991
Stuart J. Wildhorn...............   47    President
Kevin T. Lusardi.................   48    Vice President and Chief Financial Officer
Mark Hochman, D.D.S..............   47    Director of Clinical Affairs
Eugene Casagrande, D.D.S.........   61    Director of Professional Relations
Paul Gregory(2)..................   70    Director                                             1997
Leonard M. Schiller(1)(2)........   63    Director                                             1997
Jeffrey Fuller(1)                   59    Director                                             2003
Leslie Bernhard(1)...............   60    Director                                             2003
</TABLE>

----------
(1)   Member of the Audit Committee

(2)   Member of the Compensation Committee

      Leonard A. Osser has been our Chairman and Chief  Executive  Officer since
July 1991. From 1980 until the  consummation  of Milestone's  Public Offering in
November  1995,  he was  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.

      Stuart J. Wildhorn has been our President  since  September 2003 and prior
to that he had been our Senior Vice President  since April 2001. From 1990 until
April 2001,  Mr.  Wildhorn held  progressive  senior  management  positions with
Datex-Ohmeda,  a leading  manufacturer  of  anesthesia  and  patient  monitoring
products.

      Kevin T. Lusardi has been our Vice President and Chief  Financial  Officer
since  June  2004.  Mr.  Lusardi  is a CPA and  holds a BA  degree  in  Business
Administration  from Muhlenberg  College.  From 1986 until May 2004, Mr. Lusardi
worked  in the  telecommunications  industry  spending  14  years  with  Verizon
Wireless where he held progressive senior financial management positions and two
years with Everest Broadband Networks as the Corporate Controller.

      Dr. Mark Hochman has been a clinical  consultant  to Milestone  since 1997
and has served as the Director of Clinical  Affairs and Director of Research and
Development  since 1999.  He has a doctorate  of dental  surgery  with  advanced
training in the  specialties  of  periodontics  and  orthodontics  from New York
University College of Dentistry and has been practicing dentistry since 1984. He
holds a faculty  appointment as a clinical associate  professor at NYU School of
Dental  Surgery.  Dr. Hochman is a recognized  world  authority on advanced drug
delivery systems, has published numerous articles in this area and is personally
responsible  for  inventing  much of the  technology  currently  available  from
Milestone.

      Dr. Eugene Casagrande has been the Director of Professional  Relations for
Milestone  since  September  1998. In his capacity,  Dr.  Casagrande  represents
Milestone  in a variety of clinical  and  industry  related  opportunities.  Dr.
Casagrande is the President and founder of Casagrande  Consulting  Services,  an
entity devoted to quality management to the dental industry.

      Paul  Gregory has been a director  of  Milestone  since  April  1997.  Mr.
Gregory has been a business


                                       29
<PAGE>

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.

      Leonard M. Schiller has been a director of Milestone since April 1997. Mr.
Schiller  has  been a  partner  in the  Chicago  law firm of  Schiller,  Klein &
McElroy,  P.C. since 1977. He has also been  President of The Dearborn  Group, a
residential property management and real estate acquisition company since 1980.

      Jeffrey  Fuller has been a director of Milestone  since January 2003.  Mr.
Fuller has been  president  and owner of two  municipal  water  supply  systems,
Hudson Valley Water Co. and Lake Lenape Water Co. since 1983 and in addition has
been an executive recruiter since 1995. Early in his career, for a period of two
years,  he was an auditor with Arthur  Andersen  LLP, and  thereafter,  for four
years, a senior  internal  auditor with the Dreyfus Corp. Mr. Fuller has been an
adjunct professor since 2002 at Berkeley  College,  NY, teaching several courses
including Accounting.

      Leslie  Bernhard  has been a director  of  Milestone  since May 2003.  Ms.
Bernhard co-founded AdStar,  Inc., and since 1986 has been its president,  chief
executive officer and a director.  AdStar is an application service provider for
the newspaper classified advertising industry.

      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.

      Milestone's  Board of Directors  has  established  compensation  and audit
committees.  The Compensation  Committee  reviews and recommends to the Board of
Directors  the  compensation  and  benefits of all the  officers  of  Milestone,
reviews  general  policy  matters  relating  to  compensation  and  benefits  of
employees  of  Milestone,  and  administers  the  issuance  of stock  options to
Milestone's  officers,  employees,  directors and consultants.  All compensation
arrangements  between  Milestone and its directors,  officers and affiliates are
reviewed  by the  compensation  committee,  the  majority of which is made up of
independent directors. The Audit Committee meets with management and Milestone's
independent  auditors to determine  the adequacy of internal  controls and other
financial reporting matters.  The board of directors has determined that Jeffrey
Fuller qualifies as an Audit Committee Financial Expert pursuant to Item 401 (e)
of regulations S-B. Mr. Fuller is independent, as that term is used in Item7 (d)
(3)(iv) of schedule 14A under the Exchange Act.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires  Milestone's
officers  and  directors,  and persons who own more than ten percent  (10%) of a
registered class of Milestone'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  Milestone with copies of all Section 16(a) forms
they file.

      To the best of Milestone's knowledge, based solely on review of the copies
of such forms furnished to Milestone,  or written  representations that no other
forms  were  required,   Milestone   believes  that  all  Section  16(a)  filing
requirements applicable to its officers,  directors and greater than ten percent
(10%) shareholders were complied with during 2004.

Code of Ethics

      Milestone  has  adopted  a code of  ethics  that  applies  to  Milestone's
principal  executive  officer,  principal  financial  officer and other  persons
performing similar  functions.  This code of ethics is posted on Milestone's web
site at www.milesci.com.


                                       30
<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, 2004,
2003,  and 2002 by (i)  Milestone'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 2004  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") and may be provided to any person,  without charge,  upon a
written request, made to Milestone's Chief Financial Officer.

                          SUMMARY OF COMPENSATION TABLE

<TABLE>
<CAPTION>
                                               ANNUAL          COMMON     COMMON STOCK
                                            COMPENSATION       STOCK       UNDERLYING
                                               SALARY          AWARD        OPTIONS
NAME AND PRINCIPAL POSITION        YEAR          $               #             #
------------------------------   --------  --------------    ---------   --------------
<S>                                <C>         <C>            <C>            <C>
Leonard A. Osser                   2004        300,000(1)
 Chief Executive Officer           2003        351,770(2)                    16,667
 and Chairman                      2002        351,800(3)                    16,667
Stuart J. Wildhorn                 2004        180,740        3,030(4)
 President                         2003        163,207
                                   2002        155,400                        2,333
Kevin T. Lusardi                   2004         81,599                       30,000
 Chief Financial Officer and
 Vice President
Thomas A. Stuckey                  2004        145,385
 Chief Financial Officer and       2003        144,835
 Vice President (6)                2002        136,267(5)                     2,333
</TABLE>

      (1) Includes  $150,000 in deferred  compensation  in  accordance  with his
      employment  agreement  to be paid in common  stock and not paid  until the
      termination of the agreement in 2010.  Excludes  $25,773 paid by Milestone
      to  Marilyn  Elson,  a  certified  public  accountant,  in  payment of tax
      services. Ms. Elson is the wife of Mr. Osser.

      (2) Includes  $320,000 in deferred  compensation but excludes $51,928 paid
      by Milestone to Marilyn Elson, a certified public  accountant,  in payment
      of tax services and assistance with preparation of the recently  completed
      registration statement.

      (3) Includes  $320,000 in deferred  compensation but excludes $19,049 paid
      by  Milestone  to  Marilyn   Elson,   Mr.  Osser's  wife,  in  payment  of
      professional tax services.

      (4) On December 16, 2004, the Board of Directors approved a grant of 3,030
      shares of restricted stock to Mr. Wildhorn.  The dollar value of the grant
      reflected in the Summary  Compensation  Table is calculated by multiplying
      the shares by $1.65,  the closing price of Milestone  stock on the date of
      grant.  Dividends  are not paid on  restricted  stock.  The value of these
      shares was $5,393 on December 31, 2004 based on a closing price of $1.78.

      (5) Includes a $20,000 bonus paid in 2002.

      (6) Mr. Stuckey was CFO until his resignation on June 9, 2004. Mr. Stuckey
      was paid a severance package through December 31, 2004


                                       31
<PAGE>

                                  STOCK OPTIONS

      The following  tables show certain  information  with respect to incentive
and  non-qualified  stock  options  granted  in 2004 to Named  Executives  under
Milestone's  1997 Stock Option Plan and the aggregate value at December 31, 2004
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.

               Option Grants In 2004 Individual Grants Of Options

<TABLE>
<CAPTION>
                               NUMBER OF       PERCENT OF TOTAL
                            SHARES OF COMMON   OPTIONS GRANTED
                            STOCK UNDERLYING    TO EMPLOYEES     EXERCISE PRICE
NAME                            OPTIONS            IN 2004           ($/SH)        EXPIRATION DATE
----                            -------            -------           ------        ---------------
<S>                             <C>                  <C>             <C>              <C>
Stuart J. Wildhorn........      16,667(1)            20%             $4.92            05-09-09
Kevin T. Lusardi..........      30,000(1)            37%             $2.00            12-21-09
</TABLE>

(1)   Options vest ratably one third on each anniversary date of the grant date

                     Aggregated 2004 Year End Options Values
                  For Options Granted Prior To And During 2004

                                  Number of Shares of
                                         Common
                                    Stock Underlying      Value of Unexercised
                                      Unexercised        In-The-Money Options At
                                 Options At 12-31-2004       12-31-2004 (1)
                                      Exercisable/            Exercisable/
                 Name                Unexercisable            Unexercisable

      Leonard A. Osser.........     16,667 / 50,000           $0 / $17,333
      Stuart J. Wildhorn.......     19,000 / 16,667             $0 / $0
      Kevin T. Lusardi.........        0 / 30,000               $0 / $0

(1)   Based on the closing  price on December 31, 2004 of $1.78 as quoted on the
      American Stock Exchange.

Employment Contracts

      In December 2003,  Milestone entered into a new employment  agreement with
Mr.  Osser for a  five-year  term  commencing  January  1,  2004.  Under the new
agreement Mr. Osser receives base compensation of $300,000 per year, payable one
half in cash and one half in common stock valued at the average closing price of
the  common  stock  during the first 15  trading  days in the month of  December
during  each year of the term.  While the number of shares to be issued  will be
determined  each year,  the stock will not be issuable until the end of the term
of the  agreement.  In  addition,  Mr.  Osser may earn  annual  bonuses up to an
aggregate  of $300,000,  payable one half in cash and one half in common  stock,
contingent upon Milestone  achieving  predetermined  annual operating cash flow,
revenue and earnings  targets.  For 2005 he can earn a $100,000 bonus based upon
Milestone achieving break-even cash flow from operations, a $100,000 bonus based
upon  Milestone  achieving net revenues of $7,000,000 and a $100,000 bonus based
upon  Milestone  achieving  break-even  earnings  determined in accordance  with
generally accepted accounting  principles.  The cash flow bonus and the earnings
bonus will not be payable to the extent  that the  payment  thereof  will reduce
operating cash flow or earnings below break-even,  respectively. For purposes of
the  agreement  operating  cash flow shall mean cash flow from  operations  plus
accounts  receivable  increases and less accounts payable  increases.  Shares of
common stock issued in partial  payment of bonuses will be valued at the average
closing  price of the common stock during the first 15 trading days in the month
of December during each year of the term. The stock portion of the bonus awards,
if any, will be paid at the end of the term of the agreement.


                                       32
<PAGE>

      In  addition,  if during any year of the term of the  agreement  Mr. Osser
earns a bonus under the above  formula,  he shall also be granted  5-year  stock
options to purchase  twice the number of shares earned under the above  formula,
each such option to be exercisable at a price per share equal to the fair market
value of a share on the date of grant (110% of fair market value if Mr. Osser is
a 10% or greater  stockholder on the date of grant).  The options shall vest and
become  exercisable  to the extent of one-third of the shares covered at the end
of each of the first three years following the date of grant,  but shall only be
exercisable while Mr. Osser is employed by Milestone or within 30 days after the
termination of his employment.

Compensation Of Directors

      Milestone  paid no cash or stock based  compensation  to the  directors in
2004.  On March 19,  2005,  Milestone  awarded to each of its outside  directors
options  expiring March 19, 2010 for the purchase of 20,000 shares of its common
stock,  exercisable  immediately  at $3.27 per share,  with  respect to the year
starting with  Milestone's  2004 annual meeting and ending with Milestone's 2005
annual meeting.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters

      The following table, together with the accompanying footnotes,  sets forth
information,  as of March 29,  2005,  regarding  stock  ownership of all persons
known by Milestone to own beneficially  more than 5% of Milestone's  outstanding
common stock, Named Executives, all directors, and all directors and officers of
Milestone as a group:

                                                    Shares of
                                                   Common Stock
                                                   Beneficially    Percentage of
            Name of Beneficial Owner (1)             Owned (2)       Ownership

    Executive Officers and Directors

    Leonard Osser...............................    1,673,146(3)       15.71%
    Stuart J. Wildhorn..........................       27,586(4)         *
    Paul Gregory................................       30,858(5)         *
    Leonard M. Schiller.........................       37,672(6)         *
    Jeffrey Fuller..............................       26,667(7)         *
    Leslie Bernhard                                    26,667(8)         *
    All directors & executive officers as a
      group (6 persons).........................    1,822,596          17.11%
    K. Tucker Andersen..........................    2,078,168(9)       19.51%

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

      (1) The  addresses  of the  persons  named in this  table are as  follows:
      Leonard A. Osser, and Stuart Wildhorn are both at 220 South Orange Avenue,
      Livingston  Corporate Park,  Livingston,  NJ 07039;  Thomas M. Stuckey, 19
      Grant Avenue Highland Park, NJ 08904;  Paul Gregory,  Innovative  Programs
      Associates Inc., 370 E. 76th Street, New York, New York 10021;  Leonard M.
      Schiller, Schiller, Klein & McElroy, P.C., 33 North Dearborn Street, Suite
      1030, Chicago,  Illinois 60602; Jeffrey Fuller, Eagle Chase,  Woodbury, NY
      11797;  Leslie  Bernhard,  AdStar,  Inc., 4553 Glencoe Avenue,  Suite 325,
      Marina del Rey,  California  90292;  K. Tucker  Anderson,  c/o  Cumberland
      Associates LLC, 1114 Avenue of the Americas, New York, New York 10036.


                                       33
<PAGE>

      (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  annual
      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  the  number  of  all  shares,   including  those  underlying   options
      exercisable  within 60 days from the  filing  of this  report  held by the
      named individual,  divided by 9,790,954 outstanding shares on December 31,
      2004 and those shares underlying  options  exercisable within 60 days from
      the filing of this report.

      (3) Includes (i) 204,728  shares  issuable  upon exercise of stock options
      within  60 days of the date  hereof,  which are  exercisable  at $6.00 and
      120,994  shares  issuable upon the exercise of warrants  within 60 days of
      the date hereof, which are exercisable at $4.89.

      (4) Includes 16,667 shares subject to stock options, exercisable within 60
      days of the date hereof at $7.50 per share,  2,333 shares subject to stock
      options, exercisable within 60 days of the date hereof at $2.25 per share,
      5,556 shares subject to stock options,  exercisable  within 60 days of the
      date hereof at $4.92 per share and 3,030 shares held by Mr. Wildhorn.

      (5) Includes 50 shares held by Mr. Gregory's wife, 4,141 shares subject to
      stock options,  exercisable within 60 days of the date hereof at $4.83 per
      share,  6,667 shares subject to stock options,  exercisable within 60 days
      of the date hereof at $1.50 per share and 20,000  shares  subject to stock
      options,  exercisable  within  60 days of the date  hereof  at  $3.27  per
      share..

      (6) Includes 4,141 shares subject to stock options,  exercisable within 60
      days of the date hereof at $4.83 per share,  6,667 shares subject to stock
      options, exercisable within 60 days of the date hereof at $1.50 per share,
      20,000 shares subject to stock options,  exercisable within 60 days of the
      date hereof at $3.27 per share and 6,864 shares held by Mr. Schiller.

      (7) Includes 6,667 shares subject to stock options,  exercisable within 60
      days of the date  hereof at $1.50 per share and 20,000  shares  subject to
      stock options,  exercisable within 60 days of the date hereof at $3.27 per
      share.

      (8) Includes 6,667 shares subject to stock options,  exercisable within 60
      days of the date  hereof at $1.50 per share and 20,000  shares  subject to
      stock options,  exercisable within 60 days of the date hereof at $3.27 per
      share.

      (9)  Includes  393,559  shares  subject  to  warrants  all  of  which  are
      exercisable  within  sixty (60) days of the date hereof at prices  ranging
      from $3.75 to $9.00.


                                       34
<PAGE>

       Securities Authorized for Issuance Under Equity Compensation Plans

                      Equity Compensation Plan Information

      The following table summarizes the (i) options granted under the Milestone
1997 Stock  Option  Plan,  and (ii)  options and  warrants  granted  outside the
Milestone 1997 Stock Option Plan, as of December 31, 2004. The shares covered by
outstanding  options  and  warrants  are  subject to  adjustment  for changes in
capitalization stock splits, stock dividends and similar events. No other equity
compensation has been issued.

<TABLE>
<CAPTION>
                                                     Number of                              Number of
                                                    securities(1)        Weighted          securities(1)
                                                    to be issued         -average       remaining available
                                                   upon exercise      exercise price        for future
                                                   of outstanding      of outstanding     issuance under
                                                      options,           options,             equity
                                                    warrants and      warrants and         compensation
                                                       rights             rights               plans
                                                   --------------------------------------------------------
<S>                                                    <C>               <C>                <C>
Equity compensation plans approved by
  stockholders (1):
Grants under our 1997 Stock Option Plan...........     256,116           $3.70              58,217
Equity compensation plans not approved by
  stockholders(2)
  Aggregate Individual Option Grants..............     463,297           $4.84              Not Applicable
    Total.........................................     719,413           $4.44
</TABLE>

      (1)  Consisting  of our 1997 stock option plan covering a total of 333,333
      common  shares  underlying  options  issuable  to  officers  and other key
      employees and excluding  2,333  options,  which were  exercised in October
      2003, and 16,667 options,  which were exercised in December 2003. The plan
      has a term of 10 years and is administered by a committee appointed by the
      board of directors. The committee, in its sole discretion,  determines who
      is eligible to receive these  incentive  stock  options,  how many options
      they will receive,  the term of the options,  the exercise price and other
      conditions relating to the exercise of the options.  Stock options granted
      under the plan must be  exercised  within a maximum  of 10 years  from the
      date of grant at an  exercise  price that is not less than the fair market
      value of the common  shares on the date of the grant.  Options  granted to
      shareholders owning more than 10% of our outstanding common shares must be
      exercised  within five years from the date of grant and the exercise price
      must be at least 110% of the fair market value of the common shares on the
      date of the grant.

      (2) The aggregate  individual  option grants outside the Stock Option Plan
      referred  to in the table  above  include  options  issued as payment  for
      services  rendered to us by outside  consultants  and providers of certain
      services. The aggregate individual warrant grants referred to in the table
      above  include  warrants  granted to  investors  in  Milestone  as part of
      private placements and credit line arrangements.

      In July,  2004 the Board of  Directors  approved  the adoption of the 2004
      Stock  Option Plan.  The 2004 Stock Option Plan  provides for the grant of
      options to  purchase up to 500,000  shares of  Milestone's  common  stock.
      Options may be granted to employees,  officers,  directors and consultants
      of Milestone  for the purchase of common stock of Milestone at a price not
      less than the fair  market  value of the  common  stock on the date of the
      grant. In general,  options become  exercisable  over a three-year  period
      from the grant date and expire five years  after the date of grant.  As of
      December 31, 2004, no option grants were made out of the 2004 Stock Option
      Plan.

Item 12. Certain Relationships and Related Transactions

      As of September 30 and November 10, 2003 we issued an aggregate of 147,011
shares of common stock to Mr.  Osser in  repayment of $404,459 of principal  and
accrued  interest on the 6%/12% notes and the prior extension of these notes, an
aggregate of 779,184 shares of common stock to K. Tucker Andersen, in


                                       35
<PAGE>

satisfaction of $2,345,304 of principal and accrued  interest on the 6%/12%,  8%
and 10% notes and the prior extension of these notes and an aggregate of 660,257
shares of  common  stock to  Cumberland  Associates,  LLC,  in  satisfaction  of
$1,816,450 of principal  and accrued  interest on the 6%/12% notes and the prior
extension of these  notes.  The shares  issued to Mr.  Osser,  Mr.  Andersen and
Cumberland  Associates,  represented  their share of common  stock issued to the
holders  of that debt in the  aggregate  amount  of  approximately  $5  million,
including  accrued  interest,   and  Mr.  Osser,  Mr.  Andersen  and  Cumberland
Associates  received  no extra or special  benefit  that was not shared on a pro
rata basis by all of the holders of that debt.

      On October 9, 2003 we reached an agreement to satisfy  $1,265,545  of debt
and accrued interest due to a major investor,  K. Tucker Andersen,  and $435,985
of debt and accrued  interest and $640,000 of deferred  compensation  due to our
Chief  Executive  Officer and  Chairman,  Leonard  Osser.  Of the total debt and
accrued   interest  due  to  Messrs.   Andersen  and  Osser,  and  the  deferred
compensation owed to Mr. Osser,  $1,604,204 and $384,000  respectively were paid
February 24, 2004 through the issuance of 241,988 and 61,350 units valued at the
initial  offering  price.  The  remaining  $97,326  of  indebtedness  to Messrs.
Andersen and Osser and $256,000 of deferred  compensation  to Mr. Osser was paid
in cash on February 23, 2004.  The cash portion of the total payment  represents
the estimated tax on the interest and compensation.

      The technology underlying our SafetyWand,  the CompuFlo and an improvement
to the controls  for the  Compudent  were  developed by our Director of Clinical
Affairs  and  assigned  to us.  We  purchased  this  technology  pursuant  to an
agreement  dated January 1, 2005,  for 43,424 shares of restricted  common stock
and $145,000 in cash,  payable on April 1, 2005.  In  addition,  he will receive
additional  deferred  contingent  payments of 2.5% of the totals  sales price of
products using certain of these technologies, and 5% of the total sales price of
products  using certain  other of these  technologies.  If products  produced by
third parties use any of these technologies (under license from us) then he will
receive the  corresponding  percentage of the  consideration  received by us for
such sale or license.

      We have adopted a policy that,  in the future,  the audit  committee  must
review all transactions with any officer, director or 5% shareholder.

Item 13. Exhibits

      Exhibits

      Certain of the  following  exhibits  were filed as  Exhibits  to  previous
filings filed by the Registrant under the Securities Act of 1933, as amended, or
reports filed under the Securities and Exchange Act of 1934, as amended, and are
hereby incorporated by reference.


                                       36
<PAGE>

EXHIBIT
  NO.                                  DESCRIPTION
-------     --------------------------------------------------------------------

3.1         Certificate of Incorporation of Milestone (1)

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

3.3         Certificate of Amendment filed December 6, 1996 (3)

3.4         Certificate of Amendment filed December 17, 1997 (4)

3.5         Certificate of Amendment filed July 23, 2003 (6)

3.6         Certificate of Amendment filed January 8, 2004. (6)

3.7         Certificate of Designation filed January 15, 2004 (6)

3.8         By-laws of Milestone (1)

4.1         Specimen stock certificate (2)

4.2         Intentionally Left Blank

4.3         Form of warrant agreement, including form of warrant (8)

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

10.2 to

10.25       Intentionally Left Blank

10.26       Letter from Leonard Osser,  dated April 15, 2003 deferring  payment.
            (5)

10.27       Letter from  Morse,  Zelnick,  Rose & Lander  LLP,  dated April 2003
            deferring payment. (6)

10.28       Line of Credit  for  $900,000  and  extension  of  $500,000  line of
            credit, dated April 15, 2003. (6)

10.29       Agreement with DaVinci Systems dated July 30, 2003. (6)

10.30       Agreement  with Mark Hochman and  amendments  thereto dated April 9,
            1998,  December  16, 1999,  November 28, 2001,  October 10, 2002 and
            December 19, 2003. (6)

10.31       Agreement with Strider dated September 3, 2003. (6)

10.32       Agreement  with Len Osser and K. Tucker  Andersen,  dated October 9,
            2003. (6)

10.33       Agreement  with Morse,  Zelnick,  Rose & Lander  dated  December 22,
            2003. (6)

10.34       Employment Agreement with Leonard Osser dated December 20, 2003. (6)

10.35       Agreement with United Systems dated October 20, 2004. *

10.36       Agreement with Mark Hochman dated as of January 1, 2005. *

10.37       Lease  amendment dated April 28, 2004 between  Livingston  Corporate
            Park Associates, L.L.C. and Milestone. *

14          Code of Ethics (7)

23.1        Consent of Eisner LLP*

23.2        Consent of J. H. Cohn LLP*

31.1        Rule 13a-14(a) Certifications - Chief Executive Officer*

31.2        Rule 13a-14(a) Certifications - Chief Financial Officer*

32.1        Section 1350 Certifications- Chief Executive Officer*

32.2        Section 1350 Certifications- Chief Financial Officer*

----------
*     Filed herewith.

(1)   Incorporated  by reference to Milestone's  Registration  Statement on Form
      SB-2 No. 33-92324.

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


                                       37
<PAGE>

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

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

(5)   Incorporated  by reference to Milestone's  Registration  Statement on Form
      S-2 No. 333-110376, Amendment No. 1.

(6)   Incorporated  by reference to Milestone's  Registration  Statement on Form
      S-2 No. 333-110376, Amendment No. 3.

(7)   Incorporated  by reference to  Milestone's  Form 10-KSB for the year ended
      December 31, 2003.

(8)   Incorporated  by reference to Milestone's  Registration  Statement on Form
      S-2 No. 333-110367, Amendment No. 5.


                                       38
<PAGE>

Item 14. Principal Accountant Fees and Services

      Audit Fees

            The  aggregate  fees billed  during 2004 and 2003 by J. H. Cohn LLP,
Milestone's principal accountant through June 10, 2004 were $101,209 and $98,872
respectively, each covering the audit of our annual financial statements and the
review of our financial statements for the first three quarters of each of these
years.  The aggregate fees billed since July 1, 2004 by Eisner LLP,  Milestone's
principal accountant since June 10, 2004, were approximately $100,000,  covering
the  audit  of our  annual  financial  statements  for 2004  and  review  of our
financial statements for the second and third quarters of 2004.

      Audit-Related Fees

            Eisner LLP billed  Milestone $5,850 in connection with the September
      2004 S-3 filing.  J. H. Cohn LLP billed  Milestone  $117,507 in connection
      with the February 2004 offering.  Progress  billing  totaling $40,000 were
      billed as of December 31, 2003 and was  included in deferred  registration
      cost on December 31, 2003.

      Tax Fees

            There  were no fees for  services  related  to tax  compliance,  tax
advice and tax planning billed by our principal accountants in 2003 and 2004.

      All Other Fees

            There were no other fees billed during 2003 and 2004 by  Milestone's
principal accountant.

      Audit Committee Administration of the Engagement

            The engagement with Eisner LLP,  Milestone's  principal  accountant,
was  approved in advance by our Audit  Committee.  No  non-audit  services  were
approved by the audit committee in 2004.

      Hours  expended  on audit by  persons  other  than  Milestone's  principal
      accountant's full time, permanent employees.

            The  percentage of hours expended on audit by persons other than the
Milestone's  principal  accountant's  full time,  permanent  employees,  did not
exceed 50%.


                                       39
<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
                                        ------------------------------------
                                        Chairman and Chief Executive Officer

Date: March 31, 2005

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, 2005 .

<TABLE>
<CAPTION>
       Signature                    Date                       Title
<S>                            <C>                 <C>


  /s/ Leonard Osser            March 31, 2005      Chairman, and Chief Executive Officer
------------------------
     Leonard Osser


  /s/ Kevin T. Lusardi         March 31, 2005      Vice President and Chief Financial Officer
------------------------
      Kevin T. Lusardi


  /s/ Leonard Schiller         March 31, 2005      Director
------------------------
     Leonard Schiller


  /s/ Paul Gregory             March 31, 2005      Director
------------------------
     Paul Gregory


  /s/ Jeffrey Fuller           March 31, 2005      Director
------------------------
     Jeffrey Fuller


  /s/ Leslie Bernhard          March 31, 2005      Director
------------------------
     Leslie Bernhard
</TABLE>


                                       40
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Milestone Scientific, Inc.

We have  audited  the  accompanying  consolidated  balance  sheet  of  Milestone
Scientific,  Inc. and  subsidiaries  as of December  31,  2004,  and the related
consolidated   statements  of  operations,   changes  in  stockholders'   equity
(deficiency)  and  cash  flows  for the  year  then  ended.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

In our opinion, the consolidated  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, 2004, and their
consolidated results of operations and their cash flows for the year then ended,
in conformity with United States generally accepted accounting principles.


/s/Eisner LLP

New York, NY
February 22, 2005, except as to Note R, the date of which is March 31, 2005


                                      F-1
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Milestone Scientific, Inc.

We have audited the accompanying consolidated statements of operations,  changes
in stockholders'  deficiency and cash flows for the year ended December 31, 2003
of Milestone  Scientific,  Inc. and Subsidiaries.  These consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the results of operations and cash flows of
Milestone  Scientific,  Inc. for the year ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.


/s/J.H. Cohn LLP

Roseland, New Jersey
March 26, 2004


                                      F-2
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2004

<TABLE>
<S>                                                                            <C>
                                     ASSETS
Current Assets:
  Cash and cash equivalents                                                    $  3,041,306
  Accounts receivable , net of allowance for doubtful accounts of $24,903           421,339
  Inventories                                                                       936,221
  Advances to contract manufacturer                                                  62,034
  Prepaid expenses                                                                  104,562
                                                                               ------------
        Total current assets                                                      4,565,462
  Investment in distributor, at cost                                                 69,956
  Equipment, net                                                                    612,263
  Patents, net                                                                      101,242
  Other assets                                                                       20,408
                                                                               ------------
        Total assets                                                           $  5,369,331
                                                                               ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                             $    474,075
  Accrued expenses                                                                  224,549
                                                                               ------------
     Total current liabilities                                                      698,624
Deferred compensation payable to officer                                            150,000
                                                                               ------------
    Total liabilities                                                               848,624
                                                                               ------------

Commitments and contingencies

Stockholders' Equity
  Preferred stock, par value $.001; authorized 5,000,000 shares 8% Cumulative
    convertible preferred stock, par value $.001; authorized,
    issued and outstanding, 25,365 shares                                                25
  Common stock, par value $.001; authorized 50,000,000 shares; 9,824,287
    shares issued and 9,790,954 shares outstanding                                    9,824
Additional paid-in capital                                                       52,618,913
Accumulated deficit                                                             (47,196,539)
   Treasury stock, at cost, 33,333 shares                                          (911,516)
                                                                               ------------
     Total stockholders' equity                                                   4,520,707
                                                                               ------------
        Total liabilities and stockholders' equity                             $  5,369,331
                                                                               ============
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-3
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                   2004            2003
                                                               ------------    ------------
<S>                                                            <C>             <C>
Net sales                                                      $  4,751,186    $  3,971,707
Cost of sales                                                     2,415,826       2,003,139
                                                               ------------    ------------

Gross profit                                                      2,335,360       1,968,568

Selling, general and administrative expenses                      5,155,569       3,483,439
Closing of Deerfield, IL facility                                        --          86,165
Research and development expenses                                   187,992         131,015
                                                               ------------    ------------
                                                                  5,343,561       3,700,619
                                                               ------------    ------------

Loss from operations                                             (3,008,201)     (1,732,051)

Other income (expense)
  Interest income                                                    80,867              --
  Interest expense                                                  (69,530)       (680,857)
                                                               ------------    ------------
  Other income (expense), net                                        11,337        (680,857)
                                                               ------------    ------------

Net loss                                                         (2,996,864)     (2,412,908)

Dividends applicable to preferred stock                              (2,029)             --
                                                               ------------    ------------
Net loss applicable to common stockholders                     $ (2,998,893)   $ (2,412,908)
                                                               ============    ============

Loss per share applicable to common stockholders - basic
  and diluted                                                  $      (0.33)   $      (0.52)
                                                               ============    ============

Weighted average shares outstanding - basic
  and diluted                                                     9,147,634       4,672,266
                                                               ============    ============
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-4
<PAGE>

                   Milestone Scientific Inc. and Subsidiaries
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                     Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                    Preferred Stock           Common Stock        Additional
                                                 ---------------------   ---------------------     Paid-in        Accumulated
                                                  Shares      Amount      Shares      Amount       Capital          Deficit
                                                 ---------   ---------   ---------   ---------   ------------    ------------
<S>                                                 <C>      <C>         <C>         <C>         <C>             <C>
Balance January 1, 2003                                                  4,244,457   $   4,244   $ 36,608,096    $(41,786,767)
Warrants issued pursuant to notes payable                                                              24,823
Amortization of stock options issued
  for future services
Common stock issued for payment of
  accounts payable                                                         102,195         102        502,698
Common stock issued for payment of
  outstanding debt and related interest                                  1,646,419       1,646      4,987,254
Common stock issued as additional
  consideration to noteholders                                              94,327          95        285,717
Preferred stock issued for payment of
  outstanding debt and related interest             25,365   $      25                                 25,089
Exercise of stock options                                                   19,000          19         57,731
Common stock issued under equity line                                       39,613          40        191,441
Stock fees                                                                                            (22,500)
Net loss                                                                                                           (2,412,908)
                                                 ---------   ---------   ---------   ---------   ------------    ------------
Balance, December 31, 2003                          25,365          25   6,146,011       6,146     42,660,349     (44,199,675)
Proceeds from equity financing, net                                      2,880,000       2,880      7,617,224
Common stock and warrants issued
  for payment of:
    Outstanding debt and related interest                                  492,087         492      1,603,712
    Accounts payable                                                        77,610          77        199,923
    Deferred compensation                                                  117,791         118        383,882
Common stock issued for payment of outstanding
  debt and related interest                                                 58,200          58         54,417
Common stock issued for equipment purchase                                  36,331          37         70,374
Common stock issued for payment of
  services rendered                                                         10,197          10         17,490
Common stock issued for payment of
  bonus & commissions                                                        6,060           6          9,994
Issuance of options for consulting services                                                             1,548
Net loss                                                                                                           (2,996,864)
                                                 ----------------------------------------------------------------------------
Balance, December 31, 2004                          25,365   $      25   9,824,287   $   9,824   $ 52,618,913    $(47,196,539)
                                                 ============================================================================

<CAPTION>

                                                   Unearned     Treasury
                                                 Compensation    Stock          Total
                                                 ------------  ----------    -----------
<S>                                               <C>          <C>           <C>
Balance January 1, 2003                           $  (20,000)  $ (911,516)   $(6,105,943)
Warrants issued pursuant to notes payable                                         24,823
Amortization of stock options issued
  for future services                                 20,000                      20,000
Common stock issued for payment of
  accounts payable                                                               502,800
Common stock issued for payment of
  outstanding debt and related interest                                        4,988,900
Common stock issued as additional
  consideration to noteholders                                                   285,812
Preferred stock issued for payment of
  outstanding debt and related interest                                           25,114
Exercise of stock options                                                         57,750
Common stock issued under equity line                                            191,481
Stock fees                                                                       (22,500)
Net loss                                                                      (2,412,908)
                                                  ----------   ----------    -----------
Balance, December 31, 2003                                --     (911,516)   $(2,444,671)
Proceeds from equity financing, net                                            7,620,104
Common stock and warrants issued
  for payment of:
    Outstanding debt and related interest                                      1,604,204
    Accounts payable                                                             200,000
    Deferred compensation                                                        384,000
Common stock issued for payment of outstanding
  debt and related interest                                                       54,475
Common stock issued for equipment purchase                                        70,411
Common stock issued for payment of
  services rendered                                                               17,500
Common stock issued for payment of
  bonus and commissions                                                           10,000
Issuance of options for consulting services                                        1,548
Net loss                                                                      (2,996,864)
                                                 ---------------------------------------
Balance, December 31, 2004                        $       --   $ (911,516)   $ 4,520,707
                                                 =======================================
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-5
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                  2004            2003
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Cash flows from operating activities:
Net loss                                                                      $ (2,996,864)   $ (2,412,908)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation                                                                      50,920          26,101
  Amortization of debt discount and deferred financing costs                        51,003         289,119
  Amortization of unearned advertising cost                                             --          20,000
  Stock and options issued for compensation and consulting                          29,048              --
  Stock issued for interest on notes payable                                         2,700
  Bad debt expense                                                                   1,593
  Loss on disposal of fixed assets                                                      --          11,248
  Changes in operating assets and liabilities:
    (Increase) in accounts receivable                                              (34,032)       (149,465)
    (Increase) in inventories                                                     (509,510)       (307,420)
    Decrease in advances to contract manufacturer                                  166,463         159,438
    Decrease (increase) in prepaid expenses                                         12,622         (52,232)
    Decrease in other assets                                                         6,933           4,992
    (Decrease) increase in accounts payable                                     (1,015,516)        905,750
    (Decrease) increase in accrued interest                                        (83,532)        391,738
    Increase (decrease) in accrued expenses                                        139,303         (26,952)
    (Decrease) increase in deferred compensation                                  (106,000)        320,000
                                                                              ------------    ------------
       Net cash used in operating activities                                    (4,284,869)       (820,591)
                                                                              ------------    ------------

Cash flows from investing activities:
  Payment for capital expenditures                                                (350,529)        (35,268)
  Payment for intangible assets                                                    (75,536)             --
  Payment for investment in distributor                                            (69,956)             --
                                                                              ------------    ------------
       Net cash used in investing activities                                      (496,021)        (35,268)
                                                                              ------------    ------------

Cash flows from financing activities:
  Expenses relating to registering shares                                               --         (22,500)
  Proceeds from (payment for) equity financing, net                              7,868,919        (248,815)
  Proceeds from note payable - officer/stockholder                                      --         180,537
  Payments of note payable - officer/stockholder                                   (50,000)       (122,322)
  Proceeds from issuance of notes payable                                               --         900,000
  Proceeds from exercised options                                                                   57,750
  Proceeds from exercise of equity line, net of expenses                                           191,481
  Payments for deferred financing activities                                                       (86,678)
                                                                              ------------    ------------
       Net cash provided by financing activities                                 7,818,919         849,453
                                                                              ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             3,038,029          (6,406)
Cash and cash equivalents at beginning of year                                       3,277           9,683
                                                                              ------------    ------------
Cash and cash equivalents at end of year                                      $  3,041,306    $      3,277
                                                                              ============    ============

Supplemental disclosure of cash flow information:
  Cash paid during the year for interest                                      $     99,359    $         --
                                                                              ============    ============

  Cash paid during the year for taxes                                         $         --    $         --
                                                                              ============    ============
</TABLE>

See Notes to Consolidated Financial Statements


                                      F-6
<PAGE>

                Consolidated Statements of Cash Flows (continued)

Supplemental schedule of noncash financing activities:

In February  2004  Milestone  issued  335,614 units in  consideration  for notes
payable and accrued  interest due to an officer and a shareholder of $1,604,204,
accounts  payable  due  to  outside  legal  counsel  of  $200,000  and  deferred
compensation  to an  officer of  $384,000.  Each unit  consisted  of 2 shares of
Milestone's common stock (671,228 shares of common stock) and a warrant.

As part of its payment for services in connection  with the February 2004 public
offering,  Milestone  issued to its outside  general  counsel  5-year options to
purchase  160,000  common shares of at an exercise  price of $3.26 per share and
warrants  to purchase  80,000  common  shares of stock at an  exercise  price of
$4.89.

In  October  2004 in  satisfaction  of a  $50,000  promissory  note and  accrued
interest of $4,475, Milestone issued 58,200 shares of common stock.

In September  2004,  Milestone  issued  36,331  shares of common stock valued at
$70,411 for the purchase of equipment.

In April and December 2004,  Milestone  issued 1,106 shares of common stock to a
media  placement  company and 9,091 shares of common stock to a distributor  for
services rendered valued at $17,500.

In  December  2004 we issued a total of 6,060  shares  valued at  $10,000 to two
employees for payment of bonus and  commissions  which was recognized as expense
in 2004.

During May 2004,  Milestone issued 1,133 options for consulting  services valued
at $1,548 which was recognized as expense during the period.

In  November  2004 we  incurred a liability  of $25,706 in  connection  with the
acquisition of the minority interest in Spintech, a subsidiary of the Company.

In November 2003, Milestone issued 102,195 shares of common stock for payment of
accounts payable totaling $502,800.

In October and November  2003,  Milestone  issued  94,327 shares of common stock
with an estimated fair value of $285,812 to certain debt holders for agreeing to
extend the maturity date of certain of our outstanding loans.

In September 2003, Milestone granted warrants to purchase 5,000 shares of common
stock (with an  estimated  fair value of $10,400) in  connection  with a $50,000
credit facility  provided by an existing  investor.  This resulted in an initial
increase to debt discount and to additional paid-in capital.

During the nine months ended  September 30, 2003 pursuant to the promissory note
agreements,  Milestone  converted  $206,989 of accrued  interest into additional
principal.

On September 30, 2003, in  consideration  for payment of $5,014,267 of aggregate
debt and interest, Milestone issued 1,646,419 shares of common stock and $25,365
face amount of 8% cumulative convertible preferred stock.

In June 2003,  Milestone  granted  warrants to purchase  53,419 shares of common
stock (with an estimated fair value of $14,423) in connection  with a $50,000 6%
note  payable  provided by an  existing  investor.  This  resulted in an initial
increase to debt discount and to additional paid-in capital.


                                      F-7
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- ORGANIZATION and BUSINSESS

      Milestone  Scientific Inc.  ("Milestone") was incorporated in the State of
      Delaware  in  August  1989.   Milestone  has   developed  a   proprietary,
      computer-controlled  anesthetic  delivery  system,  through the use of The
      Wand,  a single  use  disposable  handpiece.  The  system is  marketed  in
      dentistry  under the  trademark  CompuDent  and Wand Plus and in  medicine
      under  the  trademark  CompuMed.  CompuDent  is  suitable  for all  dental
      procedures  that  require  local  anesthetic.  CompuMed  and Wand Plus are
      suitable  for many  medical  procedures  regularly  performed  in  Plastic
      Surgery,   Hair  Restoration   Surgery,   Podiatry,   Colorectal  Surgery,
      Dermatology,  Orthopedics and a number of other  disciplines.  The systems
      are sold in the United States and in over 25 countries abroad. Milestone's
      products are manufactured by a third-party contract manufacturer.

      Milestone  effected a 1-for-3  reverse  stock  split in its common  stock,
      effective January 14, 2004,  pursuant to previously  obtained  stockholder
      approval  authorizing  the board of  directors  to effect a reverse  stock
      split in a ratio of up to 1-for-10. All share and per share information in
      these consolidated financial statements has been restated retroactively to
      reflect the 1 for 3 reverse split.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      1.    Principles of Consolidation

            The  consolidated  financial  statements  include  the  accounts  of
            Milestone,  its subsidiary,  Spintech, and two inactive subsidiaries
            prior to the date of merger. On December 7, 2004 Milestone purchased
            the 35% minority interest in Spintech,  and on December 10, 2004 the
            three  subsidiaries  were merged into the Company.  All  significant
            intercompany  balances  and  transactions  have been  eliminated  in
            consolidation.  The cost of the  minority  interest  in  Spintech of
            $101,242  has been  allocated to patents  which are being  amortized
            over their remaining useful lives.

      2.    Cash and Cash Equivalents

            Milestone  considers all highly liquid investments  purchased with a
            maturity of three months or less to be cash equivalents.

      3.    Inventories

            Inventories  principally  consist of  finished  goods and  component
            parts stated at the lower of cost  (first-in,  first-out  method) or
            market.

      4.    Equipment

            Equipment  is  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 5 to 7
            years.   The  costs  of  maintenance  and  repairs  are  charged  to
            operations as incurred.

      5.    Investments

            Investments  in less than 20% owned entities are accounted for under
            the cost basis and are reviewed for impairment periodically.

      6.    Debt Issue Cost and Debt Discount

            Debt issue costs are deferred and amortized to interest expense over
            the  term of the  related  loan  on a  straight-line  method,  which
            approximates the interest method.  Debt discounts are offset against
            the principal balance and amortized using the  straight-line  method
            over the term of the related loan.


                                      F-8
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      7.    Impairment of Long-Lived Assets

            Milestone  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.

      8.    Revenue Recognition

            Revenue is  recognized  net of discounts and  allowances  when title
            passes at the time of  shipment  and  collectibility  is  reasonably
            assured and the Company has no further performance obligations.

      9.    Research and Development

            Research and  development  costs,  which consist  principally of new
            product development costs incurred to third parties, are expensed as
            incurred.

      10.   Advertising Expenses

            Milestone expenses  advertising costs as they are incurred.  For the
            years  ended  December  31,  2004  and  2003,   Milestone   recorded
            advertising expenses of $107,000 and $62,000, respectively.

      11.   Income Taxes

            Milestone  accounts  for  income  taxes  pursuant  to the  asset and
            liability  method  which  requires  deferred  income  tax assets and
            liabilities  to be computed for  temporary  differences  between the
            financial  statement  and tax bases of assets and  liabilities  that
            will result in taxable or deductible  amounts in the future based on
            enacted  tax laws and rates  applicable  to the periods in which the
            differences  are  expected  to  affect  taxable  income.   Valuation
            allowances are  established  when  necessary to reduce  deferred tax
            assets  to the  amount  expected  to be  realized.  The  income  tax
            provision or credit is the tax payable or refundable  for the period
            plus or minus the change  during the period in  deferred  tax assets
            and liabilities.

      12.   Basic and diluted net loss per common share

            Milestone   presents   "basic"  earnings  (loss)  per  common  share
            applicable  to common  stockholders  and, if  applicable,  "diluted"
            earnings per common share applicable to common stockholders pursuant
            to the provisions of Statement of Financial Accounting Standards No.
            128,  "Earnings per Share" ("SFAS 128").  Basic earnings  (loss) per
            common share is calculated by dividing net income or loss applicable
            to common  stock by the  weighted  average  number of common  shares
            outstanding  during each period. The calculation of diluted earnings
            per common  share is similar  to that of basic  earnings  per common
            share,  except  that the  denominator  is  increased  to include the
            number of additional  common shares that would have been outstanding
            if all potentially  dilutive  common shares,  such as those issuable
            upon the exercise of stock options,  warrants, and the conversion of
            notes  payable and  preferred  stock were issued  during the period.
            Milestone  has  not  included  the  common   shares   issuable  upon
            conversion  of  the  outstanding  25,365  preferred  shares  in  the
            weighted average number of shares  outstanding in the computation of
            basic  loss  per  share   because   their  effect  would  have  been
            anti-dilutive.  This treatment is in accordance with the "two class"
            method of computing earnings (loss) per share set forth in SFAS 128.

            Since  Milestone  had net  losses  for 2004 and  2003,  the  assumed
            effects of the exercise of  outstanding  stock options and warrants,
            and the conversion of notes payable and preferred  stock into common
            stock at  December  30,  2004 and 2003,  were not  included as their
            effect would have been  anti-dilutive.  Such outstanding options and
            warrants  totaled  3,229,407 at December  31, 2004 and  1,309,920 at
            December 31, 2003.

            Net  loss  applicable  to  common  stockholders  is  computed  after
            providing for cumulative  dividends applicable to preferred stock at
            a rate of 8% per year.

      13.   Use of Estimates

            The   preparation  of  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


                                      F-9
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            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.  The
            most  significant  estimates  relate to the  allowance  for doubtful
            accounts,  inventory  valuation,  cash  flow  assumptions  regarding
            evaluations  for  impairment  of  long-lived  assets  and  valuation
            allowances on deferred tax assets.  Actual results could differ from
            those estimates.

      14.   Fair Value of Financial Instruments

            The carrying amounts reported in the consolidated  balance sheet for
            cash,  accounts  receivable,   advances  to  contract  manufacturer,
            accounts payable and accrued  expenses  approximate fair value based
            on the short-term maturity of these instruments.

      15    Accounting for Stock-Based Compensation

            Statement of Financial Accounting Standards No. 123, "Accounting for
            Stock-Based  Compensation"  ("SFAS 123"),  provides for the use of a
            fair  value  based  method  of   accounting   for   employee   stock
            compensation. However, SFAS 123 also allows an entity to continue to
            measure  compensation  cost for stock  options  granted to employees
            using  the  intrinsic  value  method  of  accounting  prescribed  by
            Accounting  Principles  Board Opinion No. 25.  "Accounting for Stock
            Issued to  Employees"  ("APB 25"),  which only  requires  charges to
            compensation  expenses for the excess,  if any, of the fair value of
            the  underlying  stock at the date a stock  option is granted (or at
            the  appropriate  subsequent  measurement  date) over the amount the
            employee  must pay to acquire  the stock.  Milestone  has elected to
            continue to account for employee  stock  options using the intrinsic
            value method under APB 25. By making that  election,  it is required
            by SFAS 123 and SFAS 148, "Accounting for Stock-Based Compensation -
            Transition  and  Disclosure"  ("SFAS  148"),  to  provide  pro forma
            disclosures of net loss and loss per common share as if a fair value
            based method of accounting had been applied.

            If Milestone  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
            applicable to common  stockholders and net loss per share applicable
            to common  stockholders  for the years ended  December  31, 2004 and
            2003 would have increased to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                    ----------------------------
                                                                        2004            2003
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
          Net loss applicable to common stockholders, as reported   $ (2,998,893)   $ (2,412,908)
          Deduct total stock-based employee compensation
          expenses determined under the fair value
          based method for all awards                                     27,660          46,416
                                                                    ------------    ------------

          Net loss applicable to common stockholders, pro forma     $ (3,026,553)   $ (2,459,324)
                                                                    ============    ============

          Loss per share applicable to common stock holders:
          Basic and diluted
            As reported                                             $      (0.33)   $      (0.52)
                                                                    ============    ============
            Pro forma                                               $      (0.33)   $      (0.53)
                                                                    ============    ============
</TABLE>


                                      F-10
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            The  weighted-average  fair value of the individual  options granted
            during 2004 and 2003 was estimated as $1.32 and $0.38, respectively,
            on the date of grant. The fair value for 2004 and 2003was determined
            using the  Black-Scholes  option-pricing  model  with the  following
            assumptions:

                                                             December 31,
                                                            -------------
                                                         2004            2003
                                                        ------          -------
            Volatility                                     109%            135%
            Risk-free interest rate                        3.7%            2.5%
            Expected life                               5 years         5 years
            Dividend yield                                   0%              0%

            In accordance  with the provisions of SFAS 123, all other  issuances
            of common  stock,  stock  options  or other  equity  instruments  to
            non-employees  as  consideration  for goods or services  received by
            Milestone  are  accounted  for based on the fair value of the equity
            instruments  issued  (unless  the fair  value  of the  consideration
            received  can be more  reliably  measured).  The  fair  value of any
            options or similar equity  instruments issued are estimated based on
            the Black-Scholes option-pricing model, which meets the criteria set
            forth in SFAS 123,  and the  assumption  that all of the  options or
            other equity  instruments  will ultimately  vest. Such fair value is
            measured as of an  appropriate  date pursuant to the guidance in the
            consensus of the Emerging  Issues Task Force ("EITF") for EITF Issue
            No. 96-18 (generally, the earlier of the date the other party become
            committed to provide  goods or services or the date  performance  by
            the other  party is  complete)  and  capitalized  or  expensed as if
            Milestone had paid cash for the goods or services.

      16.   Concentration of Credit Risk

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

            Milestone  closely monitors the extension of credit to its customers
            while  maintaining  allowances,  if necessary,  for potential credit
            losses.  On a  periodic  basis,  Milestone  evaluates  its  accounts
            receivable and establishes an allowance for doubtful accounts, based
            on a history of past  write-offs and  collections and current credit
            conditions. Management does not believe that significant credit risk
            exists with respect to accounts receivable at December 31, 2004.


                                      F-11
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C -- INVENTORIES

      Inventories consist of the following:

Finished goods                                       $  824,691
Component parts and other materials                     111,530
                                                     ----------
                                                     $  936,221
                                                     ==========

NOTE D -- ADVANCES TO CONTRACT MANFACTURER

      Advances  to contract  manufacturer  represent  deposits  to our  contract
      manufacturer to fund future inventory  purchases.  The balance of advances
      as of December 31, 2004 totaled $62,034.

NOTE E --EQUIPMENT

      Equipment consists of the following:

      Leasehold improvements                         $    5,363
      Artwork                                            85,550
      Office furniture and equipment                    101,092
      Trade show displays                                50,036
      Computers and software                            222,899
      Tooling equipment                                 355,263
                                                     ----------
        Total                                           820,203
      Less accumulated depreciation & amortization     (207,940)
                                                     ----------
                                                     $  612,263
                                                     ==========

      Depreciation  expense was $50,920 and $26,101 for the years ended December
      31, 2004 and December 31, 2003, respectively.

NOTE F - INVESTMENT IN DISTRIBUTOR

      In December 2004 the Company purchased a 19.9% equity interest in a German
      distribution  company  which is an  affiliate of the  Company's  principal
      international distributor.

NOTE G -- NOTES PAYABLE TO OFFICER/STOCKHOLDER

      Notes payable to  officer/stockholder of $358,215 at December 31, 2003 and
      accrued interest thereon of $77,770  representing  obligations  payable to
      our CEO, were satisfied  through the issuance of 62,098 units at $6.52 per
      unit (see Note I), and cash payment of $31,107 in February 2004.  Interest
      expense on these  notes for the years  ended  December  31,  2004 and 2003
      amounted to $ 3,360 and $28,109, respectively.

NOTE H -- NOTES PAYABLE

      Notes  payable  (current) at December 31, 2003  consisted of 8% promissory
      notes payable to two  investors  totaling  $1,100,000  and a 6% promissory
      note in the principal amount of $50,000 ($41,186,  net of debt discount of
      $8,814).  Notes payable  (non-current) at December 31, 2003 consisted of a
      6% promissory note in the principal amount of $50,000 ($41,333 net of debt
      discount of $8,667).

      The $1,100,000 8% promissory  notes payable and line of credit  borrowings
      and accrued interest thereon of $165,545


                                      F-12
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      were  satisfied  through the  issuance of 183,946  units at $6.52 per unit
      (see Note I), and cash  payment of $66,219  in  February  2004.  A $50,000
      promissory  note and  accrued  interest  thereon of $2,033 was paid in May
      2004. A $50,000 promissory note and accrued interest thereon of $4,475 was
      satisfied  through  the  issuance  of 58,200  shares  of  common  stock in
      November 2004.

NOTE I - STOCKHOLDER'S EQUITY

PUBLIC OFFERING

      On February 17, 2004,  Milestone  completed a $9.4 million Public Offering
      ($7.6 million after  underwriter  discount,  underwriter  non  accountable
      expense  allowance and other expenses).  The Public Offering  consisted of
      the  sale of  1,440,000  units at a price of $6.52  per  unit.  Each  unit
      consisted  of two shares of common  stock and one  warrant.  The  warrants
      included  in the units  are  exercisable  at any time  after  they  became
      separately tradable until their expiration date, five years after the date
      of the closing of the Public Offering, at an exercise price equal to $4.89
      (150% of the  closing  market  price of  Milestone's  common  stock on the
      pricing date of the Offering). Some or all of the warrants may be redeemed
      by Milestone  at a price of $0.01 per warrant,  by giving not less than 30
      days  notice to the holders of the  warrants,  which the Company may do at
      any time, beginning 6 months from the effective date of the offering after
      the closing price for the Company's common stock on the principal exchange
      on which it trades (i.e.  AMEX) has equaled or exceeded  200% of the price
      of the Company's  common stock on the effective date of the offering.  The
      common stock included in the units and the warrants  traded only as a unit
      for 30 days following the closing date of the Public Offering.

      Net  proceeds  of the  Public  Offering  were used to pay down  promissory
      notes, credit facilities,  interest and deferred compensation. The Company
      intends  to use the  remainder  of the  proceeds  primarily  to expand and
      support  sales and marketing  efforts for CompuDent in the United  States,
      including new marketing and advertising  campaigns,  support the launch of
      the recently announced SafetyWand product line, expand international sales
      efforts and develop  commercial  models of products  using other  advanced
      injection technology.

OTHER ISSUANCES OF COMMON STOCK

      During  2004,  we issued  common stock in payment of amounts due for goods
      and services,  satisfaction  of notes payable and as  compensation  to two
      employees and a key distributor for services during 2004:

      In June 2004 we issued 1,106 shares of common stock having a fair value of
      $2,500 in partial  payment of services to be provided  under 1 year public
      relations  consulting  agreement  which  amount was  charged to expense in
      2004.

      In August 2004 we issued 36,331 shares of common stock having a fair value
      of $70,411 in payment of trade accounts payable related to the purchase of
      fixed assets valued at $70,411

      In November  2004,  Milestone  satisfied the $50,000  promissory  note and
      accrued interest at 6% of $4,475 by issuing 58,200 shares of common stock.

      In December  2004 we issued 6,060 shares having a fair value of $10,000 to
      two  employees  and 9,091 shares to a  distributor  having a fair value of
      $15,000.

PREFERRED STOCK

      The  25,365  shares  of 8%  convertible  preferred  stock  outstanding  at
      December 31, 2004 are each  convertible into .1731 shares of common stock.
      If not  converted  earlier,  the shares shall  automatically  convert into
      .1731 shares of common stock on November 1, 2005. The voting rights of the
      preferred stock holders are the same as those of the common stock holders.


                                      F-13
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OUTSTANDING WARRANTS

      At December 31, 2004 there were  2,205,604  warrants  exercisable at price
      ranging from $1.56 to $9.00 per share  expiring at various  dates  between
      January 31, 2005 through April 19, 2009.

      In February 2004,  Milestone  issued  1,775,614  warrants,  exercisable at
      $4.89  through 2009  including  1,440,000  warrants  issued as part of the
      public  offering,  304,939 warrants issued to an officer and a shareholder
      in   satisfaction  of  notes  payable,   accrued   interest  and  deferred
      compensation  and 30,675  warrants  issued to outside  general  counsel in
      satisfaction of accounts payable.

      In April 2004,  Milestone  issued  80,000  warrants  exercisable  at $4.89
      through  2009 to outside  general  counsel in  consideration  for services
      rendered in connection with the public offering.

SHARES RESERVED FOR FUTURE ISSUANCE

      At  December  31, 2004 there were  4,246,292  shares  reserved  for future
      issuance including 814,333 shares underlying stock options available under
      the Plans,  3,427,569  shares  underlying other stock options and warrants
      that were outstanding at December 31, 2004 and 4,390 shares underlying our
      Series A convertible preferred stock.

NOTE J -- 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 166,667 shares of Milestone's common stock. In 1999, the
      Plan was  amended,  providing  for the grant of options to  purchase up to
      333,333  shares of  Milestone's  common  stock.  Options may be granted to
      employees,  officers,  directors  and  consultants  of  Milestone  for the
      purchase of common  stock of  Milestone  at a price not less than the fair
      market  value of the common  stock on the date of the grant.  In  general,
      options become  exercisable  over a three-year  period from the grant date
      and expire five years after the date of grant.

      In July 2004,  the Board of  Directors  approved  the adoption of the 2004
      Stock  Option Plan.  The 2004 Stock Option Plan  provides for the grant of
      options to  purchase up to 500,000  shares of  Milestone's  common  stock.
      Options may be granted to employees,  officers,  directors and consultants
      of Milestone  for the purchase of common stock of Milestone at a price not
      less than the fair  market  value of the  common  stock on the date of the
      grant. In general,  options become  exercisable  over a three-year  period
      from the grant date and expire five years after the date of grant.



                                      F-14
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J (CONTINUED)

      Stock option plan activity during 2004 and 2003 is summarized below:

                                                    Shares of        Weighted
                                                   common stock      average
                                                   attributable   exercise price
                                                    to options      of options
                                                    ----------      ----------
       Options outstanding at January 1, 2003         247,281         $12.24
       Granted                                         51,668           1.20
       Exercised                                      (19,000)          3.04
       Forfeited                                      (45,167)         42.96
                                                     --------

       Options outstanding at December 31, 2003       234,782           4.66
                                                     --------         ------
       Granted                                         81,333           3.84
       Forfeited                                      (59,999)          7.63
                                                     --------
       Options outstanding at December 31, 2004       256,116         $ 3.70
                                                     ========         ======


                                      F-15
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J (CONTINUED

      The following  table  summarizes  information  concerning  outstanding and
      exercisable options at December 31, 2004.

                                               Remaining
              Exercise         Number         Contractual        Number
               Prices        Outstanding      Life (Years)     Exercisable

              $ .8700           16,667              3.0                0

                .9000            8,333              3.7            2,778

               1.5000           26,668              3.2           13,334

               1.6500           16,667              2.0                0

               2.0000           30,000              5.0                0

               2.2500           13,499              2.0           13,499

               2.6250           16,667              0.0           16,667

               3.6000            8,333              2.5            5,555

               4.8300            8,282              0.5            8,282

               4.9200           51,333              4.4                0

               5.4375            2,333              0.1            2,333

               6.0000           16,667              1.0                0

               6.5625           17,334              0.5           17,334

               7.5000           23,333              1.6           23,333

                               256,116                           103,115
                               =======                           =======

      The weighted-average exercise price of options exercisable at December 31,
      2004 was $4.44.

NOTE K -- EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION

      In January 2002,  in  consideration  for payment of deferred  compensation
      totaling  $491,346  Milestone  issued  625,000 units to its CEO. Each unit
      consisted  of one share of  Milestone's  common  stock and one  warrant to
      purchase an additional share of common stock. The warrants are exercisable
      at $2.40 per share  through  January  31, 2003 and then at $3.00 per share
      through January 31, 2004 and thereafter at $6.00 per share through January
      31, 2007.

      On December 20, 2003,  Milestone  entered into a new employment  agreement
      with the CEO for a five-year term  commencing  January 1, 2004.  Under the
      new  agreement,  the CEO will  receive base  compensation  of $300,000 per
      year,  payable one half in cash and one half in common stock valued at the
      average closing price of the common stock during the first 15 trading days
      in the month of December during each year of the term. While the number of
      shares to be issued will be  determined  each year,  the stock will not be
      issuable until the end of the term of the agreement.  In addition, the CEO
      may earn annual  bonuses up to an aggregate of $300,000,  payable one half
      in cash and one half in common stock,


                                      F-16
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      contingent upon Milestone  achieving  predetermined  annual operating cash
      flow, revenue and earning targets as defined in the employment  agreement.
      No bonuses were earned in 2004.

      In addition, if during any year of the term of the agreement the CEO earns
      a bonus,  he shall also be granted  5-year stock options to purchase twice
      the number of shares  earned.  Each such option is to be  exercisable at a
      price per share equal to the fair  market  value of a share on the date of
      grant  (110%  of  fair  market  value  if  the  CEO  is a 10%  or  greater
      stockholder  on the date of  grant).  The  options  shall  vest and become
      exercisable to the extent of one-third of the shares covered at the end of
      each of the first three years following the date of grant,  but shall only
      be  exercisable  while the CEO is employed by  Milestone or within 30 days
      after the termination of his employment.

      In accordance  with the  employment  contract,  deferred  compensation  of
      $150,000 has been recorded as of December 31, 2004  representing the value
      of 89,180 shares of common stock to be paid out at the end of the contract
      in an amount calculated by the terms of the agreement discussed above.

NOTE L -- LEGAL PROCEEDINGS

      On May 9, 2003,  Milestone was served with a Breach of Contract Complaint.
      In the complaint, the plaintiff, Korman/Lender Management (landlord of the
      facility formerly used by Milestone in Deerfield,  IL) sought damages plus
      costs,   including   attorney's  fees,   interest  and  continuing  rental
      obligation.  In March 2004, the parties reached an out of court settlement
      for $43,500 and exchanged mutual releases.

      In 2003,  Milestone  entered into a settlement  with a former  distributor
      whereby  Milestone would provide the distributor  with certain  inventory.
      The settlement was paid in full in the second quarter of 2004.

      The effect of the settlements was recorded in 2003.

NOTE M -- CLOSING OF DEERFIELD, IL FACILITY

      In 2003 Milestone completed the closing our Deerfield  facility,  combined
      our operating facility with our corporate headquarters in Livingston,  New
      Jersey and outsourced  distribution and logistics to a third party, Design
      Centre of York, Pennsylvania. Related costs including moving expenses, the
      disposal of related  fixed  assets,  employee  related  expenses  and rent
      totaled $86,165 during 2003.


                                      F-17
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N -- INCOME TAXES

      Deferred tax  attributes  resulting  from  differences  between  financial
      accounting amounts and tax bases of assets and liabilities at December 31,
      2004 and 2003 are as follows:

      Current assets and liabilities                   2004            2003
                                                       ----            ----
      Allowance for doubtful accounts              $     10,000    $     12,000
      Inventory alllowance                               11,000          59,000
      Accrued interest                                       --          92,000
                                                   ------------    ------------
      Subtotal                                           21,000         163,000
      Valuation allowance                               (21,000)       (163,000)
                                                   ------------    ------------
      Current deferred tax asset                   $         --    $         --
                                                   ------------    ------------

      Non-current assets and liabilities
      Net operating loss carryforward              $ 12,800,000    $ 12,000,000
      Warrants and options issued to consultants             --          43,000
                                                   ------------    ------------
                                                     12,800,000      12,043,000
      Valuation allowance                           (12,800,000)    (12,043,000)
                                                   ------------    ------------
      Non-current deferred tax asset (liability)   $         --    $         --
                                                   ------------    ------------

            The  allowance  increased by $615,000 and  $1,071,000  for the years
      ended December 31, 2004 and 2003, respectively.

      As of December 31,  2004,  Milestone  has Federal and State net  operating
      loss carryforwards of approximately  $32,000,000 that will be available to
      offset  future  taxable  income,   if  any,  through  December  2024.  The
      utilization  of  Milestone'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.  Milestone has established a 100%
      valuation  allowance  for all of its net  deferred  tax  assets due to the
      significant doubt that their benefit will be realized in the future.

NOTE O -- PRODUCT SALES AND SIGNIFICANT CUSTOMERS

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

                                            Year Ended December 31,
                                         -----------------------------
                                             2004              2003
                                             ----              ----

           CompuDent                     $ 1,496,318       $ 1,254,534
           Handpieces                      3,017,265         2,500,354
           Other                             237,603           216,819
                                         -----------       -----------
                                         $ 4,751,186       $ 3,971,707
                                         ===========       ===========

           United States                 $ 3,378,534       $ 2,796,453
           Canada                            267,678           172,435
           Other Foreign Countries         1,104,974         1,002,819
                                         -----------       -----------
                                         $ 4,751,186       $ 3,971,707
                                         ===========       ===========


                                      F-18
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O (CONTINUED)

      During the years ended December 31, 2004 and 2003,  Milestone had sales to
      one customer (a worldwide  distributor  of  Milestone's  products based in
      South Africa) of approximately $1,073,000 and $827,000, respectively. This
      represented  23% and  21% of the  total  net  sales  for  2004  and  2003,
      respectively.   Accounts   receivable  from  this  customer   amounted  to
      approximately  $327,830  representing  78% of net accounts  receivable  at
      December 31, 2004.

NOTE P -- COMMITMENTS AND CONTINGENCIES

      Lease Commitments

      Milestone leases office space under a noncancelable operating lease with a
      base rental of $87,808 per annum which was amended in April 2004 to extend
      the lease  expiration  date through June 30, 2009. This lease provides for
      escalations  of  Milestone's  share of utilities and  operating  expenses.
      Milestone also leases office and telecom equipment under operating leases.

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

      Year Ending December 31,
      -------------------------
        2005                           $ 102,616
        2006                              94,480
        2007                              91,768
        2008                              91,768
        2009                              47,204
                                       ---------
                                       $ 427,836
                                       =========

      For the years ended December 31, 2004 and 2003,  rent expense  amounted to
      approximately $79,000 and $66,000, respectively.

      Since February 2003, we have had an informal  agreement with a third party
      distribution  and logistics  center in Pennsylvania to handle our shipping
      and order  fulfillment.  Administration  and  fulfillment  fees  excluding
      shipping expenses and initial set up fees from the third party distributor
      were approximately  $185,000 and $182,000 for the years ended December 31,
      2004 and 2003 respectively.

      Contract Manufacturing Agreement

      Milestone has informal  arrangements  for the manufacture of its products.
      CompuDent  and CompuMed  units are  manufactured  for  Milestone by Tricor
      Systems,  Inc. pursuant to specific  purchase orders.  The Wand disposable
      handpiece  is  manufactured  for  Milestone  in Mexico by Nypro  Precision
      Assemblies  ("NPA"),  a  subsidiary  of Nypro Inc.,  pursuant to scheduled
      production  requirements.  The Wand  Handpiece  with Needle is supplied to
      Milestone  by  United  Systems,  which  arranges  for its  manufacture  by
      manufacturers in China.  Milestone may expand its  relationship  with this
      supplier  to  include  production  of  other  types  of  handpieces.   The
      termination  of the  manufacturing  relationship  with  any  of the  above
      manufacturers  could have a material adverse effect on Milestone's ability
      to produce and sell its  products.  Although  alternate  sources of supply
      exist and new manufacturing relationships could be established,  Milestone
      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 Milestone.


                                      F-19
<PAGE>

                   MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Other Commitments

      The technology underlying our SafetyWand,  the CompuFlo and an improvement
      to the controls for CompuDent  were  developed by our Director of Clinical
      Affairs and assigned to us. We purchased  this  technology  pursuant to an
      agreement dated January 1, 2005,  for, 43,424 shares of restricted  common
      stock and $145,000 in cash, payable on April 1, 2005. In addition, he will
      receive  additional  payments of 2.5% of the total sales price of products
      using  certain of these  technologies,  and 5% of the total sales price of
      products  using  certain  other of the  technologies.  In addition,  he is
      granted,  pursuant to the agreement, an option to purchase, at fair market
      value on the date of the grant,  8,333 shares of our common stock upon the
      issuance of each  additional  patent  relating to these  technologies.  If
      products  produced by third parties use any of these  technologies  (under
      license from us) then he will receive the corresponding  percentage of the
      consideration received by us for such sale or license.

      The technology  underlying our CoolBlue  Professional  Whitening and Ionic
      White Consumer Whitening Products was acquired from DaVinci Systems. Under
      the terms of a licensing  agreement,  with a third party manufacturer,  we
      will  receive  licensing  fees  resulting  from the sales of the  consumer
      whitening product. A royalty in the amount of 7% of our licensing fee will
      be paid  to Da  Vinci  Systems.  A  royalty  of 5% of our  licensing  fees
      generated from the sale of the consumer  whitening product will be paid to
      Strider  Inc.  Strider  assisted in bringing  the CoolBlue and Ionic White
      product lines to Milestone.

NOTE Q -- CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

      For the years ended  December 31, 2004 and 2003,  the Company paid $25,773
      and $51,928 to the wife of  Milestone's  CEO, for  professional  services,
      principally related to income tax compliance.

NOTE R - SUBSEQUENT EVENTS

      On March 24, 2005 and  subsequent  days  Milestone  entered  into  binding
      Subscription  Agreements for an approximately $3 million private placement
      of 101,044 Units to investors.  Each Unit consisted of 10 shares of Common
      Stock and two  Warrants.  Each  Warrant  entitles the holder to purchase a
      share of Common Stock at $4.89 per share  through the close of business on
      February 16, 2009. By March 31, 2004, Milestone had received approximately
      $1.78 million.  I-Bankers  Securities,  Inc. acted as Placement  Agent for
      Milestone in this transaction and will receive a fee of 7% of the proceeds
      and  Warrants  identical  in terms to those  issued to the  investors,  to
      purchase 10% of the shares of Common Stock included in the Units.

                                      F-20