Edgar Filing: MILESTONE SCIENTIFIC INC/NJ

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 2003

REGISTRATION NO. 333-110376

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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MILESTONE SCIENTIFIC INC.
(Exact name of Registrant as specified 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
(973) 535-2717
(Address, including zip code, and telephone number,
including area code, of Registrant's executive offices)

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LEONARD OSSER
CHIEF EXECUTIVE OFFICER
MILESTONE SCIENTIFIC INC.
220 SOUTH ORANGE AVENUE
LIVINGSTON CORPORATE PARK
LIVINGSTON, NJ 07039
(973) 535-2717
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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Copies to:

STEPHEN A. ZELNICK, ESQ. MARK A. VON BERGEN, ESQ.
MORSE, ZELNICK, ROSE & LANDER, LLP DAVID C. WANG, ESQ.
405 PARK AVENUE HOLLAND & KNIGHT LLP
NEW YORK, NY 10022 2300 U.S. BANCORP TOWER
(212) 838-8040 111 S.W. FIFTH AVENUE
(212) 838-9190 FACSIMILE PORTLAND, OR 97204
(503) 243-2300
(503) 241-8014 FACSIMILE

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. [X]

If the registrant elects to deliver its annual report to security holders,
or a complete and legible facsimile thereof, pursuant to item 11(a)(1) of this
form, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO RELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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CALCULATION OF REGISTRATION FEE

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AMOUNT PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PRICE (1)(2) REGISTRATION FEE
------------------------------------------ ------------ ---------------- -------------------- ------------------

Units, consisting of two shares of
common stock, $.001 par value, and one
warrant to purchase one share of
common stock 1,380,000 $ 6.67 $ 9,200,000 $ 846.40
------------------------------------------ --------- ------ ----------- ----------
Common stock included in the units 2,760,000 -- --
------------------------------------------ --------- ------ ----------- ----------
Warrants to purchase common stock
included in the units 1,380,000 -- --
------------------------------------------ --------- ------ ----------- ----------
Common stock underlying the warrants
included in the units(3) 1,380,000 $ 5.00 $ 6,900,000 $ 634.80
------------------------------------------ --------- ------ ----------- ----------
Representative's warrants(4) 120,000
------------------------------------------ --------- ------ ----------- ----------
Units issuable upon exercise of the
representative's warrants 120,000 $ 8.00 $ 960,000 $ 88.32
------------------------------------------ --------- ------ ----------- ----------
Common stock included in the units
underlying the representative's
warrants(3) 240,000 -- --
----------- --------- ------ ----------- ----------
Warrants to purchase common stock
included in units issuable upon exercise
of the representative's warrants 120,000 -- --
------------------------------------------ --------- ------ ----------- ----------
Common stock underlying the warrants
to purchase common stock included in
units issuable upon exercise of the
representative's warrants (3) 120,000 $ 5.00 $ 600,000 $ 55.20
------------------------------------------ --------- ------ ----------- ----------
Total $17,660,000 $ 1,624.72
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(1) Estimated solely for purposes of calculating the amount of the
registration fee paid pursuant to Rule 457(g) under the Securities Act.

(2) Includes 180,000 units issuable upon exercise of underwriters'
over-allotment option.

(3) Pursuant to Rule 416 under the Securities Act, there are also being
registered hereby such additional indeterminate number of shares as may
become issuable as a result of stock splits, stock dividends or similar
transactions pursuant to the antidilution provisions of the warrants.

(4) In connection with the sale of the units, Milestone will issue to the
representative of the underwriters warrants to purchase up to 120,000
units in the aggregate.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (SUBJECT TO COMPLETION)
DATED DECEMBER 24, 2003

1,200,000 UNITS

[MILESTONE SCIENTIFIC LETTERHEAD OMITTED]

EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK AND ONE
REDEEMABLE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK

This is a public offering on a firm commitment basis of [1,200,000] units,
each unit consisting of two shares of common stock and one warrant. Each
warrant entitles its holder to purchase one share of common stock at an
exercise price of $ [150% of the closing market price of our common stock on
the pricing date of this offering]. The warrants are exercisable at any time
after they become separately tradable until their expiration date, five years
after the effective date of this prospectus. Beginning six months from the
effective date of this offering, we may redeem some or all of the warrants at a
price of $.25 per warrant, by giving not less than 30 days' notice to the
holders of the warrants, which we may do at any time after the closing price
for our stock on the principal exchange on which the stock trades, equals or
exceeds $ [200% of the closing price of our common stock on The American
Stock Exchange on the pricing date of this offering] for any five consecutive
trading days. The common stock and the warrants will trade only as a unit for
30 calendar days following the date the units begin trading. After that date,
the common stock and the warrants will both trade separately and trading in the
units will cease.

We expect to offer units at an aggregate offering price of $8,000,000,
excluding units that may be sold on exercise of the representative's
over-allotment option. The price of the units will be the price of two shares
of common stock on The American Stock Exchange, or a small discount therefrom,
as determined through negotiations between Milestone and the representative of
the underwriters, after taking into account recent market activity and the
price at which our stock will be trading on the American Stock Exchange
immediately prior to this offering. [After giving effect to the proposed
reverse split, it is expected that common stock will trade at $3.00 to $4.00
per share.]

Our common stock is currently traded on American Stock Exchange under the
symbol "MS." On , 2003, the last reported sale price of our common stock
on the American Stock Exchange was $ per share. We are applying to the
American Stock Exchange to also list the units and warrants under the symbols
"MSU" and "MSW," respectively.

INVESTING IN THESE UNITS INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 TO READ ABOUT RISKS YOU SHOULD CONSIDER BEFORE BUYING THESE
UNITS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

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PER UNIT TOTAL
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Public offering price .................... $ $
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Underwriting discount .................... $ $
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Proceeds to us, before expenses .......... $ $
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* In addition we will issue to the representative of the underwriters, 5-year
warrants to purchase 120,000 units, commencing one year after the effective
date of the offering at price of [120% of the unit offering price].

Paulson Investment Company, Inc. is the representative of the underwriters
of this offering. We have granted the representative a 45-day option to
purchase up to additional 180,000 units to cover over-allotments.

PAULSON INVESTMENT COMPANY, INC.

S.W. BACH & COMPANY

The date of this Prospectus is , 2003

Computer controlled local anesthetic
delivery system with handpiece

[COMPUDENT PHOTO OMITTED]

We have rights to the following trademarks: CompuDent (Registered
Trademark), CompuMed (Registered Trademark), The Wand (Registered Trademark),
The WandPlus (Registered Trademark), CompuFlo (Trademark), SafetyWand
(Trademark), and CoolBlue Wand (Trademark). We have also used trademarks,
tradenames and service marks owned by others in this prospectus.

All references in this prospectus to Milestone, "we," "us," or "our" refer
to Milestone Scientific Inc., its wholly owned subsidiary, Sagacity I, Inc. and
its 88.65% owned subsidiary, Spintech, Inc. ("Spintech"), unless the context
otherwise indicates.

Our web address is www.milesci.com. Information contained on our website is
not part of this prospectus.

PROSPECTUS SUMMARY

This summary provides a brief overview of the key aspects of the offering.
However, it is a summary and may not contain all of the information that is
important to you. For a more complete understanding of this offering, we
encourage you to read this entire prospectus, including our financial
statements and the notes to those statements. Unless indicated to the contrary,
all information in this prospectus has been retroactively adjusted to reflect a
1-for-3 reverse stock split effective on , 2003, [pursuant to a
stockholders approval on December 9, 2003 to effect, at the discretion of the
board, an up to one-for-ten reverse stock split].

MILESTONE SCIENTIFIC INC.

OVERVIEW

Milestone is a leader in advanced subcutaneous injection technology for
dental and medical applications. Its principal product, CompuDent, a computer
controlled, precision metered, local anesthetic injection system, together with
its ergonomically designed, single patient use, disposable handpiece, The Wand,
enables a dentist to consistently administer safe, effective and less painful
injections. Since January 1998, Milestone has sold more than 24,000 CompuDent
units and over 13 million single use handpieces in the United States and in
over 25 other countries. CompuDent has been favorably evaluated in 18 peer
reviewed, published clinical studies and over 25 other evaluative articles. The
system provides these specific benefits:

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

o the pencil grip used with CompuDent's handpieces provides enhanced
tactile sense and more accurate control;

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

o bidirectional rotation of The Wand handpiece results in greater
precision and more rapid onset of anesthesia by eliminating needle
deflection in mandibular block injections;

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

o the ergonomic design of The Wand makes an injection easier and less
stressful to administer and lowers the risk of carpal tunnel syndrome
to the dentist or hygienist; and

o CompuDent can increase productivity in many dental procedures by
eliminating the need for preliminary pain blocking injections, and
reducing the waiting time required to see if the injection has taken
effect.

SAFETYWAND

In September 2003, Milestone received FDA approval for a newly developed
and patented disposable handpiece, the SafetyWand, that incorporates safety
engineered sharps protection features to aid in the prevention of inadvertent
needlesticks. Milestone believes that the SafetyWand is one of the first safety
engineered injection devices that conforms with the regulations of the
Occupational Safety and Health Administration of the U.S. Department of Labor
("OSHA") promulgated under the federal Needlestick Safety and Prevention Act
("the Needlestick Safety Act"), while also meeting the clinical needs of
dentists. To date, these OSHA regulations have generally not been enforced
against dentists by OSHA and similar local and state authorities due to lack of
commercially available products that meet the special needs of dentistry.
Milestone believes that the commercial availability of the SafetyWand will
enable OSHA, and similar local and state authorities, to begin enforcement, or
stricter enforcement, of the Needlestick Safety Act against dentists. Since the
SafetyWand can only be

used with the CompuDent system, enforcement by OSHA could promote increased
handpiece sales to current CompuDent users, while also providing impetus for
the purchase of these systems by new users. In October 2003, we launched the
SafetyWand at the American Dental Association Annual Meeting in California. The
SafetyWand will be commercially available before the end of 2003.

NEW MARKETING APPROACH

In early 2003, Milestone began building a national sales force of highly
trained independent representatives to provide sales coverage in urban areas in
12 states. To increase its ability to retain this sales force and to enhance its
performance, Milestone:

o increased its base price of CompuDent to new customers to provide
sufficient gross profit to recruit and adequately compensate its sales
force;

o established a sales support staff to generate leads, set appointments,
provide technical support and customer service and foster increased
handpiece use; and

o began distributing a new product used in repairing and whitening
teeth, the CoolBlue Wand, to assist its sales force in gaining access
to dental offices for sales of CompuDent.

With a growing new sales force and the acquisition of rights to new
products to facilitate access to dental offices, Milestone intends to direct its
marketing efforts to capturing new customers, particularly from specialty
practitioners, including periodontists, pedodontists, endodontists and
cosmetic/restorative dentists.

OTHER PRODUCTS AND TECHNOLOGIES

To broaden the use of its anesthetic injection technology, in 2001
Milestone launched CompuMed, a system similar to CompuDent, for the medical
market. To date, sales and marketing of CompuMed have been limited by financial
constraints. Milestone is currently seeking distribution partners in a variety
of discrete medical disciplines.

Milestone has also developed CompuFlo, a prototype product embodying an
advanced pressure sensing technology for subcutaneous injection of liquid
medications and local anesthetics. CompuFlo enables health care practitioners
to monitor and precisely control pressure, rate and volume during subcutaneous
injections. Due to cash constraints, to date Milestone has conducted only
limited research as to potential medical applications for this technology and
has not yet begun development of commercial devices embodying this technology.
Recently, a major medical center proposed the initiation of clinical trials to
ascertain the efficacy, safety and suitability of CompuFlo in administering
epidural injections for adults and children. No assurances can be given that
these trials will be conducted or, if conducted, will be successful.

CORPORATE INFORMATION

Milestone was organized in August 1989 as a Delaware corporation under the
name U.S. Opportunity Search, Inc. In 1996 we changed our name to Milestone
Scientific Inc. Our executive office is located at 220 South Orange Avenue,
Livingston Corporate Park, Livingston, New Jersey 07039. Our telephone number
is (973) 535-2717.

THE OFFERING

Securities offered............ 1,200,000 units, each unit consisting of two
shares of common stock and one redeemable
warrant to purchase one share of common stock.
The common stock and the warrants will not
trade separately until the 31st calendar day
following the date the units begin trading.
After that date the common stock and the
warrants will both trade separately and trading
in the units will cease.

Shares of common stock to be
outstanding after
this offering................ 9,166,271(1)

Warrants:
Number to be outstanding
after this offering......... 1,200,000

Exercise terms.............. The warrants are exercisable at any time
after they become separately tradable, which
will be the 31st calendar day following the
date the units begin trading, until the
expiration date. Each warrant entitles its
holder to purchase one share of common stock at
an exercise price equal to 150% of the closing
market price of the common stock on the pricing
date of this offering.

Expiration date........... , 2008

Redemption.................. Beginning six months from the effective date
of this offering, we may redeem some or all of
the warrants, at a price of $0.25 per warrant,
on 30 days notice to the holders. However, we
may only redeem the warrants if the closing
price for our stock, as reported on the
principal exchange on which our stock trades,
for any five consecutive trading days has
equaled or exceeded 200% of the closing price
of the common stock on the American Stock
Exchange on the pricing date of this offering.

AMEX symbols:
Existing.................... Common Stock MS
Proposed.................... Units MSU
Warrants MSW

Risk factors.................. Please refer to "Risk Factors" for a
description of the risk factors you should
consider.

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(1) Including an estimated 653,594 shares constituting part of the units to
be issued at the price of the units offered hereby to satisfy $2,179,734
of indebtedness, accrued interest, accounts payable and accrued
compensation on the later of the date of this Prospectus or January 2,
2004 or, for 29,985 units ten days after the closing of this offering.

Unless otherwise stated, the information contained in this prospectus
assumes no exercise of:

o the warrants;

o the over-allotment option to purchase up to 180,000 units;

o warrants to purchase 120,000 units granted to the representative in
connection with this offering;

o outstanding compensatory options for 437,948 shares of common stock,
exercisable at a weighted average price of $5.55 per share and
outstanding warrants for 799,730 shares of common stock exercisable at
a weighted average exercise price of $4.48 per share; or

o conversion rights relating to convertible notes in the aggregate
principal amount of $100,000 convertible into 70,709 shares of common
stock and into shares of series A convertible preferred stock
convertible into 4,381 shares of common stock.

SUMMARY FINANCIAL INFORMATION

YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- -------------------------------
2002 2001 2003 2002
------------ ------------ -------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues ................................... $ 4,074 $ 4,094 $ 3,101 $ 3,216
Gross profit ............................... $ 2,093 $ 2,120 $ 1,541 $ 1,717
Operating expenses ......................... $ 3,763 $ 5,321 $ 2,683 $ 2,777
Net loss ................................... $ (2,440) $ (3,991) $ (1,787) $ (1,604)
Net loss per share--basic and
diluted(1) ................................ $ (.59) $ (1.07) $ (.42) $ (.39)
Weighted average number of shares
outstanding--basic and diluted(1) ......... 4,156,558 3,714,197 4,217,185 4,084,342

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(1) The effect of options, warrants and convertible debt instruments has been
excluded, as their effect is anti-dilutive.

The table below sets forth a summary of our balance sheet data as of
December 31, 2002 and as of September 30, 2003 on an actual basis, pro forma
and pro forma as adjusted for this offering.

Pro forma balance sheet data takes into account the following events
occurring after September 30, 2003:

o The issuance of additional 94,327 shares of common stock to the
various noteholders mentioned above, as consideration for previously
extending the maturity date on the notes, out of which 13,526 common
shares were issued to Leonard Osser, our Chairman and Chief Executive
Officer;

o The issuance of 102,195 shares of common stock to vendors in payment
of outstanding trade payables in the amount of approximately $503,000;

o The issuance of 2,333 shares of common stock upon the exercise of
options for an aggregate exercise price of $7,750;

o The payment of $50,000 of outstanding debt due to the Chairman & Chief
Executive Officer.

o The issuance of 39,613 shares of common stock for a consideration, net
of commissions and closing costs, of $217,485 under an equity put
agreement;

o The issuance of 16,667 shares of common stock to Leonard Osser, our
Chairman and Chief Executive Officer, upon the exercise of options for
an aggregate exercise price of $50,000;

o The issuance of 25,365 preferred shares in payment of $25,365 of
outstanding debt, including principal and interest to a non-affiliate
noteholder;

o The expected issuance, on the later of January 2, 2004 or the date
this offering becomes effective, of an estimated 239,241 units
(assuming a unit price of $6.67), in payment of $1,595,734 of debt,
including interest, to Leonard Osser, our Chairman and Chief Executive
Officer and to a major stockholder; and

o The expected issuance, on the later of January 2, 2004 or the date
this offering becomes effective, of an estimated 57,571 units
(assuming a unit price of $6.67), in payment of $384,000 of accrued
compensation to Leonard Osser, our Chairman and Chief Executive
Officer.

o The expected issuance, ten days after the closing of this offering, of
an estimated 29,985 units (assuming a unit price of $6.67) in payment
of $200,000 of accrued liabilities for legal services.

Pro forma as adjusted for this offering takes into account the pro forma
data as well as the receipt of $6,500,000 of estimated net proceeds from this
offering, the deduction of underwriting discounts and commissions and other
estimated offering expenses to be paid by us.

DECEMBER 31, 2002 SEPTEMBER 30, 2003
(IN THOUSANDS) (UNAUDITED, IN THOUSANDS)
------------------- ----------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- ------------

BALANCE SHEET DATA:
Current assets ............................ $ 893 $ 1,275 $1,500 $8,000
Working capital (deficiency) .............. (5,214) (1,449) 640 7,140
Total assets .............................. 1,241 1,514 1,739 8,239
Total liabilities ......................... 7,347 4,391 1,500 1,500
Stockholders' equity (deficiency) ......... (6,106) (2,877) 239 6,739

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus,
including our financial statements and the notes to those statements, before you
purchase any units.

RISKS RELATED TO OUR BUSINESS

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 and
2002, our revenues were approximately $8.8 million, $2.9 million, $5.7 million,
$4.1 million and $4.1 million, respectively. In addition, we have had losses for
each year since the commencement of operations, including net losses of
approximately $2.5 million for 2002 and $1.8 million for the nine months ended
September 30, 2003. At September 30, 2003, we had an accumulated deficit of
approximately $43.6 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 HAVE A SIGNIFICANT WORKING CAPITAL DEFICIT. AS A RESULT, WE HAVE NOT BEEN
ABLE TO SUFFICIENTLY EXPAND OUR SALES AND MARKETING FORCE AND INCREASE OUR
REVENUES.

Our working capital deficit at September 30, 2003, after adjustment to
reflect the subsequent repayment of $503,000 of trade payables through the
issuance of common stock in October 2003, was approximately $946,000. This has
impaired our ability to expand marketing and sales promotion and develop an
adequate sales force, which in turn, had a negative impact on revenue growth.

WE HAVE LIMITED FINANCIAL RESOURCES AND WE MAY NEED ADDITIONAL CAPITAL IN THE
FUTURE.

Our capital requirements have been and may continue to be significant. In
the future, we may need to borrow funds or sell equity securities, or else
curtail or reduce our activities. We have no current arrangements for future
additional financing, except as disclosed herein. We cannot assure you that any
sources of additional financing will be available on acceptable terms, or at
all. To the extent that any future financing involves the sale of our equity
securities, the ownership interest of our stockholders could be substantially
diluted.

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 24,000 units of the CompuDent or its predecessor have been sold worldwide
since 1998. Sales of disposable handpieces in 2002 reflect a moderate increase
in 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 retain
and hire 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.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT ARE NOT FULLY COVERED BY OUR
INSURANCE AND THAT COULD PUT US UNDER A TREMENDOUS 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.

RISKS RELATED TO THIS OFFERING

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. At December 31, 2002, Milestone had
a total stockholders' deficit of approximately $6.1 million. On May 2, 2002, we
received a letter from the American Stock Exchange advising us that we had
fallen below the stockholders' equity criterion and requesting that we submit a
recovery plan detailing any actions taken, or planned to be taken within the
next 18 months, to bring us into compliance. On June 10, 2002, we submitted a
detailed recovery plan to the American Stock Exchange, which, as supplemented on
August 14, 2002, showed how we expect to achieve stockholders' equity of
$6,000,000 by December 31, 2003. On August 23, 2002, the American Stock Exchange
advised us that they had determined that the plan makes a reasonable
demonstration of Milestone's ability to regain compliance with the continued
listing standards by the conclusion of the plan period at the end of 2003. Since
that date the continued listing of our securities on the American Stock Exchange
has been subject to periodic review by the Exchange and the Exchange has
accepted supplemental submissions by Milestone showing continued progress
towards regaining compliance. However, on December 18, 2003 the Exchange
informally advised Milestone that it had not demonstrated sufficient progress
towards regaining compliance by the end of the plan period and further advised
that it would shortly begin delisting proceedings. If such proceedings are
initiated by the Exchange, Milestone intends to appeal such action and request

an oral hearing. At such hearing, Milestone would present the fact that at the
conclusion of the offering covered by this prospectus, Milestone would again be
in compliance with the Exchange's stockholder equity criterion. While we believe
that completion of this offering is necessary to maintain our listing on the
American Stock Exchange, no assurance can be given that listing will be
continued until that time. If our securities are delisted from the American
Stock Exchange, trading, if any, in the common stock and warrants would be
conducted in the over the counter market in the so-called "pink sheets" or 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 analysts and new media coverage of Milestone, and lower prices for our
securities than might otherwise be obtained.

IF OUR SHARES OF COMMON STOCK ARE REMOVED OR DELISTED FROM THE AMERICAN STOCK
EXCHANGE, THE ABILITY OF STOCKHOLDERS TO SELL OUR COMMON STOCK AND WARRANTS IN
THE SECONDARY MARKET COULD BE RESTRICTED.

The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be an equity security that has a market price,
as defined, of less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions, including an exception of an equity
security that is quoted on the American Stock Exchange. If our shares of common
stock are removed or delisted from the American Stock Exchange, they may become
subject to rules that impose additional sales practice requirements on
broker-dealers who sell these securities. For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchaser of such securities and have received the purchaser's written consent
to the transactions prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered underwriter, and current quotations for the securities, and, if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, among
other requirements, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. As such, the "penny stock" rules, if our
securities are delisted from the American Stock Exchange, may restrict the
ability to sell our common stock and warrants in the secondary market.

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
after this offering in response to a variety of factors, some of which may be
beyond our control.

THE EXISTENCE OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES MAY
PRECLUDE US FROM OBTAINING ADDITIONAL EQUITY FINANCING.

We currently have outstanding options, warrants,convertible debentures and
series A convertible preferred stock to purchase 1,242,058 shares of our common
stock at prices ranging from $.87 to $18.00 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. We have granted registration rights
with respect to shares of our common stock covered by the warrants. 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.

OUR STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION AND THE PRICE OF OUR
COMMON STOCK MAY BE ADVERSELY AFFECTED BY THE ISSUANCE OF SHARES OF OUR COMMON
STOCK UNDER AN EQUITY PUT AGREEMENT.

After taking into account 39,613 shares sold in October and through
December 15, 2003, under an equity put agreement expiring on May 10, 2004, we
may sell up to an additional 660,387 shares of our common stock under that
agreement. The price of our common stock may decrease as a result of the actual
or potential sale of these shares into the market. We may sell shares of our
common stock under the equity put agreement at a price that is below the market
price of our stock at the time of the sale. These sales will dilute the
interests of our existing stockholders. In that event, not only would you lose a
portion of your investment, but we would probably find it more difficult to
obtain additional financing. The more shares that are issued under the equity
put, the more our shares will be diluted and the more our stock price may
decrease. This may encourage short sales, which could place further downward
pressure on the price of our common stock.

WE ARE CONTROLLED BY A LIMITED NUMBER OF SHAREHOLDERS.

Immediately after this offering (including an estimated 593,624 shares
forming part of units to be issued to them in satisfaction of debt and accrued
compensation), our principal shareholders, Leonard Osser and K. Tucker Andersen,
will own 32.9% of the issued and outstanding shares of our common stock (31.7%
if the over-allotment option is exercised in full). As a result, they will 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.

IF WE DO NOT MAINTAIN AN EFFECTIVE REGISTRATION STATEMENT COVERING THE WARRANTS
OR COMPLY WITH APPLICABLE STATE SECURITIES LAWS, YOU MAY NOT BE ABLE TO EXERCISE
THEM.

In order for you to exercise the warrants, the shares of common stock
underlying them must be covered by an effective registration statement and, if
the issuance of shares is not exempt under state securities laws, must be
properly registered with state securities regulators. At present, we plan to
have a registration statement current when the warrants are exercised and, to
the extent that the underlying shares do not qualify for one or more exemptions
under state securities laws, we intend to register the shares with the relevant
authorities. However, we cannot provide absolute assurances that state
exemptions will be available, the state authorities will permit us to register
the underlying shares, or that an effective registration statement will be in
place at the relevant time(s). These factors may have an adverse effect on the
demand for the warrants and the prices that can be obtained from reselling them.

THE WARRANTS MAY BE REDEEMED ON SHORT NOTICE. THIS MAY HAVE AN ADVERSE IMPACT ON
THEIR PRICE.

Beginning six months from the effective date of the offering, we may redeem
the warrants for $0.25 per warrant on 30 days notice at any time after the
closing price for our stock, as reported on its principal trading market, has,
for any five consecutive trading days, equaled or exceeded 200% of the closing
price of the common stock on the effective date of this offering. If we give
notice of redemption, you will be forced to sell or exercise your warrants or
accept the redemption price. The notice of redemption could come at a time when,
under your personal circumstances, it is not advisable or possible for you to
exercise the warrants or a current prospectus or exemption does not exist.

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. Once this offering is
completed, in addition to the 6,146,011 shares of common stock actually issued
and the

6,112,678 outstanding, there will be another 4,378,706 shares of common stock
reserved for future issuance as follows:

o up to 1,200,000 shares underlying the warrants;

o up to 540,000 shares underlying the over-allotment option, including
the shares underlying the warrants included in that option;

o up to 360,000 shares underlying the representative's warrants,
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 Stock Option Plan;

o up to 1,028,896 shares underlying other stock options and warrants
that were granted and remained outstanding as of October 31, 2003;

o up to 70,709 shares underlying 6% convertible notes in the aggregate
principal amount of $100,000 and up to 4,381 shares of common stock
underlying our series A convertible preferred stock;

o up to 660,387 shares reserved for issuance, at our option, under an
equity put agreement; and

o up to 200,000 shares underlying other stock options approved to be
granted on December 22, 2003.

The common stock included in the units as well as the common stock
underlying the warrants will be freely tradable without restriction. Before this
offering, we had 6,112,678 shares of common stock outstanding, of which
2,762,934 are freely tradable. The remaining 3,349,744 shares 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, 102,195 restricted
shares not held by affiliates and 3,084,884 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 other
162,665 restricted shares may be sold without limitation under Rule 144(k). We
have granted demand registration rights to holders of 155,614 shares of common
stock including shares underlying warrants and piggyback registration rights to
holders of convertible notes covering an aggregate of 70,709 shares of common
stock. The holders of these shares can require us to register the shares for
resale. While we, our executive officers and directors and stockholders holding
5% or more of our outstanding shares have agreed not to sell any shares of stock
for a period of 90 days after this offering without the consent of the
representative of the underwriters, the representative may waive that
restriction at its sole discretion.

MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING. WE
MAY USE THE PROCEEDS OF THIS OFFERING IN WAYS THAT DO NOT IMPROVE OUR OPERATING
RESULTS OR THE MARKET VALUE OF OUR SECURITIES.

While we have general expectations as to the allocation of the net proceeds
of this offering, that allocation may change in response to a variety of
unanticipated events, such as differences between our expected and actual
revenues from operations or availability of commercial financing opportunities,
unexpected expenses or expense overruns or unanticipated opportunities requiring
cash expenditures. We have significant flexibility as to the timing and the use
of the proceeds. You will rely on our judgment with only limited information
about our specific intentions regarding the use of proceeds. We may spend most
of the net proceeds of this offering in ways with which you may not agree. If we
fail to apply these funds effectively, our business, results of operations and
financial condition may be materially and adversely affected.

FORWARD-LOOKING STATEMENTS

Some of the statements made in this prospectus discuss future events and
developments, including our future business strategy and our ability to generate
revenue, income and cash flow and possible stricter enforcement of the
Needlestick Safety Act. In some cases, you can identify forward-looking

statements by words or phrases such as "may," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"continue," "our future success depends," "seek to continue," or the negative of
these words or phrases, or comparable words or phrases. These statements are
only predictions that are based, in part, on assumptions involving judgments
about future economic, competitive and market conditions, regulatory enforcement
and future business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond our control. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various facts, including the risks outlined in this "Risk
Factors" section. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date on which they are made. We do not undertake to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.

RECENT DEVELOPMENTS

Since October 1, 2003, we have entered into the following financing
transactions:

On October 2, 2003 we issued 1,646,419 shares of common stock in
satisfaction of 6% / 12% Secured and Senior Secured Notes and other 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
common stock at the average closing price of our common stock in October 2003.
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 reached an agreement to satisfy $1,192,873 of debt
and accrued interest due to a major investor, K. Tucker Andersen, and $402,861
of debt and accrued interest and $384,000 of deferred compensation due to our
Chief Executive Officer and Chairman, Leonard Osser, through the issuance of
units, similar to the units offered in this offering, on the later of January 2,
2004 or the effective date of this offering. The units will be issued at the
same price as offered in this offering.

On October 21, 2003 we received $7,750 upon the exercise of options for
2,333 shares of common stock.

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.

During October and through December 15, 2003 we issued an aggregate of
39,613 shares of common stock in consideration for a total of $217,500, after
brokerage commissions and closing costs, under an equity put agreement.

On December 15, 2003 we issued 16,666 shares of common stock upon the
exercise of options by the CEO for an aggregate price of $50,000.

In December 2003 we reached an agreement to satisfy $200,000 of accounts
payable through the issuance of 29,985 units ten days after the closing of this
offering. The units will be issued at the same terms and price as offered in
this offering.

USE OF PROCEEDS

The principal purpose of this offering is to raise a sufficient amount of
capital that will allow us to:

o expand significantly our independent sales force and our sales support
staff and provide for their proper training;

o implement marketing and advertising campaigns directed at the dental
market;

o support the launch of the SafetyWand, including manufacturing and
marketing costs;

o expand our international sales including the hiring of three sales
managers for Asia, Europe and South America;

o develop and commercialize our Periodontal Ligament or PDL Injector
project;

o to reestablish our dental and hygiene school program;

o respond quickly to new competitive and business developments in the
industries and markets in which we operate and compete;

o qualify for continued listing on the American Stock Exchange;

o repay a portion of the outstanding debt to two of our major
shareholders; and

o pay a portion of the accrued compensation to our Chief Executive
Officer.

Based on gross proceeds of $8 million, and after deducting $800,000
reflecting the estimated underwriting discount, a non-accountable expense
allowance of $240,000, and other estimated offering expenses of $460,000
payable by us, the net proceeds to us from this offering will be approximately
$6.5 million, or $7.54 million if the representative exercises the
over-allotment option in full.

The table below lists the specific uses of proceeds:
s

APPROXIMATE APPROXIMATE
USE OF CAPITAL AMOUNT PERCENTAGE
-------------- ------------- ------------

Sales and marketing ................................ $2,770,000 42.6%
Product development ................................ $1,095,000 16.8%
Non-sales personnel expense ........................ $ 235,000 3.6%
Repayment of debt and accrued compensation ......... $ 525,000 8.0%
Miscellaneous working capital ...................... $1,875,000 29.0%
---------- -----
Total ........................................... $6,500,000 100.0%
========== =====

Sales and marketing expenses. This amount consists of the costs we expect
to incur to expand our independent and sales supportstaff, in the U.S. and
internationally. It includes expenses relating to hiring and training additional
sales and marketing personnel, consultant fees, and expenses relating to
attending trade shows and conventions and producing marketing materials.

Product development. This amount is required for further development of our
PDL Injector Device and to develop additional clinical applications of the
CompuFlo technology including epidural injections.

Non-sales personnel expense. Prior to this offering, we have been operating
with cash conservation as a dominant business objective. We expect that
additional personnel will be required, primarily in financial, administrative
and customer service areas, both to provide adequate support to operations on an
ongoing basis and to support growth.

Repayment of debt and accrued compensation. This amount includes repayment
in cash of $91,680 out of $1,595,734 outstanding debt to two of our major
shareholders, Leonard Osser, our Chairman and Chief Executive Officer, and K.
Tucker Andersen, the beneficial owner of 20.7% of our outstanding shares of
common stock, and the payment of $256,000 out of $640,000 of accrued
compensation to our Chairman and Chief Executive Officer. The balance of the
debt and accrued compensation will be paid by issuance of units on the effective
date of this offering, valued at the same price as is offered to the public. The
cash amounts represent estimated tax amounts due by these individuals for
accrued interest on the debt and on payment of the accrued compensation.

Miscellaneous working capital. These costs include general and
administrative costs, including the cost of increasing our inventory, acquiring
and enhancing our operating, support and management systems and capital
expenditures for computers and other equipment. We may use the portion of the
amount currently allocated to working capital and general corporate purposes to
reduce our current liabilities. We may also use a portion of the net proceeds to
license or acquire new products, technologies or intellectual property or to
acquire or invest in businesses complementary to ours. If the representative
exercises the over-allotment option, the additional net proceeds, approximately
$1.2 million, will be added to working capital.

The above information represents our best estimate of our capital
requirements based upon the current status of our business. We will retain broad
discretion in the allocation of the net proceeds

within the categories listed above. The amounts actually expended for these
purposes may vary significantly and will depend on a number of factors,
including our rate of revenue growth, cash generated by operations, evolving
business needs and the other factors described in "Risk Factors."

Pending their use, we intend to invest the net proceeds of this offering in
interest bearing, investment grade securities.

We expect that the net proceeds from this offering, when combined with the
proceeds of other financing transactions and revenue from operations, will be
sufficient to fund our operations and capital requirements for at least 12
months following this offering. We may be required to raise additional capital
through the sale of equity or other securities sooner if our operating
assumptions change or prove to be inaccurate. We cannot assure you that any
financing of this type would be available. In the event of a capital inadequacy,
we would be required to limit our growth and the expenditures described above.

DIVIDEND POLICY

We have not declared or paid any dividends and do not intend to pay any
dividends in the foreseeable future. We intend to retain any future earnings for
use in the operation and expansion of our business. Any future decision to pay
dividends on common stock will be at the discretion of our board of directors
and will be dependent upon our fiscal condition, results of operations capital
requirements and other factors our board of directors may deem relevant.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2003
on an actual basis, pro forma and pro forma as adjusted for this offering. Pro
forma data takes into account the following events occurring after September 30,
2003:

o The issuance of 94,327 additional shares of common stock to these
debtholders as agreed remuneration for previously extending the
maturity date of the notes, out of which 13,526 were issued to Leonard
Osser, our Chairman and Chief Executive Officer;

o The issuance of 102,195 shares of common stock as payment of
approximately $503,000 due to principal vendors;

o The issuance of 39,613 shares of common stock for a consideration, net
of commission and closing costs of $217,075 under an equity put
agreement;

o The issuance of 2,333 shares of common stock upon the exercise of
options for a total consideration of $7,750;

o the payment of $50,000 of outstanding debt due to our Chairman and
Chairman and Chief Executive Officer.

o The issuance of 25,365 preferred shares in repayment of $25,365 of
outstanding debt, including principal and interest amounts to a
noteholder.

o The issuance of 16,667 shares of common stock to Leonard Osser, our
Chairman and Chief Executive Officer, upon the exercise of options for
an aggregate exercise price of $50,000.

o The expected issuance, on the later of January 2, 2004 or the date
this offering becomes effective, of 239,214 units, in payment of
$1,595,734 of debt, including interest, to Leonard Osser, our Chairman
and Chief Executive Officer and to a major stockholder; and

o The expected issuance, on the later of January 2, 2004 or the date
this offering becomes effective, of 57,571 units, in payment of
$384,000 of accrued compensation to Leonard Osser, our Chairman and
Chief Executive Officer.

o The expected issuance, ten days after the closing of this offering, of
an estimated 29,985 units (assuming a unit price of $6.67) in payment
of $200,000 of accrued liabilities for legal services.

Pro forma as adjusted for this offering takes into account the pro forma
data as well as the receipt of $6.5 million of estimated net proceeds from this
offering, the deduction of underwriting discounts and commissions and other
estimated offering expenses to be paid by us.

SEPTEMBER 30, 2003
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- ------------
(IN THOUSANDS)

Accounts payable and accrued expenses ...................... $ 1,726 $ 1,125 $ 1,125
Notes payable including interest ........................... 2,105 151 151
Accrued compensation ....................................... 560 224 224
--------- --------- ---------
Total debt ............................................... 4,391 1,500 1,500
--------- --------- ---------
Stockholders' equity (deficiency):
Common stock, $0.001 par value, 50,000,000 shares
authorized, 5,890,875 shares issued and 5,857,542
outstanding, actual; 6,799,604 shares issued and 6,766,271
outstanding, pro forma; and 9,199,604 shares issued and
9,166,271 outstanding, pro forma as adjusted ............. 6 7 9

Preferred Stock, $.001 par value 5,000,000 shares authorized,
no shares issued and outstanding, actual; 25,365 shares
issued and outstanding, pro forma; and 25,365 shares issued
and outstanding, pro forma as adjusted ....................
Additional paid-in capital .................................. 41,623 44,738 51,236
Retained earnings (deficit) ................................. (43,574) (43,574) (43,574)
Unearned compensation ....................................... (20) (20) (20)
Treasury stock, at cost, 33 shares .......................... (912) (912) (912)
--------- --------- ---------
Total stockholders' equity (deficiency) ................... (2,877) 239 6,739
--------- --------- ---------
Total capitalization ...................................... $ 1,514 $ 1,739 $ 8,239
========= ========= =========

PRICE RANGES OF OUR COMMON STOCK

The principal market on which our common stock is traded is the American
Stock Exchange. The ticker symbol for our common stock is MS. The following
table sets forth the high and low closing sales prices of our common stock, as
quoted by the American Stock Exchange.

HIGH LOW
---------- ----------

2001
First Quarter ...................................... $ 6.00 $ 2.55
Second Quarter ..................................... $ 3.00 $ 1.86
Third Quarter ...................................... $ 5.25 $ 2.04
Fourth Quarter ..................................... $ 2.19 $ 1.50
2002
First Quarter ...................................... $ 2.04 $ 1.56
Second Quarter ..................................... $ 3.00 $ 1.74
Third Quarter ...................................... $ 2.04 $ .87
Fourth Quarter ..................................... $ 1.20 $ .63
2003
First Quarter ...................................... $ 1.02 $ .42
Second Quarter ..................................... $ 1.20 $ .54
Third Quarter ...................................... $ 4.98 $ .81
Fourth Quarter (through December 22, 2003) ......... $ 7.77 $ 3.15

According to the records of our transfer agent, there were approximately
3,000 holders of record of our common stock as of December 1, 2003.

We have applied to the American Stock Exchange to list the units offered by
this prospectus, as well as the warrants and common stock underlying those
units.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read
together with "Management's Discussion and Analysis or Plan of Operations"
included elsewhere in this prospectus. The statement of operations data for each
of the years in the two-year period ended December 31, 2002 and the balance
sheet data at December 31, 2002 are derived from our financial statements, which
have been audited by J.H. Cohn LLP, independent public accountants, and are
included elsewhere in this prospectus. The statement of operations data for the
nine-month periods ended September 30, 2003 and 2002 and the balance sheet data
for September 30, 2003 are derived from our unaudited financial statements. The
unaudited financial statements have been prepared on substantially the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the results of operations for these
periods. Historical results are not necessarily indicative of the results to be
expected in the future, and the results of interim periods are not necessarily
indicative of results for the entire year.

STATEMENT OF OPERATIONS DATA:

YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------- -------------------------------
2001 2002 2002 2003
------------- ------------- -------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Revenues .................................. $ 4,094 $ 4,074 $ 3,216 $ 3,101
Cost of sales ............................. 1,973 1,980 1,499 1,560
---------- ---------- ---------- ----------
Gross profit .............................. 2,121 2,094 1,717 1,541
Selling, general and administrative
expenses ................................. 5,271 3,589 2,713 2,492
Research and development .................. 50 148 64 112
Closing of Deerfield, IL facility ......... -- 26 -- 79
---------- ---------- ---------- ----------
Loss from operations ...................... (3,200) (1,669) (1,060) (1,142)
Sale of prophy angle business and
related consulting income ................ 64 80 -- --
Other income .............................. -- -- 72 --
Interest expense, net ..................... (855) (851) (616) (645)
---------- ---------- ---------- ----------
Net loss .................................. $ (3,991) $ (2,440) $ (1,604) $ (1,787)
========== ========== ========== ==========
Net loss per share -- basic and
diluted .................................. $ (1.07) $ (.59) $ (.39) $ (.42)
========== ========== ========== ==========
Weighted average number of
shares outstanding -- basic and
diluted .................................. 3,714,197 4,156,558 4,084,341 4,217,185
========== ========== ========== ==========

BALANCE SHEET DATA:

(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
2002 2003
-------------- --------------

Current assets ......................... $ 893 $ 1,275
Working capital ........................ $ (5,214) $ (1,449)
Total assets ........................... $ 1,241 $ 1,514
Total liabilities ...................... $ 7,347 $ 4,391
Stockholders' equity (deficit) ......... $ (6,106) $ (2,877)

MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS

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 prospectus. 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 prospectus.

OVERVIEW

We have generated most of our revenues during our last two fiscal years and
the interim period this year through sales of our CompuDent system and The Wand
disposable handpiece used with that system. Revenues have been earned
domestically and internationally through sales in more than 25 countries. During
this period handpiece sales have provided a growing portion of our revenues,
reflecting a growing base of new customers for our systems internationally and
more intensive use of their systems by a relatively stagnant base of customers
domestically. Though we have continued to sell new systems domestically, a large
part of our domestic sales during this period represented the sale of upgraded
units or additional units to our existing customer base. Our limited domestic
sale of new systems reflects our limited sales and marketing efforts as a result
of cash constraints. We expect to use a portion of the proceeds of this offering
to increase sales and marketing expense and believe these increases should
generate additional revenue. 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.

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------
2003 2002
------------------------ ------------------------

DOMESTIC
CompuDent ..................... $ 524,566 25.4% $ 799,671 32.8%
Handpieces .................... 1,398,347 67.7% 1,461,607 59.9%
Other ......................... 141,417 6.9% 176,923 7.3%
---------- ----- ---------- -----
Total Domestic ................ $2,064,330 100.0% $2,438,201 100.0%
========== ===== ========== =====
INTERNATIONAL
CompuDent ..................... $ 574,225 55.4% $ 436,228 56.1%
Handpieces .................... 460,152 44.4% 337,714 43.4%
Other ......................... 2,574 0.2% 3,764 0.5%
---------- ----- ---------- -----
Total International ........... $1,036,951 100.0% $ 777,706 100.0%
========== ===== ========== =====
DOMESTIC/INTERNATIONAL ANALYSIS
Domestic ...................... $2,064,330 66.6 $2,438,201 75.8
International ................. 1,036,951 33.4 777,706 24.2
---------- ----- ---------- -----
$3,101,281 100.0% $3,215,907 100.0%
========== ===== ========== =====

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2002 2001
------------------------ ------------------------

DOMESTIC
CompuDent ..................... $ 956,275 30.1% $1,309,712 39.0%
Handpieces .................... 1,999,050 63.0% 1,756,498 52.4%
Other ......................... 219,605 6.9% 288,092 8.6%
---------- ----- ---------- -----
Total Domestic ................ $3,174,930 100.0% $3,354,302 100.0%
========== ===== ========== =====
INTERNATIONAL
CompuDent ..................... $ 495,730 55.1% $ 519,089 70.2%
Handpieces .................... 403,346 44.9% 192,271 26.0%
Other ......................... 0 0.0% 28,048 3.8%
---------- ----- ---------- -----
Total International ........... $ 899,076 100.0% $ 739,408 100.0%
========== ===== ========== =====
DOMESTIC/INTERNATIONAL ANALYSIS
Domestic ...................... $3,174,930 77.9% $3,354,302 81.9%
International ................. 899,076 22.1% 739,408 18.1%
---------- ----- ---------- -----
$4,074,006 100.0% $4,093,710 100.0%
========== ===== ========== =====

We have earned gross profits of 51.8% and 51.4% in the years ended December
31, 2001 and 2002, respectively, and 53.4% and 49.7% in the nine-month periods
ended September 30, 2002 and 2003, respectively. However, our revenues have been
too low to support our overhead, research and development expense and interest
on our debt. We have therefore reported substantial, though declining, losses
for each of those periods. We have taken steps to cut our overhead, increase
sales and reduce our interest expense.

We took the following steps to reduce our operating overhead and improve
our utilization of cash:

o We reconfigured our sales force, commencing in 2001 and continuing
through 2003, from a large internal force to independent sales
representatives, distributors and a small sales support staff;

o We closed our Deerfield, Illinois facility on January 31, 2003,
resulting in a reduction of ten employees. Customer support, technical
service and other back-office functions previously conducted at this
location were consolidated into our New Jersey location;

o We outsourced to an independent warehouse located in Pennsylvania
receiving, shipping and storage functions previously conducted at
Deerfield; and

o We cut marketing expense and limited our participation in trade shows,
even though this had a further negative effect on sales.

Next, we took steps to reduce our debt burden. We cut the interest rate on
our Senior Secured and Secured Notes (after negotiation with our noteholders)
from 20% per year to 12% per year (6% if we paid interest in cash) and extended
the previously extended maturity date until July and August 2003. Then, in
October 2003, we paid $5,014,014 of debt by issuing 1,646,419 shares of common
stock and 25,365 shares of convertible preferred stock and satisfied
approximately $503,000 of trade payable by issuing 102,195 shares of common
stock. In October we also reached an agreement to satisfy, on the later of
January 2, 2004 or the closing of this offering, an additional $1,979,734 of
debt, accrued interest and accrued compensation through issuance of 296,812
units. In December 2003 we reached an agreement to satisfy, ten days after the
closing of this offering, $200,000 of accounts payable through issuance of
29,895 units.

Finally, at the beginning of 2003, we took steps to increase our revenues.
In early 2003 we completed development of the SafetyWand, which incorporates
safety engineered sharps protection features to aid in the prevention of
inadvertent needlesticks. We believe that the SafetyWand is one of the first
safety engineered injection devices that conforms with OSHA regulations under
the federal Needlestick Safety Act, while also meeting the clinical needs of
dentists. To date, these regulations have generally not been enforced against
dentists by OSHA and similar local and state authorities due to lack of
commercially available products that meet the special needs of dentistry.
Milestone believes that the commercial availability of the SafetyWand will
enable OSHA, and similar local and state authorities to begin enforcement, or
stricter enforcement, of the Needlestick Safety Act against dentists. Since the
SafetyWand can only be used with the CompuDent system, enforcement by OSHA
could promote increased handpiece sales to current CompuDent users, while also
providing impetus for the purchase of these systems by new users. In September
2003, we obtained FDA approval for SafetyWand. In October 2003, we launched the
SafetyWand at the American Dental Association Annual Meeting in California.
SafetyWand will be commercially available before the end of 2003.

In early 2003, we adopted a new marketing approach and began building a
national sales force of highly trained independent representatives to provide
sales coverage in urban areas in 12 states. To increase our ability to retain
this sales force and to enhance its performance, we:

o increased the base price of our CompuDent unit to new customers to
provide sufficient gross profit to recruit and adequately compensate
our sales force;

o established a sales support staff to generate leads, set appointments,
provide technical support and customer service and foster increased
handpiece use; and

o began distributing a new product used in repairing and whitening
teeth, the CoolBlue Wand, which also helps gaining access to dental
offices.

With a growing new sales force and the acquisition of rights to new
products to facilitate access to dental offices, we intend to direct our
marketing efforts to capturing new customers, particularly from specialty
practitioners, including periodontists, pedodontists, endodontists and
cosmetic/restorative dentists.

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. Upon sale of products using any such technology we will owe
him a 5% royalty on the total sales price, or, if technology covered by other
patents is also used by the product, on an allocated part of the sales price. In
addition, he is granted, pursuant to the agreement, an option to purchase, at
fair market value on the date of the grant, 25,000 of our common stock upon the
issuance of each additional patent relating to these technologies.

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, advances
to our contract manufacturer, 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 deemed probable.

RESULTS OF OPERATIONS

The results of operations for the year ended December 31, 2002, and nine
months ended September 30, 2003, reflect our concentrated effort to reduce our
overhead while slowly growing our user base in the dental market domestically
and abroad. The loss for the year 2002, approximately $2.5 million, represents a
39% reduction from the same period in 2001. However, the net loss for the nine
months ended September 30, 2003 was approximately $183,000 greater than the loss
reported for the nine months ended September 30, 2002 as a result of a decline
in sales volume and gross profit, coupled with increases in research and
development expenses and interest expense.

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.

NINE-MONTH
PERIODS ENDED SEPTEMBER 30,
-------------------------------------------------------
2003 2002
--------------------------- ---------------------------

Net sales ................................ $ 3,101,281 100.0% $ 3,215,907 100.0%
Cost of sales ............................ 1,560,288 50.3% 1,499,063 46.6%
Gross profit ............................. 1,540,993 49.7% 1,716,844 53.4%
Selling, general & administrative
expense ................................. 2,491,737 80.3% 2,712,649 84.4%
Closing of Deerfield, Il facility ........ 79,023 2.5% 0.0%
Research and development ................. 112,158 3.6% 63,928 1.9%
Loss from operations ..................... (1,141,925) (36.8)% (1,059,733) (32.9)%

YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2002 2001
--------------------------- ---------------------------

Net sales ................................ $ 4,074,006 100.0% $ 4,093,710 100.0%
Cost of sales ............................ 1,980,949 48.6% 1,973,156 48.2%
Gross profit ............................. 2,093,057 51.4% 2,120,554 51.8%
Selling, general & administrative
expense ................................. 3,588,836 88.1% 5,271,032 128.8%
Closing of Deerfield, Il facility ........ 26,067 0.6% 0.0%
Research and development ................. 147,709 3.6% 49,943 1.2%
Loss from operations ..................... (1,669,555) (41.0)% (3,200,421) (78.2)%

Fiscal year ended December 31, 2002 compared to fiscal year ended December
31, 2001

Net sales for the years ended December 31, 2002 and 2001 were $4,074,006
and $4,093,710, respectively. The $19,704 decrease is attributable primarily to
a decrease in domestic sales of

CompuDent, $71,592 generated from prophy angle sales in 2001 before the sale of
this product line in November 2001, and our decision to consolidate a $94,500
shipment to our South African distributor with its January 2003 order to lower
freight charges. The decrease was partially offset by a 13% or $229,183 increase
in domestic dental sales of The Wand handpieces, $207,000 increase in The Wand
handpiece sales to foreign distributors, and CompuMed sales of approximately
$163,000. The reduction in CompuDent sales domestically are the direct result of
the downsizing of our sales and marketing effort in the U.S.

Cost of sales for the years ended December 31, 2002 and 2001 were
$1,980,949 and $1,973,156 respectively. The $7,793 increase is attributable
primarily to product mix.

For the year ended December 31, 2002, we generated a gross profit of
$2,093,057 or 51.4% as compared to a gross profit of $2,120,554 or 51.8% for the
year ended December 31, 2001. The decrease in gross profit is mainly
attributable to an increase in sales revenue generated from sales to foreign
distributors. The gross profit from these sales is lower than the aggregate
gross profit generated from domestic sales.

Selling, general and administrative expenses for the years ended December
31, 2002 and 2001 were $3,588,836 and $5,271,032, respectively. The $1,682,196
decrease is attributable primarily to an approximate $858,000 decrease in
expenses associated with the sale and marketing of CompuDent units and The Wand
handpieces due to the transitioning of its sales force to independent
representatives and an approximate $293,700 decrease in legal fees. In addition,
during 2001, we issued 242,308 shares as payment for services rendered in the
amount of $247,649. We had incurred higher legal expenses in 2001 related to
advertising agreements and patent registrations.

In 2002, we incurred costs totaling $26,067 associated with the closing
down of our Illinois facility.

Research and development expenses for the years ended December 31, 2002 and
2001 were $147,709 and $49,943, respectively. The $97,766 increase is attributed
to the development of the SafetyWand.

Other income for the years ended December 31, 2002 and 2001, $80,000 and
$64,487, respectively reflect the sale of our prophy angle business in 2001 and
consulting services we provided during 2002, in connection with this sale.

The loss from operations for the years ended December 31, 2002 and 2001
were $1,669,555 and $3,200,421, respectively. The $1,530,866 decrease in loss
from operations is explained above.

We incurred interest expense of $850,642 for the year ended December 31,
2002 as compared to $858,582 for the year ended December 31, 2001. The decrease
of $7,940 is attributable to a lower average interest rate, which was partially
offset by an increase in outstanding principal debt obligations.

The net loss for the years ended December 31, 2002 was $2,440,197 as
compared to a net loss of $3,991,580 for 2001. The $1,551,383 decrease in net
loss is primarily attributable to a sharp decrease in selling and administrative
expenses, including reduction in personnel.

Nine months ended September 30, 2003 compared to nine months ended
September 30, 2002

Net sales for the nine months ended September 30, 2003 and 2002 were
$3,101,281 and $3,215,907, respectively. The $114,626 or 3.6% decrease is
primarily related to an approximate $175,000 decrease in CompuDent and CompuMed
domestic sales, a $63,000 decrease in domestic sales of the Wand handpieces.
These decreases were partially offset by a $122,000 increase in foreign sales of
the Wand handpiece. The decrease in Wand handpiece sales is the result of
changing the primary vendor of the Wand handpiece, resulting in inconsistent
inventory levels. Those transition issues have been resolved and are resulting
in improved supply chain management.

Cost of sales for the nine months ended September 30, 2003 and 2002 were
$1,560,288 and $1,499,063, respectively. The $61,225 increase is attributable
primarily to higher sales volume to foreign distributors.

For the nine months ended September 30, 2003, Milestone generated a gross
profit of $1,540,993 or 49.7% as compared to a gross profit of $1,716,844 or
53.4% for the nine months ended

September 30, 2002. The decrease in gross profit percentage is primarily
attributable to increased sales to foreign distributors. Sales to foreign
distributors are of higher volume but at a reduced margin.

Selling, general and administrative expenses for the nine months ended
September 30, 2003 and 2002 were $2,491,737 and $2,712,649, respectively. The
$220,912 decrease is attributable primarily to an approximate $241,000 decrease
in expenses associated with the sale and marketing of the Wand. An approximate
$63,000 expense associated with the independent sales representative start up
costs, was primarily offset by a commensurate amount of commissions earned
during the similar period in the previous year.

Milestone incurred costs totaling $79,023 relating to the closure of its
Deerfield, IL facility.

Research and development expenses for the nine months ended September 30,
2003 and 2002 were $112,158 and $63,928, respectively. These costs were related
to the development of Milestone's SafetyWand.

The loss from operations for the nine months ended September 30, 2003 and
2002 was $1,141,925 and $1,059,733, respectively. The $82,192 increase in loss
from operations is explained above.

Milestone generated $72,000 in income for the nine months ended September
30, 2002 as a result of a consulting contract which expired in October 2002.

Interest expense of $645,457 was incurred for the nine months ended
September 30, 2003 as compared to $616,519 for the nine months ended September
30, 2002. The increase is attributable to higher average borrowings in 2003.

The net loss for the nine months ended September 30, 2003 was $1,787,382 as
compared to a net loss of $1,604,252 for the nine months ended September 30,
2002. The $183,130 increase in net loss is explained above.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002, as shown in the accompanying consolidated financial
statements, we incurred net losses of approximately $2,440,000 and $3,992,000
and negative cash flows from operating activities of approximately $676,000 and
$1,385,000 during 2002 and 2001, respectively. As a result, we had a cash
balance of approximately $10,000, a working capital deficiency of approximately
$5,214,000 and a stockholders' deficiency of approximately $6,106,000 as of
December 31, 2002. These matters raise substantial doubt about our ability to
continue as a going concern.

At September 30, 2003, the accompanying condensed consolidated financial
statements have been prepared assuming Milestone will continue as a going
concern. However, as shown in the accompanying condensed consolidated financial
statements, Milestone incurred net losses of approximately $1,787,000 and
$1,604,000 and negative cash flows from operating activities of $861,000 and
$418,000 during the nine months ended September 30, 2003 and 2002, respectively.
As a result, Milestone had a cash balance of approximately $96,000, a working
capital deficiency of approximately $1,449,000 and a stockholders' deficit of
approximately $2,877,000 as of September 30, 2003. These matters raised
substantial doubt about Milestone's ability to continue as a going concern.
Management believes that its initial concerns about the Company's ability to
continue as a going concern have been alleviated through the subsequent
satisfaction of a substantial portion of its outstanding obligations, the
introduction of new products and continuing efforts to reduce operating
overhead. Nevertheless, management believes that it is probable that Milestone
will continue to incur losses and negative cash flows from operating activities
through at least September 30, 2004.

During the year ended December 31, 2002, we reduced our average monthly
cash used in operations to less than $60,000, completed a $4.1 million debt
restructuring program, and obtained $785,000 in additional financing. This
program included debt to equity conversions, deferring payment on a portion of
our payables, restructuring our debt and outsourcing our sales force.

Satisfaction of certain liabilities

Agreements reached by Milestone in October 2003 will effectively eliminate
the current stockholders' deficiency upon the later of completion of this
offering or January 2, 2004. During the

month, Milestone satisfied $5,014,000 of secured debt including interest,
through the issuance of 1,646,419 shares of common stock and $25,365 face amount
of 8% cumulative convertible preferred stock. Also, approximately $503,000 of
trade payables to principal vendors was satisfied through issuance of 102,195
shares of common stock valued at $4.92 per share, the approximate fair market
value.

Additionally, we reached agreements to satisfy, an aggregate amount of
$1,963,000 of debt, accrued interest, and accrued compensation through the
issuance of equity securities. Satisfaction of the secured debt for borrowed
money to a major investor and to our Chairman and CEO and accrued compensation
to our CEO will be on the later of January 2, 2004 or the effective date of the
next public offering of our securities through the issuance of common stock and
warrants at the same price as offered to the public. This settlement is
contingent upon there being a public offering. Payment of this debt, following
the conversion to equity in September 2003 of additional $5 million of debt will
eliminate most of Milestone's funded debt and will remove almost all liens on
its assets.

Reduction of operating overhead

To date, we have taken certain steps in order to reduce our operating
overhead and use of cash. These steps includethe following:

o Commencing in 2001 and continuing through 2003, we reconfigured our
sales force from a large internal sales force to independent sales
representatives, distributors and a small sales support staff;

o On January 31, 2003, we completed the closing of the Deerfield,
Illinois facility, resulting in the termination of ten employees. The
customer support, technical service and other back-office functions
previously conducted, in whole or in part, at this location were
consolidated into our New Jersey location. The receiving, shipping and
storage functions, which were also previously done at this location,
are now outsourced to an independent warehouse located in
Pennsylvania.

On June 4, 2003, we borrowed $50,000 pursuant to a 6% secured convertible
promissory note due November 27, 2004. At the option of the noteholder, the
principal and interest are payable on the maturity date in common stock at a
rate of one share of common stock for every $.936 of indebtedness. Additionally,
we granted the investor warrants to purchase 53,419 of our common stock at a per
share price of $1.56 with an estimated fair value of $14,423 at any time or from
time to time during the period commencing June 4, 2003 and ending June 3, 2005.
This resulted in an initial increase to debt discount and to additional paid-in
capital.

Cash flow results

For the nine months ended September 30, 2003, the Company's net cash used
in operating activities was $860,990. This was attributable primarily to a net
loss of $1,787,382 adjusted for noncash items of $280,494 (of which $242,628 was
for amortization of debt discount and deferred financing costs); a $372,167
increase in accounts receivable; an $135,997 increase in inventories; a $137,575
decrease in advances to contract manufacturer; a $3,341 decrease in prepaid
expenses; an increase in accounts payable of $399,731 a $402,827 increase in
accrued interest; a $29,412 decrease in accrued expenses; and an $240,000
increase in deferred compensation.

For the nine months ended September 30, 2003, the Company used $15,817 in
investing activities for capital expenditures.

For the nine months ended September 30, 2003, the Company generated
$962,994 from financing activities as it issued promissory notes to existing
investors totaling $900,000, incurred $108,537 of net borrowings from its Chief
Executive Officer, recorded $22,721 in deferred financing activities and
incurred $22,500 in expenses in registering shares.

RECENT ACCOUNTING PRONOUNCEMENT

In December 2002, SFAS No.148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an Amendment of SFAS No. 123" was
issued. SFAS No. 148 amends SFAS No. 123, to

provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effects of
the method used on reporting results. Milestone adopted SFAS No. 148, effective
January 1, 2003 and it did not have any material impact on its consolidated
financial statements.

In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" was issued. The statement
requires that an issuer classify financial instruments that are within its scope
as a liability. Many of those instruments were classified as equity under
previous guidance. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. We are currently evaluating the provisions of this statement, and do not
believe that it will have an impact on our consolidated financial statements.

BUSINESS

BACKGROUND

Milestone is a leader in advanced subcutaneous injection technology for
dental and medical applications. Its products improve the quality of patient
care and comfort, while also addressing the health and safety needs of the
practitioner. Milestone's principal product, CompuDent, was developed to replace
the hypodermic syringe in dentistry. The hypodermic syringe has been little
changed since its invention more than 150 years ago. A dentist using a syringe
can generally administer an adequate volume of anesthetic to the intended target
area to achieve the desired level of anesthesia. However, use of a syringe for
this purpose, may result in a number of unintended consequences or collateral
problems including:

o high levels of patient pain in some procedures;

o post-operative pain as a result of tissue tearing or distension;

o necrosis as a consequence of tissue tearing and other damage;

o failure to hit the intended nerve target because of needle deflection
and the awkward manner in which the syringe must be held;

o temporary paralysis of adjacent tissue such as the tongue, lips, and
facial muscles;

o fear reactions by the patient to the syringe;

o carpal tunnel syndrome to the dentist or hygienist;

o inability to inject sufficient anesthetic into dense tissue or tight
spaces; and

o use of unnecessarily high levels of anesthetic.

DENTAL PRODUCTS

CompuDent and the Wand

Milestone's principal product, CompuDent, is a computer controlled,
precision metered, local anesthetic injection system. The system, including its
ergonomically designed, single patient use, disposable handpiece, The Wand,
enables a dentist to consistently administer safe, effective and less painful
injections. Since January 1998, Milestone has sold more than 24,000 CompuDent
units and over 13 million single use handpieces in the United States and in over
25 other countries. CompuDent has been favorably evaluated in 18 peer reviewed,
published clinical studies and over 25 other evaluative articles. The system
provides these benefits:

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

o the pencil grip used with The Wand handpiece provides enhanced tactile
sense and more accurate control;

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

o bidirectional rotation of The Wand handpiece results in greater
precision and more rapid onset of anesthesia by eliminating needle
deflection in mandibular block injections;

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

o the ergonomic design of The Wand makes an injection easier, less
stressful to administer and reduces the risk of carpal tunnel syndrome
to the dentist or hygienist; and

The system design allows a drop of anesthetic to always precede the needle
tip, thus creating a pathway of already anesthetized tissue for the needle to
penetrate. The system also eliminates the "bee-sting" effect, that is, the
painful effect associated with a surge of fluid into a confined tissue area.
Syringes do not allow sufficient control of the flow rate to achieve these
benefits. With a syringe, the needle often enters tissue that has not yet been
anesthetized. Further, dentists using a syringe do not have a solid resting
point against which they may guide their hand while administering the injection,
often resulting in uncontrolled and movement of the needle that causes pain for
the patient.

The slim, pencil-like, shape of The Wand handpiece is also more functional
for the user and less ominous in appearance to the patient. The pencil grip
provides enhanced tactile sense, more accurate control, and a greater level of
stability for the user by preventing antagonistic movements. As a single patient
use device, the handpiece also offers protection against patient
cross-contamination.

The design of The Wand handpiece allows the practitioner to use a new
needle insertion technique called bidirectional rotational insertion that
minimizes needle deflection. Contemporary dental anesthesia textbooks indicate
that needle deflection is a source of anesthetic failures in mandibular blocks,
the most common dental injection. Anesthetic blocks are missed 15% to 20% of the
time because of needle deflection associated with hypodermic syringes. The
bidirectional rotational insertion technique associated with The Wand handpiece
addresses these failures. Further, the new technique also requires two to three
times less force to penetrate tissue, which may lead to a less painful injection
experience for the patient.

We sell CompuDent units, together with an initial supply of 50 handpieces,
in the U.S. for $1,995. However, discounts are offered for purchases of multiple
units and on sales of additional units to existing customers. We sell The Wand
for $75 and The Wand with bonded needle handpieces for $62.50, for a box of 50
handpieces, but offer discounts for participants in the Milestone Savings Plan
and other periodic buying programs.

Our international master distributors and direct distributors to whom we
sell in a number of countries purchase units at a range of generally lower
prices, depending upon the extent of the marketing, promotional, training and
repair obligations which they assume.

The SafetyWand

In September 2003, we received FDA approval for the SafetyWand, an
injection handpiece device that incorporates safety engineered sharps protection
features. The SafetyWand was developed to address requirements of the
Needlestick Safety Act, mandating the use of a safety engineered sharps device
to eliminate inadvertent needle sticks. The Act was adopted in 2000 after it was
found that U.S. healthcare workers suffer from an estimated 800,000 needle-stick
injuries each year, some of which resulted in cases of HIV, Hepatitis B,
Hepatitis C and other illnesses, costing taxpayers in excess of $2 billion
annually, in testing and treatment.

OSHA promulgates regulations under the Needlestick Safety Act. OSHA and
corresponding authorities in some states are responsible for enforcing the Act
and its regulations. OSHA and similar state and local authorities conduct
enforcement actions on a state-by-state basis. While OSHA and these state and
local authorities are empowered to levy substantial fines for failure to use
these devices, we believe that they have largely been unable to enforce the law
against dentists because of the inadequacy of existing devices to meet both the
requirements of the law and the unique clinical needs of dentists. The
SafetyWand is one of the first safety engineered injection devices that conforms
with more than 30 parameters published by OSHA to be met by safety engineered
products while also meeting the clinical needs of dental practitioners. It
provides the practitioner 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 often limited field of
view.

We believe that the commercial availability of the SafetyWand will enable
OSHA and similar state and local authorities to begin enforcement, or stricter
enforcement, of the Needlestick Safety Act against dentists. Since the
SafetyWand can only be used with CompuDent, enforcement by OSHA could promote
increased handpiece sales to current CompuDent users, while also providing
significant

impetus for the purchase of these systems by new users. However, there are no
assurances that the Act or related regulations will be strictly or consistently
enforced or that this enforcement will result in increased sales of our
products. We launched the SafetyWand at the American Dental Association Annual
Meeting in California in October 2003. We expect to begin initial shipments of
the SafetyWand before the end of 2003.

The Wand Handpiece with Needle

This handpiece was designed to eliminate the re-use of handpieces on
multiple patients, a problem occurring primarily outside the United States. This
product is The Wand handpiece with a needle permanently attached. The benefits
of this product are three-fold: for the patient, the risk of contamination from
a previously used needle is eliminated, for the practitioner, there is less
preparation time needed, and for Milestone, it should increase overall handpiece
sales as customers will now stock handpieces with different sized needles. In
June 2003 we received our CE mark to sell The Wand Handpiece with Needle in
Europe. Since June we have generated $130,000 in Wand Handpiece with Needle
sales.

CoolBlue Wand Dental Enhancement System

In August 2003, we entered into an agreement with DaVinci Systems, granting
us non-exclusive distribution rights for the CoolBlue Wand, manufactured by
DaVinci. The CoolBlue Wand is a dental enhancement system that uses advanced
blue light emitting diodes for faster curing of dental repair amalgams,
trans-illumination of teeth and activation of whitening gels and pastes. The
agreement also granted us exclusive worldwide distribution rights for a
whitening head. Under a further understanding with DaVinci, these rights were
expanded to include products for the consumer home market. We began selling the
CoolBlue Wand at a dental trade show in late October 2003. Through December 15,
2003 we have sold $23,025 of these units and have received orders for an
additional $20,130.

Curing. Technological advances have allowed the introduction of a composite
material that is soft and malleable and generally matches the color of teeth.
Once applied, this composite is hardened through the use of a curing light. The
first generation of curing lights used halogen lamps, which require several
minutes of curing time and emitted a great deal of heat in the mouth. Newer
curing lights use light emitting diodes ("LEDs") that reduce curing time and
emit less heat. DaVinci's curing light uses shorter wavelength blue LEDs that
cure faster, deeper and cooler than products using halogen lamps. Further, the
design is versatile and allows optional attachments for trans-illumination to
identify cracks in a tooth and for activating whitening gels and pastes.

Whitening. The curing light may also be used as the base device for a
whitening system employing a proprietary whitening head developed by DaVinci for
Milestone, a dental office treatment kit, a take home kit provided by the
dentist for follow-up, and a unique whitening rinse for long term maintenance.
DaVinci will supply all components of the system to Milestone. Milestone is the
exclusive worldwide distributor of the whitening head. All gels, pastes and
rinse to be used with the whitening head will be supplied to Milestone by
DaVinci at the lowest price provided to its customers.

We are currently working with a manufacturer to complete development of
packaging for the system. Concurrently, Milestone has engaged a creative firm to
assist in the development of the launch materials, including naming, logo
creation and promotional materials. We expect to launch the whitening system and
to begin shipments of the product in the first quarter of 2004. We believe this
product has an array of practitioner and patient benefits including lower cost
and safety and which will allow the dentist to market take home consumables.

For its assistance in arranging our distribution agreement with DaVinci, we
agreed to pay Strider Inc., a commission of 5% of our gross revenues on all
products purchased from DaVinci and resold to the professional dental market,
and a commission of 2% of our gross revenues on all products purchased from
DaVinci and resold to markets other than the professional dental market.

The Proposed PDL Injector Device

The periodontal ligament injection, or PDL injection, is a site specific
injection which is highly effective for single tooth anesthesia. During a PDL
procedure, a dentist anesthetizes a single tooth without causing collateral
anesthesia to the tongue, lip and cheek. However, due to the pain elicited from
the high volume of drug required and the associated pressure, a PDL can only be
used as a secondary injection once the patient has already been anesthetized.

The traditional PDL injection is typically administered using a spring
loaded, high pressure, trigger-activated injector, known as a PDL Injector.
Using this device, anesthetic must be delivered into the PDL under extremely
high pressure and force over a short period of time, resulting in rapid flow
rates and high interstitial pressures in the PDL. A successful injection is only
possible if the needle placement allows the proper flow of anesthetic into the
PDL. If the needle is obstructed in any way, proper flow of the drug cannot
occur and excessive pressure will result, possibly leading to persistent post
operative pain and potential tissue necrosis.

An independent clinical study conducted by the NYU College of Dentistry in
2000, demonstrated that when lower pressures are used over a longer period of
time, larger volumes of anesthetic can be effectively delivered into the PDL
space. These lower pressures are very difficult to produce with any handheld
syringe and impossible to consistently produce with a PDL Injector. Our modified
PDL injection, administered with the CompuDent, can be used on any tooth and
differs significantly from the traditional PDL injection as administered with
the PDL Injector or syringe. Using these devices requires the delivery of a
relatively small volume of anesthetic solution under tremendous pressure while
the CompuDent allows the operator to deliver a larger volume, under controlled
pressure using a slow, controlled flow rate. The modified PDL injection can be
used for primary anesthesia as well as the traditional supplementary injection
to a mandibular block. Successful administration of the PDL also reduced the
number of visits and time required for many procedures.

While CompuDent has enhanced the practitioners' ability to perform a
successful PDL injection, there is still one component missing -- the ability to
know for certain that the needle is in the PDL. By using pressure/force feedback
to control the flow rate, one could predictably produce successful PDL
injections.

We have reduced to practice the use of pressure/force feedback and control
in our CompuFlo device discussed below. The proposed PDL Injector combines our
computer controlled injection system from CompuDent with our patented pressure
sensing technology to scientifically ensure a successful PDL injection. This
pressure sensing technology provides real-time measurement during an injection
that we believe will allow the practitioner to properly position the needle and
inject a sufficient volume of anesthetic. We have begun discussions with a major
international manufacturer of dental equipment for their distribution, on an
exclusive worldwide basis of our proposed PDL Injector. Marketing of the
proposed PDL Injector Device can begin once we obtain a 510(k) clearance the
FDA, which we expect to apply for during the first half of 2004.

MEDICAL PRODUCTS

CompuMed

In 2001 Milestone introduced CompuMed, an anesthetic injection system
designed to meet the needs of the medical market. CompuMed provides benefits
similar to CompuDent. CompuMed allows a number of medical procedures, now
requiring IV sedation, to be performed with only local anesthesia because of the
significantly reduced pain. Also, dosages of local anesthetic can often be
significantly reduced, thus reducing side effects, accelerating recovery times,
lowering costs and minimizing complications. CompuMed is now gaining acceptance
in a variety of discrete medical applications including 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.

An independent clinical study conducted by researchers at the University of
Southern California and published in May 2001, in colorectal surgery, confirmed
that patients experienced significantly less

pain when the CompuMed system was used. The study was terminated before accruing
its initial target number of patients because the researchers considered it
unethical not to use CompuMed exclusively. In another clinical study conducted
in 2001 by researchers at Scholl College of Podiatric Medicine in Chicago
Illinois, which was presented as an abstract in the field of podiatry, CompuMed
was compared with the traditional hypodermic syringe for obtaining regional
anesthetics in the hallux. The results stated that the moderate pain associated
with the traditional syringe decreased to nearly non-existent when using the
CompuMed.

Also, in 2002, we sold 21 units of CompuMed to a national hair restoration
provider.

PROPOSED PRODUCTS

CompuFlo

Milestone has developed CompuFlo, a prototype injection, perfusion and
aspiration device, that embodies a new technology that Milestone believes, will
provide it with entry into new markets, specifically the large hospital sector.
CompuFlo provides a real time readout of pressures, fluid densities and flow
rates in the delivery and removal of a wide array of liquid drugs and other
fluids, including bodily fluids. Due to cash constraints, Milestone has not yet
developed devices embodying this technology for specific applications. A major
medical center has proposed the initiation of clinical trials, at the beginning
of 2004, to ascertain the efficacy, safety and suitability of CompuFlo in
administering epidural injections for adults and children and peripheral nerve
blocks to adults. We can give no assurances that these trials will be conducted
or, if conducted, will be successful.

SafetyInfuse Wand

Milestone has also developed SafetyInfuse Wand, a safety engineered IV
catheter introducer. This product is designed to allow a practitioner to
introduce an IV catheter into a vein using a single-handed, automatic safety
engineered device. Protraction and retraction can be accomplished with a single
hand, further enhancing the safety feature. It is a fail-safe device; that is,
if the safety components break or fail to operate, then the needle moves into
its protected state thus ensuring optimal safety to the end user. A major
advantage of the SafetyInfuse Wand is that it can be used multiple times on a
single patient, following a failure to introduce the catheter into the vein. Due
to cash constraints, Milestone has not yet applied for 510(k) FDA marketing
clearance for the SafetyInfuse Wand, but we expect to do so in 2004.

MANUFACTURING

CompuDent and CompuMed units are manufactured for us by Tricor Systems,
Inc. ("Tricor") pursuant to specific purchase orders. In order to fund certain
expenses of Tricor, we have advanced funds to Tricor. These advances are reduced
as Tricor makes shipments to us. Net advances to Tricor as of December 31, 2001
and 2002 and September 30, 2003 were approximately $690,000, $398,000, and
$250,000, respectively. The Wand disposable handpiece is manufactured for us in
Mexico by Nypro Precision Assemblies ("NPA"), a subsidiary of Nypro Inc.
Pursuant to scheduled production requirements. NPA utilizes molds,
semi-automated assembly equipment and packaging equipment purchased by us. These
products are sterilized in California and shipped to our fulfillment center in
Pennsylvania. The Wand Handpiece with Needle is supplied to us by United
Systems, which arranges for its manufacture by manufacturers in China. We may
expand our relationship with this supplier to include production of other types
of handpieces. All of the manufacturers for our products, including those
supplying United Systems, are ISO compliant.

MARKETING

Marketing Background

When we launched CompuDent in 1997, we relied on four major dental dealers
to distribute our products. While this achieved broad access to dental offices,
the nature of a typical sales visit by these

dealers' representatives proved to be counterproductive to the training
requirements of CompuDent. Though more than 15,000 units were sold in the first
quarter following launch, this distribution method distanced us from our
customers and made it impossible to provide customer support and adequate
clinical training. These factors, coupled with introduction problems typically
associated with new technology and early product design problems, now resolved,
led to disgruntled customers and limited handpiece use. Therefore, in 2000 we
began selling directly to customers. We hired a sales manager and eleven direct
sales representatives to cover major metropolitan areas. However, the then sales
price for CompuDent was inadequate to cover our direct expenses, including
compensation to our representatives. We also experienced difficulty gaining
access to dental offices because the representatives had a single product and
the technology was still new to the market.

New Marketing Plan -- Dentistry -- Domestic

In January 2003, we developed a new sales and marketing plan, which
reflected five years of lessons learned in the marketplace. We increased the
base price of CompuDent from $1,495 to $1,995 that allowed us to recruit and
adequately compensate our sales force and support staff. We developed a
comprehensive training plan to enable our reps to provide orientation and
training to new customers, and to foster increased usage of disposable
handpieces. By September 30, 2003, we had a force of 12 sales representatives
providing sales coverage in urban areas in 12 states. The typical independent
rep manages a territory of approximately 3,500 to 5,000 dentists within a large
metropolitan area. We support these independent sales reps in several important
ways:

o our sales support staff set appointments to help the reps gain access
to dental offices;

o we generate sales leads for them through our attendance at an average
of 20 trade shows a year and through limited advertising and direct
mail campaigns;

o we provide technical and service support;

o we provide them with access to our existing customer base for the
purpose of increasing utilization of handpieces as well as converting
customers to a subscription program, the Milestone Saving Plan, under
which they commit to the monthly purchase of handpieces at a discount
from our regular prices; and

o in September 2003, we began distributing the CoolBlue Wand which helps
our sales force gain access to dental offices for sales of CompuDent.

Also, in 2002 we entered into a non-exclusive distribution agreement with
Benco Dental, granting them rights to distribute CompuDent and its handpieces in
designated portions of the eastern U.S. Benco failed to achieve specified
minimum purchase requirements and we now have the right to terminate the
agreement upon notice to Benco. However, we continue to sell limited amounts of
units and handpieces to Benco at a discount to our direct customers.

With a growing new sales force and the acquisition of rights to new
products to facilitate access to dental offices, we intend to direct our
marketing efforts to capturing new customers from specialty practitioners,
including periodontists, pedodontists, endodontists and cosmetic/restorative
dentists.

Dentistry -- International Marketing

We manage the sales and marketing support for Canada, Mexico, Brazil and
Japan. Throughout the rest of the world, we distribute our products through two
master distributors who manage an extensive network of independent dealers. The
role of these principal distributors, Milestone Medical Technologies ("MMT") and
United Systems, Inc ("United"), includes identification of suitable local
distributors, establishment of distribution arrangements, supporting local
marketing efforts and acting as liaison with the parent company. International
sales represented 18%, 22% and 33% of sales in 2001 and 2002, and the first six
months of 2003, respectively.

MMT is our principal distributor for Europe, Africa and the Middle East.
MMT is our largest customer, representing 55%, 63% and 77% of our international
revenues in 2001, 2002 and the first nine months of 2003, respectively, and 10%,
14% and 26% of total sales in those periods, respectively.

United Systems is our principal distributor in China, Taiwan, and South
Korea. Handpiece use for these territories is less than in Europe and the US. In
2001, 2002 and the first nine months of 2003, respectively, sales to these
territories represented fewer than 1% of our total revenues, for all those
periods.

In addition, sales to Yoshida Dental Manufacturing Company of Japan, Synca
(our distributor in Canada) and Moyco (our distributor in Mexico) in 2001, 2002
and the first nine months of 2003, represented collectively, 7%, 8% and 6%,
respectively.

After this offering, we plan to hire a dedicated sales manager for each of
the three major regions -- Europe, Asia and Latin America, to oversee the
implementation of this sales and marketing strategy and to ensure that the
distributors are provided with adequate training and technical support. We also
plan to assist our master distributors to engage new distributors in major
markets, to train existing and new distributors and to replace poor performing
distributors.

Proposed Expanded Marketing Program for Dental and Hygiene Schools

More than 5,000 students graduate annually from dental schools in the U.S.
We believe this presents a key opportunity for us to cultivate use of CompuDent
early in the dentists' training. We expect to use a portion of the proceeds of
this offering to offer special educational assistance programs to dental and
hygiene schools in the U.S. and Canada. Our hope is that training in the use of
CompuDent will be incorporated into the curriculum of the schools and that
students will use the products throughout their training.

As of September 30, 2003, CompuDent has been added to the curriculum of 8
U.S. and Canadian dental schools and 13 schools providing degrees in dental
hygiene. Through our international distribution partners, training in the use of
CompuDent systems has also become part of the curriculum in several
international dental programs. To properly implement a program of this magnitude
and potential importance, we may need to hire a dedicated Academic Director.
This Academic Director, ideally either a retired dentist or hygienist, would be
responsible for working with the staffs of the chosen institutions on
incorporating the product into their curricula.

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.

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, shorten 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 Milestone, 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. Milestone
competes on the basis of convenience since it can package the product with an
order for disposable handpieces.

We face intense competition from many companies in the medical and dental
device industry, including well-established academic institutions, possessing
substantially greater financial, marketing, personnel, and other resources. Most
of our competitors have established reputations, stemming from their success in
the development, sale, and service of competing dental products. Further, rapid
technological change and research may affect our 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:

U.S. PATENT DATE OF
NUMBER ISSUE
--------------- ----------

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
Handpiece for Injection Device with a Retractable and Rotating Needle .... 6,428,517 8/6/02
SAFETYWAND
Dental Anesthetic and Delivery Injection Unit with Automated Rate
Control ................................................................. 6,652,482 11/25/03
COMPUFLO
Pressure/Force Computer Controlled Drug Delivery System .................. 6,200,289 3/13/01
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

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 2002 and 2001 fiscal years, we expensed $147,709 and $49,943,
respectively, on research and development activities. The higher costs incurred
during 2002 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 by 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 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.

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,
its 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 November 30, 2003 Milestone had 11 full-time employees, including three
executive officers, two customer service people, a national sales manager, four
sales support staff and an administrative assistant and one part time employee.
In addition, our Director of Clinical Affairs and 11 independent sales
representatives provide us with their services on an independent basis.

FACILITIES

Our offices are located in Livingston Corporate Park in Livingston, New
Jersey. We lease approximately 2,693 square feet of office space under a lease
through March 2007, at a cost that we believe to be competitive. We may have to
increase our office space in the future, and we believe that we will be able to
find adequate premises at reasonable terms. A third party distribution and
logistics center in Pennsylvania handles shipping and order fulfillment.

MANAGEMENT

The current executive officers, directors and key personnel of Milestone
and their respective ages as of September 30, 2003 are as follows:

DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- -----

Leonard A. Osser .................. 56 Chairman and Chief Executive Officer 1991
Stuart J. Wildhorn ................ 46 President
Thomas M. Stuckey ................. 49 Vice President and Chief Financial Officer
Mark Hochman, D.D.S. .............. 45 Director of Clinical Affairs
Eugene Casagrande, D.D.S. ......... 60 Director of Professional Relations
Paul Gregory (2) .................. 68 Director 1997
Leonard M. Schiller(1)(2) ......... 62 Director 1997
Jeffrey Fuller(1) ................. 57 Director 2003
Leslie Bernhard(1) ................ 59 Director 2003

------------

(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.

Thomas M. Stuckey has been our Vice President and Chief Financial Officer
since May 1998. Mr. Stuckey is a CPA and CMA and holds a MS degree in Accounting
from Syracuse University.

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
subcutaneous 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 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.

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.

LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION

Our certificate of incorporation provides that a director will not be
personally liable to us or to our stockholders for monetary damages for breach
of the fiduciary duty of care as a director, including breaches which constitute
gross negligence. This provision does not eliminate or limit the liability of a
director:

o for breach of his or her duty of loyalty to us or to our stockholders;

o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

o under Section 174 of the Delaware General Corporation Law (relating to
unlawful payments or dividends or unlawful stock repurchases or
redemptions);

o for any improper benefit; or

o for breaches of a director's responsibilities under the Federal
securities laws.

Our certificate of incorporation also provides that we indemnify and hold
harmless each of our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law, against all expense, liability and loss
(including attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to our
certificate of incorporation, Bylaws and the Delaware General Corporation Law,
we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy and is, therefore,
unenforceable.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons under our
certificate of incorporation, we have been informed that, in the opinion of the
SEC, indemnification is against public policy as expressed in the Securities Act
and is unenforceable.

EXECUTIVE COMPENSATION

The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 2002,
2001, and 2000 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 2002 fiscal year and whose salary as
determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals
falling within categories (i) and (ii) are collectively referred to as the
"Named Executives").

SUMMARY COMPENSATION TABLE

AWARDS
ANNUAL COMMON STOCK
COMPENSATION UNDERLYING
SALARY OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) (#)
----------------------------- ------ ---------------- -------------

Leonard A. Osser ............ 2002 351,800(1) 16,667
Chief Executive 2001 350,967(2) 16,667
Officer and Chairman 2000 265,407(3) 16,667

Stuart J. Wildhorn .......... 2002 155,400 2,333
President 2001 93,750 16,667

Thomas A. Stuckey ........... 2002 136,267(4) 2,333
Chief Financial 2001 116,905 3,333
Officer and Vice President 2000 114,051 8,333

------------

(1) Includes $320,000 in deferred compensation but excludes $19,049 paid by
Milestone to Marilyn Elson, a certified public account, who was employed
by Milestone to render professional tax services. Ms. Elson is the wife
of Mr. Osser.

(2) Includes $350,000 in deferred compensation. The deferred compensation was
paid subsequent to year end through the issuance of 208,333 units, each
consisting of one share and one six-year warrant to purchase one share at
prices ranging from $2.40-$6.00. It excludes $20,850 paid by Milestone to
Marilyn Elson.

(3) Includes $141,346 in deferred compensation. The deferred compensation was
paid subsequent to year end through the issuance of 58,894 units, each
consisting of one share and one six-year warrant to purchase one share at
prices ranging from $2.40-$6.00. Reflects voluntary reduction of base
salary, which commenced in July.

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

STOCK OPTIONS

The following tables show certain information with respect to incentive and
non-qualified stock options granted in 2002 to Named Executives under
Milestone's 1997 Stock Option Plan and the aggregate value at December 31, 2003
of such options. In general, the per share exercise price of all options is
equal to the fair market value of a share of Common Stock on the date of grant.
No options granted to Named Executives have been exercised.

OPTION GRANTS IN 2002 INDIVIDUAL GRANTS OF OPTIONS

NUMBER OF PERCENT OF TOTAL
SHARES OF COMMON OPTIONS GRANTED
STOCK UNDERLYING TO EMPLOYEES EXERCISE PRICE
NAME OPTIONS IN 2002 ($/SH) EXPIRATION DATE
---- ------------------ ----------------- --------------- ----------------

Leonard A. Osser ........... 16,667 (1) 28.9% $ 1.65 01-01-07
Stuart J. Wildhorn ......... 2,333 (2) 4.0% $ 2.25 07-27-07
Thomas M. Stuckey .......... 2,333 (2) 4.0% $ 2.25 07-27-07

------------

(1) Options vested January 1, 2003

(2) Two thirds have vested and one third will vest on July 27, 2004.

AGGREGATED 2002 YEAR END OPTIONS VALUES
FOR OPTIONS GRANTED PRIOR TO AND DURING 2002

NUMBER OF SHARES OF
COMMON
STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12-31-2002 AT 12-31-2002(1)
EXERCISABLE EXERCISABLE
NAME UNEXERCISABLE UNEXERCISABLE
--------------------------------- ----------------------- ---------------------

Leonard A. Osser ........... 0 / 66,667 $0 / $0
Stuart J. Wildhorn ......... 6,333 / 12,667 $0 / $0
Thomas M. Stuckey .......... 23,889 / 5,444 $0 / $0

------------

(1) Based on the closing price on December 31, 2002 of $.90 as quoted on the
American Stock Exchange.

EMPLOYMENT CONTRACTS

As of January 1, 1998 Milestone entered into an Employment Agreement with
Mr. Osser, which provides for an initial term expiring on December 31, 2002,
with a two-year non-competition period at the end of the term. The term is
automatically extended for successive one-year periods, unless prior to December
1 of any year either party notifies the other of its election not to extend the
term. Neither party has given notice to the other. Under the Agreement Mr. Osser
serves as our full-time Chief Executive Officer and receives annual base pay of
$350,000, increasing to reflect cost of living adjustments commencing on January
1, 2001. In addition, during January 1998 and each of the next four Januarys
Milestone shall grant Mr. Osser an option to purchase 16,667 shares of Common
Stock exercisable only during the last 30 days of the five-year option term
unless Milestone achieves certain financial goals to be specified annually by
the Compensation Committee. Additionally, as soon as financial statements for
each year commencing with 1998 are completed, Milestone shall grant the
executive an additional option to purchase up to 16,667 shares depending upon
the achievement of specified performance goals. Further, Mr. Osser shall receive
the opportunity to earn cash bonuses of up to $200,000 per year depending upon
the achievement of performance targets to be specified by the Option Committee.

On July 7, 1998, at his sole discretion, Mr. Osser implemented a voluntary
reduction of his annual base salary, reducing his annual base pay from $350,000
to $188,462. The voluntary reduction has been

described by Mr. Osser as being both temporary and having no effect upon his
rights under his employment agreement with Milestone. Such reduction remained in
effect until August 5, 2000. At that time, Mr. Osser began to defer his salary
at the $350,000 annual base. At December 31, 2000, his deferred compensation was
$141,346. In December 2001, Milestone reached an agreement with Mr. Osser to
satisfy the $491,346 of unpaid salary. The agreement calls for the issuance of
204,728 units. Each unit consists of one share of Milestone common stock and one
warrant to purchase an additional share of such common stock. The warrants will
be exercisable at $2.40 per share through January 31, 2003, thereafter at $3.00
per share through January 31, 2004, and thereafter at $6.00 per share through
January 31, 2007, at which time they will expire. On March 31, 2003, Mr. Osser
signed an agreement deferring $640,000 of his annual salary until April 1, 2004.
On October 9, 2003 Mr. Osser signed an agreement according to which he will
receive, on the later of January 2, 2004 or the date this offering becomes
effective, an estimated 50,375 units, in payment of $336,000 of accrued
compensation.

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 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, 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 2004 he can earn a $150,000 bonus based on
Milestone achieving break-even cash flow from operations, a $100,000 bonus based
on Milestone achieving net revenues of $6,250,000 and a $50,000 bonus based on
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 adjusted for financing
transactions 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 March 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.

COMPENSATION OF DIRECTORS

In 2003, each non-employee director was granted a five-year option to
purchase 6,667 shares of our Common Stock at an exercise price of $1.50, a price
above the fair market value of a share of our Common Stock on the date of grant.
Directors receive no cash compensation.

EQUITY COMPENSATION PLANS

NUMBER OF
SECURITIES TO BE NUMBER OF
ISSUED UPON WEIGHTED AVERAGE SECURITIES
EXERCISE OF EXERCISE PRICE OF REMAINING AVAILABLE
OUTSTANDING OUTSTANDING FOR FUTURE ISSUANCE
OPTIONS AND OPTIONS AND UNDER EQUITY
WARRANTS WARRANTS COMPENSATION PLANS
------------------ ------------------- --------------------

Equity compensation plans approved by
stockholders (1):
Grants under our 1997 Stock Option Plan ......... 208,781 $ 5.05 105,552

Equity compensation plans not approved by
stockholders(2)
Aggregate Individual Option Grants ............. 229,167 $ 6.00 Not Applicable

Total ........................................ 437,948 $ 5.55

------------

(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.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In December 2001, we reached an agreement with Mr. Osser to satisfy
$491,346 of his deferred compensation through the issuance of 204,728 units,
each unit consisted of one share of Milestone common stock and one warrant to
purchase an additional share of common stock. These units were issued to Mr.
Osser in January 2002.

In January 2002, we issued 108,333 units to K. Tucker Andersen, a 5% or
greater stockholder, each comprised of one share of common stock and one
five-year warrant to purchase one share of common stock at prices increasing
from $2.40 to $6.00, in consideration for $250,000. We also issued to Mr.
Andersen, in January 2002, 11,280 additional units in repayment of interest in
the amount of $27,072 accrued under a $500,000 line of credit.

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 $404,638 of principal and
accrued interest on the 6%/12% notes and the prior extension of these notes and
an aggregate of 779,184 shares of common stock to K. Tucker Andersen, in
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. The shares issued to
Messrs. Osser and Andersen 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 Messrs. Osser and Andersen 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 with Messrs. Osser and Andersen
to satisfy $1,595,734 of debt, including interest, out of which approximately
$402,861 is due to Mr. Osser and $1,192,873 is due to Mr. Andersen. In addition,
$384,000 of deferred compensation is due to Mr. Osser because of his deferral of
salary under his employment agreement. The debt of Messrs. Osser and Andersen
and the deferred compensation to Mr. Osser will be paid through the issuance of
units identical to those offered in this offering, on the later of January 2,
2004 or the effective date of this offering. The units will be valued at the
initial unit price in this offering.

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

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of our common shares as of the date of this prospectus by:

o each person, or group of affiliated persons, known by us to be the
beneficial owner of more than 5% of our outstanding common shares;

o each of our directors;

o each Named Executive above; and

o all of our directors and executive officers as a group.

The following table does not take into account any common shares sold as a
result of the exercise of the over-allotment option granted to the
representative. Except as otherwise indicated, the persons listed below have
sole voting and investment power with respect to all of the common shares owned
by them. The individual shareholders have furnished all information concerning
their respective beneficial ownership to us.

SHARES OF
COMMON STOCK
BENEFICIALLY PERCENTAGE OF
NAME OF BENEFICIAL OWNER (1) OWNED (2) OWNERSHIP
---------------------------- -------------------- --------------

EXECUTIVE OFFICERS AND DIRECTORS
Leonard Osser ......................... 1,306,725(3) 20.70%
Stuart J. Wildhorn .................... 13,444(4) *
Thomas M. Stuckey ..................... 20,989(5) *
Paul Gregory .......................... 10,858(6) *
Leonard M. Schiller ................... 30,339(7) *
Jeffrey Fuller ........................ 6,667(8) *
Leslie Bernhard ....................... 6,667(9) *
All directors & executive officers as a
group (7 persons) ................... 1,395,689(10) 21.81%
5% AND GREATER STOCKHOLDERS
K. Tucker Andersen .................... 1,316,717(11) 21.54%
Cumberland Associates, LLC ............ 660,258(12) 10.80%

------------

* Less than 1%

(1) The addresses of the persons named in this table are as follows: Leonard A.
Osser, Stuart Wildhorn and Thomas M. Stuckey are all at 220 South Orange
Avenue, Livingston Corporate Park, Livingston, NJ 07039; 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; and Cumberland Associates, LLC, 1114 Avenue of the Americas,
New York, New York.

(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 proxy
statement 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 proxy statement
held by the named individual, divided by 6,112,678 outstanding shares on
December 15, 2003 and those shares underlying options exercisable within 60
days from the filing of this proxy statement, held by the named individual.

(3) Includes (i) 204,728 shares issuable upon exercise of stock options within
60 days of the date hereof, which until January 31 are exercisable at
$3.00, and beginning February 1, 2004 will be exercisable at $6.00 and (ii)
warrants immediately exercisable to purchase 11,905 shares at $5.25 per
share.

(4) Includes 11,111 shares subject to stock options, exercisable within 60 days
of the date hereof at $7.50 per share and 2,333 shares subject to stock
options, exercisable within 60 days of the date hereof at $2.25 per share.

(5) Includes 7,000 shares subject to stock options, exercisable within 60 days
of the date hereof at $9.00 per share and 8,333 shares subject to stock
options, exercisable within 60 days of the date hereof at $6.5625 per
share, 2,222 shares subject to stock options exercisable within 60 days of
the date hereof at $7.50 per share and 2,333 shares subject to stock
options exercisable within 60 days of the date hereof at $2.25 per share.
Mr. Stuckey disclaims beneficial ownership of (i) 3,333 shares which are
held by his wife as custodian for their children, and (ii) 567 shares which
are owned by his wife in her IRA.

(6) 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 $6.5625 per
share, and 6,667 subject to stock options, exercisable within 60 days of
the date hereof at $1.50 per share.

(7) Includes 4,141 shares subject to stock options, exercisable within 60 days
of the date hereof at $6.5625 per share, 6,667 shares subject to stock
options, exercisable within 60 days of the date hereof at $1.50 per share
and 19,531 shares subject to stock options exercisable within 60 days of
the date hereof at $9.00 per share.

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

(9) Includes 6,667 shares subject to stock options, exercisable within 60 days
of the date hereof at $1.50 per share

(10) Includes 244,787 shares subject to stock options, 11,905 shares subject to
warrants all of which are exercisable within sixty (60) days of the date
hereof and 30,667 shares to which he has shared voting and dispositive
power.

(11) Based solely upon an amendment to Schedule 13D filed by K. Tucker Andersen
with the Securities and Exchange Commission on November 13, 2003.

(12) Based solely upon Form 4 filed by Cumberland Associates, LLC with the
Securities and Exchange Commission on November 5, 2003.

All of the common shares set forth in the above table are covered by
lock-up agreements prohibiting their sale, assignment or transfer for 90 days
following the date of this prospectus without the prior written consent of the
representative.

DESCRIPTION OF SECURITIES

As of the date of this prospectus, our authorized capital stock consists of
55,000,000 shares consisting of 50,000,000 of common stock, par value $.001 per
share and 5,000,000 shares of preferred stock par value $.001 per share. After
this offering, we will have 9,199,604 shares of common stock issued and
9,166,271 outstanding (9,526,271 outstanding if the over-allotment option is
exercised in full) and 25,356 shares of series A preferred stock. As of the date
of this prospectus, we have 6,112,678 shares of common stock outstanding.

UNITS

Each unit consists of two shares of common stock and one warrant to
purchase one share of common stock. The shares and the warrants included in the
units will not trade separately until the 31st day following the effective date
of this offering, unless the representative of the underwriters determines that
separate trading of the public warrants shall occur earlier. At closing, we will
deliver only unit certificates. An investor can request physical delivery of the
certificate and can immediately request that the unit certificate can be
exchanged for stock and unit certificates. If the investor does so before the
stock and warrants trade separately, trades based on the stock and warrant
certificates will mot clear until trading in those securities commences.

COMMON STOCK

The holders of outstanding shares of common stock are entitled to receive
dividends out of legally available assets when and to the extent determined by
our board of directors from time to time. Each stockholder is entitled to one
vote for each share held by him on each matter submitted to a vote of
stockholders. At an election of directors, each director is elected by a
plurality of the voting shares of common stock. The shares of common stock are
not entitled to preemptive rights and are not convertible or redeemable. In the
case of a liquidation, dissolution or other termination of our business, the
holders of common stock are entitled to share ratably in the distribution of all
of our assets remaining available for distribution after all of our liabilities
have been satisfied. Each outstanding share of common stock is, and all shares
of common stock to be outstanding after this offering is completed will be,
fully paid and nonassessable.

WARRANTS

General. The warrants issued in this offering may be exercised at any time
beginning on the 31st calendar day after this offering and ending on , 2008.
Each warrant entitles the holder to purchase one share of common stock at an
exercise price of $ per share [150%] of the closing market price of our
common stock on the pricing date of this offering]. This exercise price will be
adjusted if specific events, summarized below, occur. A holder of warrants will
not be deemed a holder of the underlying stock for any purpose until the warrant
is exercised.

Redemption. Beginning six months after the effective date of this offering,
we will have the right to redeem the warrants at a price of $0.25 per warrant,
after providing 30 days' prior written notice to the warrantholders, at any time
after the closing price for our common stock, as reported on the principal
exchange on which our stock trades, was at or above [200% of the price of our
common stock on the effective date of this offering] for any five consecutive
trading days. We will send a written notice of redemption by first class mail to
holders of the warrants at their last known addresses appearing on the
registration records maintained by the transfer agent. No other form of notice
or publication or otherwise will be required. If we call the warrants for
redemption, the holders of the warrants will then have to decide whether to sell
the warrants, exercise them before the close of business on the business day
preceding the specified redemption date or hold them for redemption. If the
warrants are not covered by a current registration statement or are not
qualified for sale under the laws of the state in which you reside, you may not
be able to exercise them.

Exercise. The holders of the warrants may exercise them only if an
appropriate registration statement is then in effect and if the common stock
issuable upon their exercise are qualified for sale under the securities laws of
the state in which the holder resides. To exercise a warrant, the holder

must deliver to our transfer agent the warrant certificate on or before the
expiration date or the redemption date, as applicable, with the form on the
reverse side of the certificate executed as indicated, accompanied by payment of
the full exercise price for the number of warrants being exercised. Fractional
shares of common stock will not be issued upon exercise of the warrants.

Adjustments of exercise price. The exercise price of the warrants will be
adjusted if we declare any stock dividend to stockholders or effect any split or
share combination with regard to our common stock. If we effect any stock split
or stock combination with regard to our common stock, the exercise price in
effect immediately before the stock split or combination will be proportionately
reduced or increased, as the case may be. Any adjustment of the exercise price
will also result in an adjustment of the number of shares underlying a unit
warrant or, if we elect, an adjustment of the number of warrants outstanding.

PREFERRED STOCK

Under our Certificate of Incorporation, our board of directors has the
authority, without further action by the stockholders, to issue from time to
time up to 5,000,000 shares of preferred stock in one or more series. The board
of directors may fix the number of shares, designations, preferences, powers and
other special rights of each series of the preferred stock. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of common stock, affect adversely the rights and powers,
including voting rights, of the holders of common stock, or have the effect of
delaying, deferring or preventing a change in control in Milestone.

No shares of the preferred stock have yet been issued or designated.
However, we are obligated to issue 25,356 shares of Series A convertible
preferred stock to a non-affiliate noteholder who agreed to take these shares in
exchange for his portion of approximately $5 million of secured debt. Initially
these shares of the Series A preferred stock will be convertible into one share
of common stock (three shares after giving effect to the proposed one-for-three
reverse stock split). The Series A preferred stock will vote together with the
common stock as a single class and will have one vote for each share of common
stock into which it is convertible. It will have a liquidation preference of
$1.00 per share and will be entitled to 8% cumulative annual dividends on the
amount of its liquidation preference, in cash or common stock, at Milestone's
option, until conversion. The Series A preferred stock will become convertible
into common stock six months after the closing of this offering and unless
converted earlier, will automatically convert to common stock on November 1,
2005.

OPTIONS AND WARRANTS

As of the date of this prospectus, we had outstanding 208,781 compensatory
stock options granted to employees and directors. These options have exercise
prices ranging from $.87 to $18.00 per share and expire between February 2005
and January 2008. Of these options, 121,226 are currently exercisable.

As of the date of this prospectus, we had outstanding 229,167 compensatory
stock options granted to non-employees. These options have exercise prices
ranging from $1.50 to $13.50 per share and expire between July 2005 and May
2008. Of these options, 176,111 are currently exercisable.

As of the date of this prospectus, we had outstanding 799,730 warrants.
These options have exercise prices ranging from $1.56 to $9.00 per share and
expire between February 2005 and January 2007. All of these options are
currently exercisable.

REGISTRATION RIGHTS

As of the date of this prospectus, 226,323 shares of common stock,
including shares underlying warrants and convertible debentures are covered by
registration rights agreements with the holders of these securities. Regarding
102,195 shares of common stock, there is an informal understanding that we will
file a registration statement in connection with these shares. Regarding 53,419
shares, we have agreed to use our reasonable best efforts to file a registration
statement covering these shares. The remaining 70,709 are covered by agreements
according to which we will include them in the next Registration Statement on
Form S-3 that we file with the SEC, provided they have not yet become eligible
to sell their shares under Rule 144.

AUTHORIZED BUT UNISSUED SHARES

The authorized but unissued shares of common and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares could
render more difficult or discourage an attempt to obtain control of us by means
of a proxy contest, tender offer, merger or otherwise.

The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws,
unless the corporation's certificate of incorporation or bylaws, as the case
may be, requires a greater percentage. Our certificate of incorporation does
not impose any supermajority vote requirements.

TRANSFER AGENT, WARRANT AGENT AND REGISTRAR

The transfer agent and registrar for our common stock and the warrant agent
for the warrants is Continental Stock Transfer & Trust Company, located in New
York, New York.

UNDERWRITING

The underwriters named below have severally agreed, subject to the terms
and conditions contained in an underwriting agreement with us, to purchase
[1,200,000] units, each unit consisting of two shares of common stock and one
public warrant to purchase one share of common stock from us at the price set
forth on the cover page of this prospectus, in accordance with the following
table:

NUMBER OF
UNDERWRITER SHARES
----------- ------------

Paulson Investment Company, Inc. .........
S.W. Bach & Company ......................
----------
Total ....................................
==========

Nature of Underwriting Commitment. The underwriting agreement provides that
the underwriters are committed to purchase all the units offered by this
prospectus if any units are purchased. This commitment does not apply to 180,000
units subject to the over-allotment option granted by us to the representative
to purchase additional units in this offering.

Conduct of the Offering. We have been advised by Paulson Investment
Company, Inc., that the underwriters propose to offer the units to be sold in
this offering directly to the public at the public offering price set forth on
the cover page of this prospectus, and to certain securities dealers at that
price less a concession of not more than $0. per share. The underwriters may
allow, and those dealers may reallow, a concession not in excess of $0. per
share to certain other dealers. After the shares are released for sale to the
public, the underwriters may change the offering price and other selling terms
from time to time. No change in those terms will change the amount of proceeds
to be received by us as set forth on the cover page of this prospectus.

The underwriters have informed us that they do not expect to confirm sales
of units offered by this prospectus to accounts over which they exercise
discretionary authority without obtaining the specific approval of the account
holder.

Over-allotment Option. We have granted the underwriters an option, expiring
45 days after the date of this prospectus, to purchase up to 180,000 additional
units from us on the same terms as set forth in this prospectus with respect to
the 1,200,000 units. The underwriters may exercise this option, in whole or in
part, only to cover over-allotments, if any, in the sale of the units offered by
this prospectus.

Offering Discounts. The following table shows the per unit and total
underwriting discounts to be paid by us to the underwriters. These amounts are
shown assuming no exercise and full exercise, respectively, of the underwriters'
over-allotment option described above:

TOTAL WITHOUT TOTAL WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER UNIT OPTION OPTION
------------ ---------------- ---------------

Total underwriting discount to be paid by us ......... $ $ $

Expense Allowance. We have agreed to pay to Paulson Investment Company,
Inc., a non-accountable expense allowance equal to three percent of the
aggregate public offering price of the units sold by us in this offering
(including units sold on exercise of the underwriters' over-allotment option).

Representative's Warrants. On completion of this offering, we will issue to
the representative of the underwriters, Paulson Investment Company, Inc.,
warrants to purchase from us up to 120,000 units, for a price of $ per unit
(120%). These warrants are exercisable during the four-year period beginning one
year from the date of this prospectus. These warrants are not transferable or
assignable for one year following the effective date of this prospectus, except
to an individual who is an officer or partner of the underwriters and members of
the selling group, by will or by the laws of descent and distribution, and are
not redeemable.

The holder of these warrants will have, in that capacity, no voting,
dividend or other shareholder rights. Any profit realized on the sale of the
units issuable upon exercise of these warrants may be deemed to be additional
underwriting compensation. The securities underlying these warrants are being
registered pursuant to the registration statement of which this prospectus is a
part. During the term of these warrants, the holder thereof is given the
opportunity to profit from a rise in the market price of our common stock. We
may find it more difficult to raise additional equity capital while these
warrants are outstanding. At any time at which these warrants are likely to be
exercised, we may be able to obtain additional equity capital on more favorable
terms.

Indemnification. We have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the underwriters may be required to make in respect
thereof.

Lock-up Agreements. Our officers, directors and the holders of 5% or more
of our securities have agreed not to sell or transfer any shares of our common
stock or equity securities for ninety days after the date of this public
offering, without first obtaining the written consent of Paulson Investment
Company, Inc. Specifically, these officers and directors have agreed not to,
directly or indirectly:

o sell or offer to sell any shares of our common stock or equity
securities;

o grant any option to sell any shares of our common stock or equity
securities;

o engage in any short sale of our common stock or equity securities;

o pledge or otherwise transfer or dispose of any shares of our common
stock or equity securities; or

o publicly announce an intention to do any of the foregoing.

These lock-up agreements presently apply to 3,084,884 shares of our common
stock, 379,800 options or warrants to acquire shares of our common stock and
379,800 shares of common stock

underlying these options and warrants. These lock-up agreements apply to all
such securities that are currently owned or later acquired either of record or
beneficially by the persons executing the agreements. However, Paulson
Investment Company, Inc. may, in its sole discretion and without notice, release
some or all of the securities subject to these agreements at any time during the
ninety-day period. Currently, there are no agreements by Paulson Investment
Company, Inc. to release any of the securities from the lock-up agreements.

Our officers, directors and the holders of 5% or more of our securities
have agreed that, for a period of one year from the date of this prospectus,
they will notify Paulson Investment Company, Inc. before they sell our common
stock under Rule 144.

Online Activities. Upon request, a prospectus in electronic format may be
delivered via e-mail from one or more of the underwriters. However, neither of
the underwriters on the cover of this prospectus will accept sales, orders, or
indications of interest from or off of the internet.

Stabilization and Other Transactions. The rules of the SEC generally
prohibit the underwriters from trading in our securities on the open market
during this offering. However, the underwriters are allowed to engage in some
open market transactions and other activities during this offering that may
cause the market price of our securities to be above or below that which would
otherwise prevail in the open market. These activities may include
stabilization, short sales and over-allotments, syndicate covering transactions
and penalty bids.

o Stabilizing transactions consist of bids or purchases made by the
managing underwriter for the purpose of preventing or slowing a
decline in the market price of our securities while this offering is
in progress.

o Short sales and over-allotments occur when the managing underwriter,
on behalf of the underwriting syndicate, sells more of our shares than
they purchase from us in this offering. In order to cover the
resulting short position, the managing underwriter may exercise the
over-allotment option described above and/or may engage in syndicate
covering transactions. There is no contractual limit on the size of
any syndicate covering transaction. The underwriters will deliver a
prospectus in connection with any such short sales. Purchasers of
shares sold short by the underwriters are entitled to the same
remedies under the federal securities laws as any other purchaser of
units covered by the registration statement.

o Syndicate covering transactions are bids for or purchases of our
securities on the open market by the managing underwriter on behalf of
the underwriters in order to reduce a short position incurred by the
managing underwriter on behalf of the underwriters.

o A penalty bid is an arrangement permitting the managing underwriter to
reclaim the selling concession that would otherwise accrue to an
underwriter if the common stock originally sold by the underwriter was
later repurchased by the managing underwriter and therefore was not
effectively sold to the public by such underwriter.

If the underwriters commence these activities, they may discontinue them at
any time without notice. The underwriters may carry out these transactions on
the American Stock Exchange, in the over-the-counter market or otherwise.

LEGAL MATTERS

The validity of the common shares offered by this prospectus will be passed
upon for us by Morse, Zelnick, Rose & Lander LLP, New York, New York. Holland &
Knight LLP will pass upon certain matters for the underwriters named in this
prospectus in connection with this offering. Morse, Zelnick, Rose and Lander,
LLP, legal counsel to Milestone and its affiliates are the holders of 158,463
shares of common stock and options to purchase 71,873 shares of Common Stock.

In addition, Morse, Zelnick, Rose & Lander LLP will receive 29,985 units
following ten days from the closing of this offering in payment of accrued legal
fees pursuant to a March 2003 commitment.

EXPERTS

The Consolidated Financial Statements as of December 31, 2002 and for the
years ended December 31, 2001 and 2002, have been audited by J. H. Cohn LLP,
independent public accountants, as set forth in their report. We have included
these financial statements in the prospectus and elsewhere in the registration
statement in reliance on J. H. Cohn LLP's report, given on their authority as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

In connection with the units offered by this prospectus, we have filed a
registration statement on Form S-2 under the Securities Act with the SEC. This
prospectus, filed as part of the registration statement, does not contain all of
the information included in the registration statement and the accompanying
exhibits and schedules. For further information with respect to our units,
shares and warrants, and us you should refer to the registration statement and
the accompanying exhibits and schedules. Statements contained in this prospectus
regarding the contents of any contract or any other document are not necessarily
complete, and you should refer to the copy of the contract or other document
filed as an exhibit to the registration statement, each statement being
qualified in all respects by the actual contents of the contract or other
document referred to. You may inspect a copy of the registration statement and
the accompanying exhibits and schedules without charge at the Securities and
Exchange Commission's public reference facilities, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices located at 233
Broadway, 16th Flr., New York, NY 10279, and you may obtain copies of all or any
part of the registration statement from those offices for a fee. You may obtain
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The SEC maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically. The address of the
site is http://www.sec.gov.

We are registered under the Securities and Exchange Act of 1934 and we file
with the SEC annual reports on Form 10-KSB and quarterly reports on Form 10-QSB.
The following documents filed by us with the Securities and Exchange Commission
are incorporated in this prospectus by reference:

(1) Annual Report on Form 10-KSB for the fiscal year ended December 31,
2002;

(2) Quarterly Report on Form 10-QSB for the fiscal quarters ended March
31, 2003, June 30, 2003 and September 30, 2003;

(3) Current Reports on Form 8-K filed on April 17, 2003, July 31, 2003 and
July 23, 2003; and

(4) Each document filed after the date of this prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act but
before this offering terminates is incorporated in this prospectus by
reference and is to be treated as part of this prospectus from the
date it was filed. Any statement contained in a document incorporated
or deemed to be incorporated in this prospectus by reference is
modified or superseded to the extent that a statement contained in
this prospectus or in any other subsequently filed document which is
incorporated in this prospectus by reference modifies or supersedes
such statement.

Upon written or oral request, we will provide, without charge, to each
person to whom a copy of this prospectus is delivered, a copy of any document
incorporated by reference in this prospectus (other than exhibits, unless such
exhibits are specifically incorporated by reference in such documents). Requests
should be directed to Milestone Scientific Inc., 220 South Orange Avenue,
Livingston, NJ 07039, (973) 535-2717 Attention: Leonard Osser, Chairman and
Chief Executive Officer.

We intend to furnish our shareholders with annual reports containing
financial statements audited by our independent public accountants. This
prospectus will not be accompanied by our latest annual report to shareholders.

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

INDEX

PAGE
----

Interim Financial Statements for the Nine Months Ended September 30, 2003

-- Condensed Consolidated Balance Sheets
September 30, 2003 (Unaudited) and December 31, 2002 ............................ F-2

-- Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 2003 and 2002 (Unaudited) ....................... F-3

-- Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002 (Unaudited) ....................... F-4

-- Notes to Condensed Consolidated Financial Statements (Unaudited) ................ F-6

Financial Statements for the Year Ended December 31, 2002

-- Report of Independent Public Accountants ........................................ F-14

-- Consolidated Balance Sheet at December 31, 2002 ................................. F-15

-- Consolidated Statements of Operations years ended December 31, 2002 and 2001 .... F-16

-- Consolidated Statements of Changes in Stockholders' Deficiency years ended
December 31, 2002 and 2001 ...................................................... F-17

-- Consolidated Statements of Cash Flows years ended December 31, 2002 and 2001 .... F-19

-- Notes to Consolidated Financial Statements ...................................... F-21

F-1

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002

SEPTEMBER 30, DECEMBER 31,
2003 2002
--------------- ----------------
(UNAUDITED)

ASSETS
Current Assets:
Cash ................................................................. $ 95,870 $ 9,683
Accounts receivable, net ............................................. 611,602 239,435
Inventories .......................................................... 255,288 119,291
Advances to contract manufacturer .................................... 250,360 300,000
Deferred debt financing costs, net ................................... -- 159,877
Prepaid expenses ..................................................... 61,611 64,952
----------- -----------
Total current assets ........................................... 1,274,731 893,238
Equipment, net ........................................................ 205,158 227,207
Advances to Contract Manufacturer -- Long term ........................ -- 87,935
Deferred Debt Financing -- Long term .................................. 1,964 --
Other Assets .......................................................... 32,333 32,333
----------- -----------
Totals ......................................................... $ 1,514,186 $ 1,240,713
=========== ===========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Account payable, including $32,000 to related parties................. $ 1,177,061 $ 1,269,523
Accrued expenses ..................................................... 57,080 86,492
Accrued interest ..................................................... 197,585 169,519
Note payable net of debt discount .................................... 915,485 4,581,708
Notes payable-officer/stockholder .................................... 376,215 --
----------- -----------
Total current liabilities ...................................... 2,723,426 6,107,242
Accounts payable, including $160,000 to related parties................ 492,193 --
Accrued interest ...................................................... 1,042 139,323
Deferred compensation payable to officer/stockholder .................. 560,000 320,000
Notes payable, net of debt discount ................................... 582,514 480,091
Notes payable -- officer/stockholder .................................. 32,000 300,000
----------- -----------
Total liabilities .............................................. 4,391,175 7,346,656
----------- -----------
Commitments and Contingencies
Stockholders' Deficiency:
Preferred stock, par value $.001; authorized 5,000,000 shares......... -- --
8% Cumulative convertible preferred par value $.001; authorized and
issued 25,365 shares; .............................................. 25 --
Common stock, par value $.001; authorized, 50,000,000 shares;
5,890,875 shares and 4,244,457 shares issued, at September 30, 2003
and December 31, 2002, respectively ................................ 5,891 4,244
Additional paid-in capital ........................................... 41,622,760 36,608,096
Accumulated deficit .................................................. (43,574,149) (41,786,767)
Unearned compensation ................................................ (20,000) (20,000)
Treasury stock, at cost, 33,333 shares ............................... (911,516) (911,516)
----------- -----------
Total stockholders' deficiency ................................. (2,876,989) (6,105,943)
----------- -----------
Totals ....................................................... $ 1,514,186 $ 1,240,713
=========== ===========

See Notes to Condensed Consolidated Financial Statements.

F-2

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)

2003 2002
----------------- -----------------

Net sales ................................................................. $ 3,101,281 $ 3,215,907
Cost of sales ............................................................. 1,560,288 1,499,063
------------- -------------

Gross profit .............................................................. 1,540,993 1,716,844
------------- -------------

Selling, general and administrative expenses .............................. 2,491,737 2,712,649
Charge in connection with the closing of the Deerfield, IL facility ....... 79,023 --
Research and development expenses ......................................... 112,158 63,928
------------- -------------

Totals ................................................................. 2,682,918 2,776,577
------------- -------------

Loss from operations ...................................................... (1,141,925) (1,059,733)

Other income .............................................................. -- 72,000
Interest, net ............................................................. (645,457) (616,519)
------------- -------------

Net loss .................................................................. $ (1,787,382) $ (1,604,252)
============= =============

Loss per share -- basic and diluted ....................................... $ (.42) $ (.39)
============= =============

Weighted average shares outstanding -- basic and diluted .................. 4,217,185 4,084,341
============= =============

See Notes to Condensed Consolidated Financial Statements.

F-3

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)

2003 2002
---------------- ----------------

Cash flows from operating activities:
Net loss .............................................................. $ (1,787,382) $ (1,604,252)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation ........................................................ 26,618 41,672
Amortization of debt discount and deferred financing costs .......... 242,628 234,837
Loss on disposal of fixed assets .................................... 11,248 --
Amortization of advertising cost .................................... -- 24,803
Stock options issued for services ................................... -- 2,500
Changes in operating assets and liabilities:
Increase in accounts receivable .................................... (372,167) (153,015)
(Increase) decrease in inventories ................................. (135,997) 80,614
Decrease in advances to contract manufacturer ...................... 137,575 174,449
(Increase) decrease in prepaid expenses ............................ 3,341 (10,378)
Increase in other assets ........................................... -- (19,971)
Increase in accounts payable ....................................... 399,731 169,465
Increase in accrued interest ....................................... 402,827 381,682
Increase (decrease) in accrued expenses ............................ (29,412) 19,829
Increase in deferred compensation .................................. 240,000 240,000
------------ ------------
Net cash used in operating activities ............................ (860,990) (417,765)
------------ ------------

Cash flows from investing activities-payment for capital expenditures .. (15,817) (69,691)
------------ ------------

Cash flows from financing activities:
Expenses related to registering shares ................................ (22,500) --
Proceeds from note payable -- officer/stockholder ..................... 180,537 --
Payments to note payable -- officer/stockholder ....................... (72,322) --
Proceeds from issuance of notes payable ............................... 900,000 525,000
Payments for deferred financing costs ................................. (22,721) (40,538)
------------ ------------

Net cash provided by financing activities ........................ 962,994 484,462
------------ ------------

Net increase (decrease) in cash ........................................ 86,187 (2,994)
Cash, beginning of period .............................................. 9,683 15,742
------------ ------------
Cash, end of period .................................................... $ 95,870 $ 12,748
============ ============

See Notes to Condensed Consolidated Financial Statements.

F-4

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)

Supplemental schedule of noncash financing activities:

In September 2003, the Company 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.

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

In June 2003, we granted warrants to purchase 53,419 shares of common stock
(with an estimated fair value of $14,423) in connection with a $50,000 credit
facility provided by a major 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 6%/12%
promissory note agreements, we converted $206,989 of accrued interest into
additional principal.

In January 2002, we issued 11,280 units consisting of one share of common
stock and one warrant to purchase an additional share of common stock in
exchange for payment of accrued interest totaling $27,072.

In January 2002, in consideration for payment of $491,346 in deferred
compensation, we issued 204,728 units (consisting of one share of 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; at $3.00 per share
through January 31, 2004 and thereafter at $6.00 per share through January 31,
2007.

In January 2002, pursuant to the 20% promissory note agreements, we
converted $63,377 of accrued interest into additional principal.

In April 2002, pursuant to the 20% promissory note agreements, we converted
$65,168 of accrued interest into additional principal.

In April 2002, pursuant to the debt restructuring, we recorded a deferred
financing charge of $329,572. This resulted in an increase to notes payable of
$140,203 and accrued interest of $189,369.

In September 2002, pursuant to the 6%/12% promissory note agreements, the
Company converted $41,512 of accrued interest into additional principal.

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

In July 2002, the Company 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 as consideration for services rendered in accordance with the agreement
valued at $150,000.

F-5

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements of Milestone
Scientific Inc. and Subsidiaries (the "Company" or "Milestone") have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements.

These unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto for
the year ended December 31, 2002 included in our Annual Report on Form 10-KSB.
The accounting policies used in preparing these unaudited condensed consolidated
financial statements are the same as those described in the December 31, 2002
consolidated financial statements.

In the opinion of Milestone, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring entries) necessary to present fairly the financial position as of
September 30, 2003 and the results of operations for the nine months ended
September 30, 2003 and 2002.

The results reported for the nine months ended September 30, 2003 and 2002
are not necessarily indicative of the results of operations which may be
expected for a full year.

NOTE 2 -- BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been
prepared assuming Milestone will continue as a going concern. However, as shown
in the accompanying condensed consolidated financial statements, Milestone
incurred net losses of approximately $1,787,000 and $1,604,000 and negative cash
flows from operating activities of approximately $861,000 and $418,000 during
the nine months ended September 30, 2003 and 2002, respectively. As a result,
Milestone had a cash balance of only approximately $96,000, a working capital
deficiency of approximately $1,449,000 and a stockholders' deficiency of
approximately $2,877,000 as of September 30, 2003. These matters raise
substantial doubt about Milestone's ability to continue as a going concern.
Management believes that its initial concerns about Milestone's ability to
continue as a going concern have been alleviated by recent actions taken by
Milestone as well as management's plans which are discussed below.

Further, management believes that, in the absence of substantial increase
in revenue, it is probable that Milestone will continue to incur losses and
negative cash flows from operating activities through at least September 30,
2004 and that Milestone will need to obtain additional equity or debt financing,
as well as to continue its ability to defer its obligations, to sustain its
operations until it can expand its customer base and achieve profitability, if
ever.

REDUCTION OF OPERATING OVERHEAD

To date, the Company has taken certain steps in order to reduce its
operating overhead and utilization of cash. These steps include, amongst others,
the following:

o Commencing in 2001 and continuing through 2003, the Company
reconfigured its sales force. The Company went from maintaining a
large internal sales force to utilizing independent sales
representatives and distributors.

o The Company reduced administrative personnel and telemarketers by
approximately ten people.

F-6

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 2 -- BASIS OF PRESENTATION -- (CONTINUED)

o On January 31, 2003, the Company completed the closing of the
Deerfield, IL facility. The customer support, service and other
back-office functions previously conducted, in whole or in part, at
this location were consolidated into the Company's New Jersey
location. The receiving, shipping and storage functions, which were
also previously done at this location, are now outsourced to an
independent warehouse located in Pennsylvania.

RESTRUCTURING LIABILITIES AND PROFORMA IMPACT

On September 30, 2003, the Company satisfied approximately $5,014,000 of
secured debt including interest, through the issuance of 1,646,419 shares of
Common Stock and $25,365 face amount of 8% cumulative convertible preferred
stock. In addition, during October and November 2003, the Company took the
following additional steps to restructure its liabilities and raise equity.

o On October 31, 2003, the Company issued 102,195 shares of common stock
to certain of its principal vendors having a fair value of
approximately $502,800, in satisfaction of trade payables and future
services in the aggregate amount of $502,800.

o The Company has agreed to issue 94,327 shares of common stock having a
fair value of $329,572 in satisfaction of $329,572 of deferred
financing costs incurred in extending certain of its outstanding
loans.

o The Company issued 33,943 shares of common stock upon the receipt of
approximately $189,000 upon exercising its rights to draw upon a
private equity put facility.

o The Company issued 2,333 shares of its common stock upon the exercise
of options by an employee and the receipt of $7,750.

o Additionally, the Company reached agreements with a major investor and
the Company's chairman and chief executive officer to satisfy in the
aggregate, an approximate $1,961,000 of debt, accrued interest and
deferred compensation through the issuance of securities at fair value
at the later of (i) the effective date of a public offering or (ii)
January 2, 2004.

These transactions have had or will have a significant impact on the
Company's net worth. Presented below on a proforma basis is selected financial
data, which gives effect to the aforementioned transactions as if they occurred
on September 30, 2003.

SEPTEMBER 30, 2003
-----------------------
ACTUAL PROFORMA
----------- ---------
(IN THOUSANDS)

Total current assets ........................... $ 1,275 $1,643
Total current liabilities ...................... 2,724 1,301
Working capital (deficiency) ................... (1,449) 342
Total liabilities .............................. 4,391 1,768
Total stockholders equity (deficiency) ......... (2,877) 114

ADDITIONAL RESOURCES

In April 2003, the Company received an additional $900,000 8% line of
credit from a major investor which is scheduled to mature on January 1, 2005. As
of September 30, 2003, $600,000 was outstanding on the aforementioned line of
credit.

EQUITY PUT FACILITY

During October 2003 and through November 4, 2003, Milestone exercised its
right to draw upon a private equity facility. In exchange of net proceeds of
$189,440 the Company issued 33,943 shares of

F-7

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 2 -- BASIS OF PRESENTATION -- (CONTINUED)

common stock. The put facility was arranged in January 2001 under the terms of a
three-year private equity line agreement with Hillgreen Investments Limited
("Hillgreen"), a British Virgin Islands corporation. Hillgreen is obligated to
purchase, subject to the fulfillment of specified conditions, up to 700,000
shares of Milestone's common stock. Hillgreen has allocated $20,000,000 to fund
its purchase obligations. The transaction was arranged by Jesup & Lamont
Securities Corporation, a New York based investment banking firm. Milestone's
right to draw upon this facility is subject to a number of limitations and
conditions, including a limitation on the amounts sold to Hillgreen within
specified periods. Subject to these and other conditions and limitations,
Milestone will have full control over the timing of any financing under the
equity line and is under no obligation to sell any shares to Hillgreen. All
shares that are sold are priced at 87.5% of the volume weighted average market
price of Milestone common stock during a fixed period prior to the sale.
Milestone has discretion to establish a floor price below which shares will not
be sold by Milestone to Hillgreen.

EQUITY OFFERING

On November 10, 2003, the Company filed with the Securities Exchange
Commission a registration statement on Form S-2 (the "Registration Statement").
The Registration Statement covers the sale of units of common stock and warrants
for an aggregate firm commitment gross offering price of $8,000,000 to
$10,000,000. 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 offering of an exercise price equal to 150%
of the closing market price of our common stock on the pricing date of this
offering. 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 the Company may do at any time, beginning 6 months from the
effective date of this 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 this offering. The common stock included in the units and the warrants will
trade only as a unit for 30 days following the closing date of the offering,
unless the underwriter determines that separate trading should occur earlier.

After that date, the common stock included in the units and the warrants
will trade separately. The size of the offering, the number of units to be sold,
the price per unit, the securities included in the units and the exercise price
of the warrants are all subject to change.

As currently contemplated, the gross proceeds of an $8,000,000 offering are
expected to yield net proceeds, of $6,500,000 after taking into account
underwriting discounts and commissions and estimated offering expenses. As set
forth in the Registration Statement the net proceeds of the offering will be
used 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 new subcutaneous injection technology. We will retain broad discretion in
the allocation of the net proceeds within the categories set forth above. The
amounts actually expended within these categories may vary significantly and
will depend on a number of factors, including our rate of revenue growth, cash
generated by operations, evolving business needs and other factors. There are no
assurances that the Company will be successful in raising the aforementioned
amount of capital or any other amount.

The accompanying unaudited condensed consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classifications of liabilities that
might be necessary should the Company be unable to continue as a going concern.

F-8

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 3 -- LOSS PER SHARE

The rights of the Company's preferred and common stockholders are
substantially equivalent. The Company has included the 25,365 outstanding
preferred shares from the date of issuance in the weighted average number of
shares outstanding in the computation of basic loss per share for the three and
nine months ended September 30, 2002 and 2003, in accordance with the "two
class" method of computing earnings (loss) per share.

Options and warrants to purchase 1,100,271 and 1,584,452 shares of common
stock were outstanding as of September 30, 2003 and 2002, respectively, but were
not included in September the computation of diluted loss per share because the
effect would have been anti-dilutive.

NOTE 4 -- SIGNIFICANT CUSTOMER

We had one foreign customer who accounted for approximately 25% of our net
sales for the nine months ended September 30, 2003 and approximately 18% for the
nine months ended September 30, 2002. At June 30, 2003, receivables from this
customer were approximately 70% of our total accounts receivable.

NOTE 5 -- NOTES PAYABLE TO OFFICER/STOCKHOLDER

Notes payable to officer/stockholder represent six obligations payable to
our Chief Executive Officer ("CEO"), consisting of (i) $200,000 note payable,
with interest payable at 9% per annum and having an original due date of January
2, 2003, (ii) a $100,000 line of credit with interest payable at 6% per annum
having an original due date of April 2, 2003, and (iii) a $108,215 of notes
payable on demand with interest payable at 6% per annum.

The $108,215 arose when the Company's CEO provided the Company with a
$57,322 short term loan on January 17, 2003 for the express purpose of
purchasing Wand(R) handpieces from the Company's supplier. The Company repaid
the loan in full by February 7, 2003. On February 12, 2003, April 7 and
September 30, 2003, the Company's CEO provided additional demand loans of
$38,215, $35,000 and $50,000, respectively. The loans for $38,215 and $35,000
were provided to fund operations. The loan for $50,000 was provided for the
purpose of covering expenses relating to the further exploration of equity
financing alternatives. As of September 30, 2003 and November 4, 2003, $108,215
remains outstanding.

On April 1, 2003, the $200,000 and $100,000 notes were extended to April 1,
2004. On April 15, 2003, $32,000 of the $108,215 notes payable was extended to
January 2, 2005.

NOTE 6 -- NOTES PAYABLE

6%/12% PROMISSORY NOTES

On September 30, 2003, the Company satisfied $5,014,014 of secured debt
obligations including interest through the issuance of 1,646,419 shares of its
Common stock and 25,365 of its Preferred Stock. These obligations consisted of
the following:

o 6%/12% Promissory Notes with an aggregate value of $2,822,959

o 8% Promissory Notes with an aggregate value of $1,604,315

o $500,000 line of credit and $86,740 of accrued interest

F-9

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 6 -- NOTES PAYABLE -- (CONTINUED)

As of September 30, 2003, short term notes payable, net of a $9,955 debt
discount, consist of the following:

$329,572 of additional consideration given to the original noteholder of
the 6%/12% of promissory notes when they agreed to extend the obligations on
April 15, 2002 until July 1, 2003. The $329,572 of the additional consideration
was subsequently satisfied through the issuance of 94,327 shares of the
Company's Common stock during October and November 2003 valued at $3.48 per
share, the fair value.

o $500,000 borrowed under the $1,000,000 6% credit facility.

o $600,000 borrowed under the $900,000 8% credit facility.

Agreements reached in October 2003 provide for the satisfaction of the
obligations through the issuance of equity securities by January 2004. (See Note
2)

Long term notes payables consist of $100,000 in 6% promissory notes and
$500,000 of the 8% promissory note.

Descriptions of the above obligations follow.

(A) THE 6%/12% PROMISSORY NOTES CONSIST OF THE FOLLOWING ISSUANCES

(i) On September 16, 2001, we restructured our obligations to the holders
of its 10% Senior Secured Promissory Notes. Under the terms of the
agreement, each of the noteholders agreed to exchange their 10% Notes
for a new, zero coupon note (the "Zero Coupon Note").

As a result of us initially restructuring our obligations, the
unamortized portion of the debt discount and deferred financing costs
were amortized through June 30, 2002. The significant terms of the
Restructuring Debt were (i) modification of the interest rate (ii)
granting us the option to pay the debt with shares of common stock and
(iii) repricing the warrants which were previously issued to the
shareholders back to the initial exercise price of $5.25 per share.

Subsequently, on April 15, 2002, the holders additionally agreed to
extend the promissory notes to July 1, 2003 and to lower the interest
rate to 6% if paid in cash or to 12% if paid in common stock. In
connection with the extension, we recorded $16,215 in deferred
financing charges relating to professional fees and $140,203 of
deferred financing costs relating to consideration to the noteholders
valued at $120 per share of our common stock for each $1,000 face
amount outstanding at maturity which increased the aggregate carry
value of the notes by $140,203. We were accruing interest expense at
12%. These deferred financing costs were being amortized through July
1, 2003. These obligations were satisfied as described above through
the issuance of 390,374 shares of common stock and 25,365 of
convertible preferred stock. To date and subsequent to September 30,
2003, the Company issued 40,262 shares of the common stock in
satisfaction of the $140,212 of deferred financing costs.

(ii) In August 2000, we borrowed $1,000,000 which consists of two loans
from two funds managed by Cumberland Associates LLC, and bear interest
at 20% per year and payable in cash or through the issuance of
additional 20% notes on which both interest and principal are payable.
The loans are secured by substantially all of our assets and are
subordinated to the 6%/12% senior secured promissory notes that were
amended April 15, 2002. We can prepay the loans in cash at any time.
We can prepay the notes and accrued interest with common stock at its
option. Stock issued in lieu of payment of the debt will be valued at
85% of the then market price.

F-10

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 6 -- NOTES PAYABLE -- (CONTINUED)

For the nine months ended September 30, 2003 and 2002, we converted
into principal, accrued interest of $206,989 and $171,785,
respectively.

On April 12, 2002, Cumberland Associates LLC agreed to extend the
maturity date of these loans through July 1, 2003 and to lower the
interest rate from 20% to 6%, if paid in cash, or 12% if paid in
common stock. We recorded $16,215 of deferred financing charges
relating to professional fees and $189,369 relating to consideration
issued to the noteholders valued at $120 per share of our common stock
for each $1,000 face amount outstanding at maturity. We are currently
accruing interest expense at 12%. Accordingly, the deferred financing
costs and the unamortized financing charges were being amortized
through July 1, 2003.

These obligations were satisfied as described above through the
issuance of 532,924 shares of common stock. From October 10, 2003
through November 10, 2003, the Company issued 54,066 shares of common
stock in satisfaction of the $189,360 of deferred financing costs.

(B) 8% PROMISSORY NOTES

The 8% promissory notes consist of the following:

On July 31, 2000, we established a $1,000,000 credit facility with a major
existing investor. Initially, $500,000 was borrowed under the line, which was
due on June 30, 2003. In December 2000 and January 2001, we borrowed under the
credit facility an additional $400,000 and $100,000, respectively, due on
December 31, 2003. In connection with the initial $500,000, the investor
received five-year warrants to purchase 23,333 shares of our common stock,
exercisable at $9.00 per share. In connection with the $400,000, the investor
received five-year warrants to purchase 26,667 shares of our common stock
exercisable at $3.75 per share. In connection with the $100,000, the investor
received five-year warrants to purchase 6,667 shares of our common stock at
$3.75 per share. On April 12, 2002, the investor agreed to extend the maturity
date of the $500,000 to August 1, 2003. At our option, this $500,000 can be
convertible into common stock. Accordingly, in connection with the extension,
the unamortized debt discount is being amortized to August 1, 2003. On April 15,
2003, the investor agreed to extend the maturity date of the $500,000 and
interest originally due December 31, 2003 to January 2, 2005. Accordingly, only
$500,000 of loans have been recorded as long term debt in the accompanying
consolidated financial statements. On July 1, 2003, the investor agreed to
extend the maturity date of notes due August 1, 2003 until September 20, 2003.
At the option of the Company, this $500,000 can be convertible into common
stock. On September 30, 2003, the Company satisfied $500,000 of the obligation
and $120,644 of related interest through the issuance of 204,833 shares of the
Company common stock.

During 2002 and through February 2003, we issued a total of $1,385,000
promissory notes to an existing investor. The notes bear interest at 8% if paid
in cash and 10% if paid in stock and mature on September 30, 2003. At our
option, the principal and interest are payable on the maturity date in common
stock.

During 2002 and through February 2003, the Company issued a total of
$1,385,000 promissory notes to an existing investor maturing on September 30,
2003. At the option of the company, the notes bear interest of 8% if paid in
cash and 10% if paid in stock.

During the nine months ended September 30, 2003, the Company borrowed
$600,000 under an $800,000, 8% credit facility from an existing investor. In
October 2003, agreements were reached providing for the issuance of equity
securities in satisfaction of these obligations and related interest.

On September 30, 2003, the Company issued 324,644 shares of its common
stock in consideration for payment of these promissory notes including interest.

F-11

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 6 -- NOTES PAYABLE -- (CONTINUED)

On March 9, 2001 the Company obtained from a major existing investor, a 10%
$500,000 line of credit, which was to mature on August 31, 2002. Additionally,
the Company pays a 2% facility fee on the line outstanding balance.

In connection with obtaining the line of credit, the lender received
warrants to purchase 33,333 shares of common stock at an exercise price of
$3.30. The estimated fair value of the warrants, which amounted to $40,000 was
recorded as a debt discount. In addition, the Company incurred deferred
financing fees of $28,384 which was being amortized to August 31, 2002. On April
12, 2002 the investor agreed to extend the line of credit and payment for
interest to August 1, 2003. Furthermore in July 2003, the investor agreed to
extend the line of credit and payment for interest until September 30, 2003. In
connection with each extension, amortization of unamortized debt discount and
deferred financing costs were also extended. These obligations were satisfied as
described above through the issuance of 193,644 shares of Common Stock.

(D) 6% CONVERTIBLE PROMISSORY NOTES

During June 2003 and September 2003, we issued $50,000 promissory notes to
existing investors. The June note bears interest at 6% and matures on November
27, 2004. At our option, the principal and interest are payable on the maturity
date in common stock at a rate of one share of our common stock for every $.936
of indebtedness. Additionally, Milestone granted the investor warrants to
purchase 53,419 shares of our common stock at a per share price of $1.56 with an
estimate fair value of $14,423 at any time or from time to time during the
period commencing of June 4, 2003 and ending June 3, 2005. This resulted in an
initial increase to debt discount and to additional paid-in capital of $14,423
equal to the estimated fair market value of the warrants. The note dated
September 25, 2003 bears interest at 6% and matures on March 24, 2005. At the
option of the Company, the principal and interest are payable on the maturity
date in common stock at a rate of one share of common stock for every $3.30 of
indebtedness. Additionally, Milestone granted the investor warrants to purchase
5,000 of common stock at a per share price of $6.00 with an estimate fair value
of $14,423 at any time or from time to time during the period of June 4, 2003
through June 5, 2005. This resulted in an initial increase to debt discount and
to additional paid-in capital.

NOTE 7 -- ACCOUNTS PAYABLE -- LONG TERM

In addition to the $160,000 of trade payables which had been previously
extended to January 2005, the Company on October 3, 2003, reached agreements to
satisfy $502,800 of trade payables including $187,000 of services not yet
completed or billed through the issuance of 102,285 shares of Common stock
valued at $4.92 per share.

NOTE 8 -- LEGAL PROCEEDINGS

On June 10, 2002, a former distributor, Henry Schein, Inc., sued Milestone
in the Supreme Court of the State of New York for $110,851 claimed to be due
them for returned merchandise. Milestone denies any liability. The parties are
currently engaged in discovery. Milestone believes it has a meritorious defense
to this complaint based, in part, on its position that the plaintiff had no
right to return the goods.

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 in Deerfield, IL) seeks damages of $17,755 plus costs, including
attorney's fees, interest and continuing rental obligation. We are in the
process of preparing a response.

F-12

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

NOTE 9 -- EMPLOYEE STOCK OPTION PLAN

As of September 30, 2003, there were 221,115 outstanding options granted
under the Milestone 1997 Stock Option Plan. We account for these plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based employee
compensation cost is reflected in net loss, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
loss and loss per share if we had applied the fair value recognition provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.

NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------
2003 2002
---------------- ----------------

Net loss, as reported ............................................ $(1,787,382) $(1,604,252)
Deduct: Total stock-based employee compensation expenses
determined under fair value based method for all awards .........
(168,462) (369,365)
----------- -----------
Net loss, pro forma .............................................. $(1,955,844) $(1,973,617)
----------- ===========

Loss per share: Basic and diluted
As reported ..................................................... $(.42) $(.39)
===== =====
Basic-pro forma ................................................. $(.45) $(.48)
===== =====

NOTE 10 -- CLOSING OF DEERFIELD, IL FACILITY

In December 2002, Milestone initiated the transition of its customer
service office to its corporate headquarters in Livingston, New Jersey and its
distribution and logistics center to a third party, Design Centre of York,
Pennsylvania. The resulting closing of the Deerfield location was completed
during January 2003. The net book value of the facility's fixed assets
transferred or disposed during January 2003 was $41,425 and $11,248,
respectively.

NOTE 11 -- SUBSEQUENT EVENTS

POTENTIAL REVERSE STOCK SPLIT

The Board of Directors adopted a resolution, which was approved by the
shareholders on December 9, 2003, of an amendment to the Company's Certificate
of Incorporation to effect a reverse stock split of its common stock. The ratio
would be no greater than one-for-ten, at the sole discretion of the Company's
board of directors, in connection with an underwritten public offering by the
Company. The principal purpose of the reverse stock split is to facilitate the
public offering, which, we believe, is necessary to maintain our listing on the
American Stock Exchange. In order to maintain the listing, we must, among other
requirements, maintain stockholders' equity of at least $6 million.

On December 22, 2003, the Company formed a committee to determine the
amount of the split, if any. Currently, it has been estimated that the ratio for
the proposed reverse stock split will be set at 1-for-3. Accordingly, all share
information in these unaudited condensed consolidated financial statements has
been restated to retroactively reflect the 1-for-3 combination.

F-13

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
Milestone Scientific, Inc.

The reverse stock split described in Note Q to the consolidated financial
statements has not been consummated as of December 23, 2003. When it has been
consummated, we will be in a position to furnish the following report:

"We have audited the accompanying consolidated balance sheet of MILESTONE
SCIENTIFIC, INC. AND SUBSIDIARIES as of December 31, 2002, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the years ended December 31, 2002 and 2001. These consolidated
financial statements are the responsibility of our management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Milestone
Scientific, Inc. and Subsidiaries as of December 31, 2002, and their results of
operations and cash flows for the years ended December 31, 2002 and 2001, in
conformity with accounting principles generally accepted in the United States of
America."

J.H. Cohn LLP

Roseland, New Jersey
April 1, 2003, except for Notes B and H which are as of April 15, 2003
and Note Q which is as of December 22, 2003

F-14

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

AT DECEMBER 31, 2002

ASSETS
Current Assets:
Cash ......................................................................... $ 9,683
Accounts receivable, net of allowance for doubtful accounts of $46,152........ 239,435
Inventories .................................................................. 119,291
Advances to contract manufacturer ............................................ 300,000
Deferred debt financing, net ................................................. 159,877
Prepaid expenses ............................................................. 64,952
-------------
Total current assets ....................................................... 893,238
Equipment, net ................................................................ 227,207
Advances to Contract Manufacturer -- Long term ................................ 87,935
Other Assets .................................................................. 32,333
-------------
Total ...................................................................... $ 1,240,713
=============

LIABILITIES AND STOCKHOLDERS DEFICIENCY
Current Liabilities:
Account payable, including $32,000 to related parties......................... $ 1,269,523
Accrued expenses ............................................................. 86,492
Accrued interest ............................................................. 169,519
Notes payable ................................................................ 4,581,708
-------------
Total current liabilities .................................................. 6,107,242
Accrued interest .............................................................. 139,323
Deferred compensation payable to officer/stockholder .......................... 320,000
Notes payable ................................................................. 480,091
Notes payable -- officer/stockholder .......................................... 300,000
-------------
Total liabilities .......................................................... 7,346,656
-------------

Commitments and Contingencies
Stockholders Deficiency:
Common stock, par value $.001; authorized, 50,000,000 shares; 4,244,457 shares
issued ..................................................................... 4,244
Additional paid-in capital ................................................... 36,608,096
Accumulated deficit .......................................................... (41,786,767)
Unearned compensation ........................................................ (20,000)
Treasury stock, at cost, 33,333 shares ....................................... (911,516)
-------------
Total stockholders' deficiency ............................................. (6,105,943)
-------------
Total ...................................................................... $ 1,240,713
=============

The accompanying notes are an integral part of these statements.

F-15

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,

2002 2001
----------------- -----------------

Net Sales ............................................................ $ 4,074,006 $ 4,093,710
Cost of sales ........................................................ 1,980,949 1,973,156
------------- -------------
Gross profit ......................................................... 2,093,057 2,120,554
------------- -------------
Selling, general and administrative expenses ......................... 3,588,836 5,271,032
Research and development expenses .................................... 147,709 49,943
Closing of Deerfield, IL facility .................................... 26,067 --
------------- -------------
Totals ............................................................ 3,762,612 5,320,975
------------- -------------
Loss from operations ................................................. (1,669,555) (3,200,421)
Interest income ...................................................... -- 2,936
Interest expense ..................................................... (850,642) (858,582)
Sale of prophy angle business and related consulting income .......... 80,000 64,487
------------- -------------
Net Loss .......................................................... $ (2,440,197) $ (3,991,580)
============= =============
Loss per common share -- basic and diluted ........................... $ (.59) $ (1.07)
============= =============
Weighted-average shares outstanding -- basic and diluted ............. 4,156,558 3,714,197
============= =============

The accompanying notes are an integral part of these statements.

F-16

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

YEARS ENDED DECEMBER 31, 2002 AND 2001

COMMON STOCK ADDITIONAL
---------------------- PAID IN ACCUMULATED UNEARNED
SHARES AMOUNT CAPITAL DEFICIT ADVERTISING
----------- -------- --------------- ----------------- ------------

Balance, January 1, 2001 .................... 3,584,299 $3,584 $34,591,642 $ (35,354,990) $ --
Warrants issued with draw-down on
credit facility ............................ 23,400
Common stock issued for consideration
for payment of accrued interest ............ 9,214 9 36,270
Warrants issued pursuant to a $500,000
line of credit ............................. 40,000
Common stock issued for services
rendered ................................... 30,769 31 149,969
Warrants issued for unearned
advertising fees ........................... 324,218 (324,218)
Proceeds from sale of common stock,
net of expenses ............................ 166,667 167 491,833
Warrants issued to consultants .............. 100,000
Stock options issued for services
rendered ................................... 97,649
Amortization of unearned advertising
expense .................................... 21,398
Amortization of deferred compensation........
Proceeds from sale of common stock yet
to be issued, net of expenses .............. 243,167
Net loss .................................... (3,991,580)
--------- ------ ----------- ------------- ----------
Balance, December 31, 2001 .................. 3,790,949 3,791 36,098,148 (39,346,570) (302,820)
Common stock issued from the sale of
common stock in 2001 ....................... 108,333 108 (108)
Common stock issued for accrued
interest ................................... 11,280 11 27,061
Common stock issued for deferred
compensation ............................... 204,728 205 491,141
Common stock issued for payment of
accounts payable ........................... 62,500 62 149,938
Amortization of unearned advertising
expense .................................... 24,803
Expired warrants for unearned
advertising ................................ (278,017) 278,017
Stock options issued for future services..... 30,000
Common stock issued for payment of
accounts payable ........................... 66,667 67 89,933
Net loss .................................... (2,440,197)
--------- ------ ----------- ------------- ----------
Balance, December 31, 2002 .................. 4,244,457 $4,244 $36,608,096 $ (41,786,767) $ --
========= ====== =========== ============= ==========

F-17

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

YEARS ENDED DECEMBER 31, 2002 AND 2001

DEFERRED UNEARNED TREASURY
COMPENSATION COMPENSATION STOCK TOTAL
-------------- -------------- -------------- ----------------

Balance, January 1, 2001 .................... $ (31,055) $ -- $ (911,516) $ (1,702,335)
Warrants issued with draw- down on
credit facility ............................ 23,400
Common stock issued for consideration
for payment of accrued interest ............ 36,279
Warrants issued pursuant to a $500,000
line of credit ............................. 40,000
Common stock issued for services
rendered ................................... 150,000
Warrants issued for unearned
advertising fees ........................... 0
Proceeds from sale of common stock,
net of expenses ............................ 492,000
Warrants issued to consultants .............. 100,000
Stock options issued for services
rendered ................................... 97,649
Amortization of unearned advertising
expense .................................... 21,398
Amortization of deferred compensation........ 31,055 31,055
Proceeds from sale of common stock yet
to be issued, net of expenses .............. 243,167
Net loss .................................... (3,991,580)
--------- --------- ---------- ------------
Balance, December 31, 2001 .................. -- -- (911,516) (4,458,967)
Common stock issued from the sale of
common stock in 2001
Common stock issued for accrued
interest ................................... 27,072
Common stock issued for deferred
compensation ............................... 491,346
Common stock issued for payment of
accounts payable ........................... 150,000
Amortization of unearned advertising
expense .................................... 24,803
Expired warrants for unearned
advertising ................................ 0
Stock options issued for future services..... (20,000) 10,000
Common stock issued for payment of
accounts payable ........................... 90,000
Net loss .................................... (2,440,197)
--------- --------- ---------- ------------
Balance, December 31, 2002 .................. $ -- $ (20,000) $ (911,516) $ (6,105,943)
========= ========= ========== ============

The accompanying notes are an integral part of these statements.

F-18

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

2002 2001
---------------- ----------------

Cash flows from operating activities:
Net loss ............................................................. $ (2,440,197) $ (3,991,580)

Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation ........................................................ 53,052 75,990
Amortization of unearned advertising cost ........................... 24,803 21,398
Amortization of debt discount and deferred financing costs .......... 340,133 306,734
Common stock issued for services .................................... -- 150,000
Amortization of deferred compensation ............................... -- 31,055
Stock options and warrants issued to consultants .................... 10,000 197,649
Loss on disposal of fixed asset ..................................... 1,909 --
Changes in operating assets and liabilities:
Decrease in accounts receivable ................................... 124,308 165,801
Decrease in inventories ........................................... 43,349 13,533
Decrease in advances to contract manufacturer ..................... 301,594 315,000
(Increase) decrease in prepaid expenses ........................... (33,967) 121,727
Decrease in other assets .......................................... (19,971) (2,044)
Increase in accounts payable ...................................... 107,220 253,776
Increase in accrued interest ...................................... 510,508 551,847
Increase (decrease) in accrued expenses ........................... (18,918) 54,178
Increase in deferred compensation ................................. 320,000 350,000
------------ ------------
Net cash used in operating activities: .............................. (676,177) (1,384,936)
------------ ------------
Cash flows from investing activities-payment for capital expenditures (74,344) (10,672)
------------ ------------

Cash flows from financing activities:
Proceeds from sale of common stock, net of expenses ................. -- 492,000
Proceeds from note payable-- officer/stockholder .................... 100,000 --
Proceeds from line of credit ........................................ -- 500,000
Proceeds from issuance of notes payable ............................. 685,000 100,000
Proceeds from the sale of common stock yet to be issued ............. -- 243,167
Payments for deferred financing costs ............................... (40,538) (96,684)
------------ ------------
Net cash provided by financing activities ........................... 744,462 1,238,483
------------ ------------
Net Decrease in Cash ................................................ (6,059) (157,125)
Cash at beginning of year ............................................ 15,742 172,867
------------ ------------
Cash at end of year .................................................. $ 9,683 $ 15,742
============ ============

Supplemental disclosures of cash flow information:
Cash paid during the year for interest .............................. $ 0 $ 0
============ ============

Cash paid during the year for taxes ................................. $ 0 $ 0
============ ============

F-19

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

Supplemental schedule of noncash financing activities:

In January 2002, we issued 204,728 units (consisting of one share of common
stock and one warrant to purchase an additional share of common stock) for
payment of $491,346 in deferred compensation. The warrants are exercisable at
$2.40 per share through January 31, 2003; at $3.00 per share through January 31,
2004 and thereafter at $6.00 per share through January 31, 2007.

In January 2002, pursuant to the 20% promissory note agreements, we
converted $63,377 of accrued interest into additional principal.

In April 2002, pursuant to the 6%/12% promissory note agreements, we
converted $65,168 of accrued interest into additional principal.

In April 2002, pursuant to the debt restructuring, we recorded a deferred
financing charge of $329,572. This resulted in an increase to notes payable of
$140,203 and accrued interest of $189,369.

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 for payment of
accounts payable.

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

In September 2002, pursuant to the 6%/12% promissory note agreements, we
converted $41,512 of accrued interest into additional principal.

In January 2001, pursuant to the 20% promissory note agreements, we
converted $51,111 of accrued interest into additional principal.

In January 2001, we granted warrants to purchase 6,667 shares of common
stock (with an estimated fair value of $23,400) in connection with $100,000
drawn from a $1,000,000 credit facility provided by a major existing investor.
This resulted in an initial increase to debt discount and to additional paid-in
capital.

In February 2001, we issued 9,214 shares of common stock in exchange for
payment of accrued interest totaling $36,279.

In February 2001, we issued 30,769 shares of common stock with a value of
$150,000 for services rendered.

In March 2001, pursuant to a $500,000 line of credit agreement, we granted
warrants to purchase 33,333 shares of common stock (with an estimated fair value
of $80,000). This resulted in an initial increase to debt discount and in
additional paid-in capital.

In March 2001, we granted warrants to purchase 130,208 shares of common
stock with an estimated fair value of $324,418 for advertising services. This
amount was recorded in stockholders' deficiency as an increase to unearned
advertising and to additional paid-in capital.

In April 2001, pursuant to the 20% promissory note agreements, we converted
$53,472 of accrued interest into additional principal.

F-20

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- ORGANIZATION

Milestone Scientific Inc. (the "Company" or "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
(Registered Trademark) , a single use disposable handpiece. The system is
marketed in dentistry under the trademark CompuDent (Trade Mark) and Wand Plus
(Registered Trademark) and in medicine under the trademark CompuMed (Trade Mark)
.. CompuDent (Trade Mark) is suitable for all dental procedures that requires
local anesthetic. CompuMed (Trade Mark) and Wand Plus (Registered Trademark) 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. Our products are manufactured by third-party
contract manufacturers.

NOTE B -- BASIS OF PRESENTATION:

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, as shown in
the accompanying consolidated financial statements, the Company incurred net
losses of approximately $2,440,000 and $3,992,000 and negative cash flows from
operating activities of approximately $676,000 and $1,385,000 during 2002 and
2001, respectively. As a result, the Company had a cash balance of approximately
$10,000, a working capital deficiency of approximately $5,214,000 and a
stockholders' deficiency of approximately $6,106,000 as of December 31, 2002.
These matters raise substantial doubt about the Company's ability to continue as
a going concern.

Management believes that, in the absence of a substantial increase in
revenue, it is probable that the Company will continue to incur losses and
negative cash flows from operating activities through at least December 31, 2003
and that the Company will need to obtain additional equity or debt financing, as
well as to continue its ability to defer its obligations, to sustain its
operations until it can expand its customer base and achieve profitability.

To date, the Company has taken certain steps in order to reduce its
operating expenses and utilization of cash. These steps include, amongst others,
the following:

o Commencing in 2001 and continuing through 2002, the Company
reconfigured its sales force. The Company went from maintaining a
large internal sales force to utilizing independent sales
representatives and distributors.

o The Company reduced administrative personnel and telemarketers by
approximately ten people.

o On January 31, 2003, the Company completed the closing of the
Deerfield, IL facility. The customer support, service and other
back-office functions previously conducted, in whole or in part, at
this location were consolidated into the Company's New Jersey
location. The receiving, shipping and storage functions, which were
also previously done at this location, will be outsourced at an
independent warehouse located in Pennsylvania. The closure of the
Illinois facility will result in reductions in overhead and other
costs, while improving operational efficiencies.

o Obtained an agreement from its Chief Executive Officer/Stockholder to
defer 2002 and 2003 compensation, aggregating $640,000 until April
2004.

o Restructured and extended the maturity dates of its debt obligations
(see Note H). Further, as part of the debt restructuring, the Company
obtained agreements from certain of its note holders enabling it to
convert debt and related interest aggregating approximately $4,751,000
into shares of common stock. It is the Company's intention to have
this conversion completed sometime during the third quarter 2003.

F-21

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- BASIS OF PRESENTATION -- (CONCLUDED)

o Obtained an agreement from one of its attorneys to convert an
additional $160,000 of the amount owed into shares of common stock.

In addition, during February 2003, the Company received a $200,000 note
payable from an existing investor. The note is convertible into shares of common
stock, at the Company's option, which it plans to do during the third quarter of
2003. During April 2003, the Company received an additional $900,000 line of
credit from the same investor, which is scheduled to mature on January 1, 2005,
unless extended.

The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.

NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. PRINCIPLES OF CONSOLIDATION

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

2. CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents. At December 31, 2002 and 2001, the Company did not have any
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 3 to 7 years. The costs of maintenance and
repairs are charged to operations as incurred.

5. 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.

6. IMPAIRMENT OF LONG-LIVED ASSETS

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

7. REVENUE RECOGNITION

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

F-22

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

8. RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

9. INCOME TAXES

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

10. BASIC AND DILUTED NET LOSS PER COMMON SHARE

Basic and diluted net loss per share are computed using the
weighted-average number of shares of common stock outstanding during the period.
Potentially dilutive securities have been excluded from the computation of
diluted earnings per share, as their effect is antidilutive. If the Company had
reported net income, diluted earnings per share would have included the shares
used in the computation of net loss per share plus common equivalent shares
related to 1,614,785 and 1,108,611 outstanding options and warrants for the
years ended December 31, 2002 and 2001, respectively and the payment of the
notes payable with shares of common stock.

11. 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 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, advances to contract manufacturer,
inventory valuation allowances, and valuation allowances on deferred tax assets.
Actual results could differ from those estimates.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

13. ACCOUNTING FOR STOCK-BASED COMPENSATION

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

14. CONCENTRATION OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The Company
places its cash with high quality credit institutions. At times, such
investments may be in excess of the Federal Deposit Insurance

F-23

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Corporation insurance limit. the Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risks.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable, as the Company
does not require collateral or other securities to support customer receivables.

NOTE D -- INVENTORIES

Inventories consist of the following:

The Wand (Registered Trademark) units and handpieces ......... $125,214
Component parts and other materials ........................... 104,558
--------
229,772
Reserve ....................................................... 110,481
--------
$119,291
========

NOTE E -- ADVANCES TO CONTRACT MANFACTURER

Advances to contract manufacturer represents deposits to the Company's
contract manufacturer to fund future inventory commitments. The aggregate amount
of the advances amounted to $387,935 of which approximately $300,000 is
estimated to be used in 2003.

NOTE F -- EQUIPMENT

Equipment consists of the following:

Furniture and fixtures ................ $ 194,656
Office equipment ...................... 148,797
Tooling equipment ..................... 64,079
Trade show displays ................... 81,800
Computer servers and software ......... 125,341
----------
614,673
Less accumulated depreciation ......... (387,466)
----------
$ 227,207
==========

NOTE G -- NOTES PAYABLE TO OFFICER/STOCKHOLDER

Notes payable to officer/stockholder represent two obligations payable to
the Company's Chief Executive Officer ("CEO"), consisting of (i) $200,000 note
payable, with interest payable at 9% per annum having an original due date of
January 2, 2003; and (ii) a $100,000 line of credit with interest payable at 6%
per annum having an original due date of April 2, 2003. On April 1, 2003, the
notes were extended to April 1, 2004. Interest expense for the years ended
December 31, 2002 and 2001 amounted to $19,701 and $18,250, respectively.

F-24

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- NOTES PAYABLE

Notes payable consist of the following:

Short term

6%/12% Promissory notes, due on August 1, 2003 (A) ...................................... $2,945,542
8% Line of credit for $500,000, originally due on August 31, 2002, extended to August 1,
2003, net of debt discount of $7,024 (B)................................................ 492,976
8% Promissory notes payable, $500,000 originally due June 30, 2003, extended to August 1,
2003 and $685,000 due August 1, 2003, net of debt discount of $41,810 (C)............... 1,143,190
----------
Total ................................................................................ $4,581,708
==========

Long Term (B)

8% Promissory note payable for $500,000 originally due December 31,
2003, extended to January 2, 2005, net of a debt discount of $19,909
totaling $480,091.

(A) 6%/12% PROMISSORY NOTES

The 6%/12% Promissory Notes consist of the following issuances:

(i) On March 16, 2001, the Company restructured its obligations to
the holders of its 10% Senior Secured Promissory Notes. Under the
terms of the agreement, each of the noteholders agreed to
exchange their 10% Notes for a new, zero coupon note (the "Zero
Coupon Note").

As a result of the Company initially restructuring its
obligations, the unamortized portion of the debt discount and
deferred financing costs were amortized through March 31, 2002.
The significant terms of the Restructuring Debt were (i)
modification of the interest rate, (ii) granting the company the
option to pay the debt with shares of common stock and (iii)
repricing the warrants which were previously issued to the
shareholders back to the initial exercise price of $5.25 per
share.

Subsequently, on April 15, 2002, the holders additionally agreed
to extend the promissory notes to July 1, 2003 and to lower the
interest rate to 6% if paid in cash or to 12% if paid in common
stock. In connection with the extension, the Company recorded
$16,215 in deferred financing charges relating to professional
fees and $140,203 of deferred financing costs relating to
consideration to the noteholders valued at $120 per share of the
Company's common stock for each $1,000 face amount outstanding at
maturity which increased the aggregate carry value of the notes
by $140,203. The Company is accruing interest expense at 12%.
These deferred financing costs are being amortized through July
1, 2003.

(iii) In August 2000, the Company borrowed $1,000,000 which consists
of two loans from two funds managed by Cumberland Associates LLC,
and bear interest at 20% per year and payable in cash or through
the issuance of additional 20% notes on which both interest and
principal are payable. The loans are secured by substantially all
assets of the Company and are subordinated to the 6%/12% senior
secured promissory notes that were amended April 15, 2002. The
Company can prepay the loans in cash at any time. The Company can
prepay the notes and accrued interest with common stock at its
option after March 31, 2001. Stock issued in lieu of payment of
the debt will be valued at 85% of the then market price. For the
year ended December 31, 2002, the Company converted $257,865 of
accrued interest into

F-25

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- NOTES PAYABLE -- (CONTINUED)

principal. During 2001, the Company had previously converted
$222,417 of accrued interest into principal. On April 12, 2002,
Cumberland Associates LLC agreed to extend the maturity date of
these loans through July 1, 2003 and to lower the interest rate
from 20% to 6%, if paid in cash, or 12% if paid in common stock.
The Company recorded $16,215 of deferred financing charges
relating to professional fees and $189,369 relating to
consideration issued to the noteholders valued at $120 per share
of the Company's common stock for each $1,000 face amount
outstanding at maturity. The Company is currently accruing
interest expense at 12%. Accordingly, the deferred financing
costs and the unamortized financing charges are being amortized
through July 1, 2003.

It is currently the Company's intention to satisfy these
obligations with shares of common stock upon their maturity.

(B) 8% PROMISSORY NOTES

The 8% promissory notes consist of the following:

On July 31, 2000, the Company established a $1,000,000 credit facility
with a major existing investor. Initially, $500,000 was borrowed under
the line, which was due on June 30, 2003. In December 2000, and
January 2001, the Company borrowed under the credit facility an
additional $400,000 and $100,000, respectively, due on December 31,
2003. In connection with the initial $500,000, the investor received
five-year warrants to purchase 23,333 shares of the Company's common
stock, exercisable at $9.00 per share. In connection with the
$400,000, the investor received five-year warrants to purchase 26,667
shares of the Company's common stock exercisable at $3.75 per share.
In connection with the $100,000, the investor received five-year
warrants to purchase 6,667 shares of the Company's common stock at
$3.75 per share. On April 12, 2002, the investor agreed to extend the
maturity date of the $500,000 to August 1, 2003. At the option of the
Company, this $500,000 can be convertible into common stock.
Accordingly, in connection with the extension, the unamortized debt
discount is being amortized to August 1, 2003. On April 15, 2003, the
investor agreed to extend the maturity date of the $500,000 and
interest originally due December 31, 2003 to January 2, 2005.
Accordingly, only $500,000 of loans have been recorded as long term
debt in the accompanying consolidated financial statements.

(C) During 2002, the Company issued a total of $1,185,000 promissory notes
to an existing investor. The notes bear interest at 8% if paid in cash
and 10% if paid in stock and mature on August 1, 2003. At the option
of the Company, the principal and interest are payable on the maturity
date in common stock. Additionally, the note will automatically
convert into the Company's common stock if the Company issues 333,333
shares or raises at least $1,000,000 from the sale of equities prior
to August 1, 2003, at the market price in that transaction but not
less than $.50 per common share, or more than $6.00 per share. The
Company is accruing interest at 10%.

NOTE I -- STOCK OPTION PLAN

In 1997, the Board of Directors approved the adoption of the 1997 Stock
Option Plan. The 1997 Stock Option Plan provides for the grant of options to
purchase up to 166,667 shares of the Company's common stock. In 1999, the Plan
was amended, providing for the grant of options to purchase up to 333,333 shares
of the Company's common stock. Options may be granted to employees, officers,
directors and consultants of the Company for the purchase of common stock of

F-26

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE I -- STOCK OPTION PLAN -- (CONTINUED)

the Company at a price not less than the fair market value of the common stock
on the date of the grant. In general, options become exercisable over a
three-year period from the grant date and expire five years after the date of
grant.

The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. The Company applies the
intrinsic value method prescribed under Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its stock-based compensation
plans.

If the Company had elected to recognize compensation expense based upon the
fair value at the grant date, consistent with the methodology prescribed by SFAS
No. 123, pro forma net loss and net loss per share to common stockholders for
the years ended December 31, 2002 and 2001 would have increased to the following
pro forma amounts:

DECEMBER 31,
---------------------------------
2002 2001
---------------- ----------------

Net loss as reported ............... $ (2,440,197) $ (3,991,580)
============ ============
Pro forma net loss ................. $ (2,664,814) $ (4,484,067)
============ ============
Loss per share as reported ......... $ (.59) $ (1.07)
============ ============
Pro forma loss per share ........... $ (.64) $ (1.21)
============ ============

The weighted-average fair value of the individual options granted during
2002 and 2001 was estimated as $.66 and $5.37, respectively, on the date of
grant. The fair value for 2002 and 2001 was determined using a Black-Scholes
option-pricing model with the following assumptions:

DECEMBER 31,
----------------------
2002 2001
--------- ----------

Volatility ...................... 71% 92.0%
Risk-free interest rate ......... 4.5% 5.7%
Expected life ................... 5 years 5 years

Stock option activity during 2002 and 2001 is summarized below:

SHARES OF WEIGHTED
COMMON STOCK AVERAGE
ATTRIBUTABLE EXERCISE
TO OPTIONS PRICE OF OPTIONS
-------------- -----------------

Options outstanding at January 1, 2001 ........... 309,703 $ 15.33
Granted .......................................... 46,667 6.96
Forfeited ........................................ (46,615) 9.06
-------

Options outstanding at December 31, 2001 ......... 309,755 15.48
Granted .......................................... 57,667 2.37
Forfeited ........................................ (120,141) 14.97
--------
Options outstanding at December 31, 2002 ......... 247,281 $ 12.24
======== ========

F-27

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE I -- STOCK OPTION PLAN -- (CONTINUED)

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2002.

REMAINING
NUMBER CONTRACTUAL NUMBER
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE
----------------- ------------- -------------- ------------

$1.6500.......... 16,667 4.0 0
2.2500 ......... 20,333 4.0 6,778
2.6250 ......... 16,667 2.0 0
3.0000 ......... 16,667 1.0 0
3.6000 ......... 8,333 4.5 0
3.7500 ......... 1,667 1.7 1,667
3.7500 ......... 3,333 4.8 0
4.6875 ......... 1,667 0.7 1,667
4.8300 ......... 8,281 2.5 5,521
5.4375 ......... 2,333 2.1 1,555
6.0000 ......... 16,667 3.0 0
6.5625 ......... 27,000 2.5 18,000
7.5000 ......... 33,333 1.8 33,333
7.5000 ......... 26,667 3.6 8,889
9.0000 ......... 9,667 1.0 9,667
9.0000 ......... 1,500 1.5 1,500
12.0000 ......... 500 1.5 500
15.0000 ......... 500 1.5 500
18.0000 ......... 500 1.5 500
48.0000 ......... 16,666 0.0 0
47.5000 ......... 8,333 0.3 8,333
69.0000 ......... 10,000 0.2 10,000
------ ------
247,281 108,410
======= =======

The weighted-average exercise price of options exercisable at December 31,
2002 is $15.90.

The Company charged $10,000 to operations during the year ended December
31, 2002, representing the fair market value of 50,000 stock options issued to a
customer. Furthermore, the Company charged $197,649 to operations during the
year ended December 31, 2001, representing the fair market value of 110,000
common stock purchase warrants issued to consultants.

NOTE J -- EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION

In January 1998, the Company entered into a five-year employment contract
with its CEO providing for an annual base compensation of up to $350,000, plus
stock options and cash bonuses based upon attaining certain earnings levels,
which the Company has not yet achieved.

In July 1998, the CEO agreed to a voluntary reduction of his annual base
salary from $350,000 to approximately $188,000 that remained in effect through
August 2000. At that time, the CEO agreed to defer his annual salary on a
discretionary basis. Accordingly, the Company has recorded deferred compensation
payable to the CEO in the amount of $491,346 at December 31, 2001.

In January 2002, in consideration for payment of the deferred compensation,
the Company issued 208,333 units. Each unit consisted of one share of the
Company's common stock and one warrant to purchase an additional share of common
stock. The warrants are exercisable at $2.40 per share

F-28

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE J -- EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION (CONTINUED)

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. Furthermore, on
April 1, 2003, the CEO has agreed to defer payment on $640,000 of additional
compensation relating to his salary for 2002 and 2003 until January 2, 2005.

NOTE K -- SALES OF PROPHY ANGLES AND RELATED CONSULTING INCOME

In November 2001, the Company sold certain tangible and intangible assets,
rights and properties (which were fully amortized) relating to the SplatrFreeTM
prophy angle to Smart Health, Inc. for $55,000. In addition, the Company entered
into a 12 month consulting agreement with Smart Health for $96,000. The Company
recorded consulting income of $80,000 for the year ended December 31, 2002.

NOTE L -- INCOME TAXES

Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of assets and liabilities at December 31, 2002
and 2001 are as follows:

2002 2001
---------------- ----------------

Current assets and liabilities
Allowance for doubtful accounts .................... $ 18,000 $ 22,000
Inventory allowance ................................ 44,000 60,000
Warrants issued to consultants ..................... -- --
Other .............................................. -- --
Valuation allowance ................................... (62,000) (82,000)
------------- -------------
Current deferred tax asset ............................ $ -- $ --
============= =============
Non-current assets and liabilities
Depreciation ....................................... $ (60,000) $ (540,000)
Asset impairment charge ............................ -- --
Net operating loss carryforward .................... 14,000,000 13,600,000
Warrants and options issued to consultants ......... 598,000 423,000
Accrued interest ................................... 347,000 177,000
Deferred compensation .............................. 128,000 --
------------- -------------
15,013,000 13,660,000
Valuation allowance ................................... (15,013,000) (13,660,000)
------------- -------------
Non-current deferred tax asset (liability) ......... $ -- $ --
============= =============

For the years ended December 31, 2002 and 2001 the valuation allowance
increased by $1,353,000 and $2,038,000 respectively.

As of December 31, 2002, the Company has Federal and State net operating
loss carryforwards of approximately $36,000,000 that will be available to offset
future taxable income, if any through December 2022. The utilization of the
Company's net operating losses may be subject to a substantial limitation due to
the "change of ownership provisions" under Section 382 of the Internal Revenue
Code and similar state provisions. Such limitation may result in the expiration
of the net operating loss carryforwards before their utilization. The Company
has established a 100% valuation allowance to reserve for all of its net
deferred tax assets due to the significant uncertainty that their benefit will
be realized in the future.

F-29

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE M -- PRODUCT SALES AND SIGNIFICANT CUSTOMERS

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

DECEMBER 31,
-----------------------------
2002 2001
------------- -------------

The Wand system kits ............ $1,452,005 $1,828,801
The Wand handpieces . ........... 2,402,396 1,948,769
Prophy angles ................... -- 71,592
Dental needles .................. 181,236 168,169
Other ........................... 38,369 76,379
---------- ----------
$4,074,006 $4,093,710
========== ==========
Dental division ................. $3,892,069 $4,093,710
Medical division ................ 181,937 --
---------- ----------
$4,074,006 $4,093,710
========== ==========
United States ................... $3,174,930 $3,354,302
Canada .......................... 215,722 173,729
Other foreign countries ......... 683,354 565,679
---------- ----------
$4,074,006 $4,093,710
========== ==========

During the years ended December 31, 2002 and 2001, the Company had sales to
one customer (a worldwide distributor of the Company's products based in South
Africa) of approximately $566,000 and $410,000, respectively. This represented
14% and 10% the total net sales for 2002 and 2001, respectively. Accounts
receivable from this customer amounted to approximately $157,000, representing
65% of net accounts receivable at December 31, 2002.

NOTE N -- COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases office space and warehouse facilities under
noncancelable operating leases. These leases also provide for escalations of the
Company's share of utilities and operating expenses, which expire through 2007.

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

YEAR ENDING
DECEMBER 31,
--------------

2003 ......... $123,000
2004 ......... 104,000
2005 ......... 72,000
2006 ......... 66,000
2007 ......... 21,000
--------
$386,000
========

For the years ended December 31, 2002 and 2001, rent expense amounted to
approximately $108,000 and $103,000 respectively.

Contract Manufacturing Agreement

The Company has informal arrangements for the manufacture of The Wand unit
and system kit with Tricor Systems, Inc. ("Tricor") and for the manufacture of
The Wand disposable handpiece by Nypro Inc.

F-30

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

The termination of the manufacturing relationship with any of the above
manufacturers could have a material adverse effect on the Company's ability to
produce and sell its products. Although alternate sources of supply exist and
new manufacturing relationships could be established, the Company would need to
recover its existing tools or have new tools produced. Establishment of new
manufacturing relationships could involve significant expense and delay. Any
curtailment or interruption of the supply, whether or not as a result of
termination of such a relationship, would adversely affect the Company.

Contingencies

In March 2001, the Company entered into an advertising agreement with News
USA, Inc. and Vested Media Partners, Inc. (the "Agreement") to increase the
awareness of healthcare professionals and the public to the benefits of The Wand
and the CompuFlo technologies.

Under the Agreement, News USA is required to prepare articles and
advertisements for the Company's products and technologies and place them in
newspapers and on radio stations.

News USA had guaranteed 72,000 media placements during the 18-month term of
the Agreement. In exchange for these services, the Company granted warrants to
purchase 390,625 shares of common stock exercisable on the following dates and
prices over the life of the Agreement: (1) $3.84 during the first 18 months, (2)
$6.75 during the next year and (3) $9.00 during the next year.

The Agreement provided for a termination clause in the fourth month if the
Company's average closing stock price does not exceed $6.75 during the first ten
days of the fourth month provided that the Company has received 24,000
publications. Accordingly, the remaining two-thirds of the warrants to purchase
the Company's common stock would not become exercisable. However, the vendor can
recommence producing the publications whenever the Company's average closing
stock price for a ten day period exceeds $6.75. At the end of the ninth month,
the vendors have the option to terminate the Agreement if the Company's stock
price has not averaged $6.75 for a ten day period.

Upon termination, two-thirds of the warrants remaining to purchase the
Company's common stock will be forfeited unless the vendors resume fulfilling
one-half of their obligation in three months and the remaining obligation in the
next six months.

In March 2001, the Company initially recorded unearned advertising cost of
$324,218 which represents the estimated fair value of the 130,208 of the
warrants for one-third of the total warrants granted based on the 24,000 minimum
placements. The unearned advertising cost is being amortized as publications are
received by the Company over the minimum placements. As of December 31, 2002,
unearned advertising cost was $278,017 and during the year ended December 31,
2002, the Company recorded $24,803 in advertising expenses relating to
placements during the year. The estimated fair value of the remaining warrants
to purchase 260,417 of the Company's common stock have not been recorded in the
Company's consolidated financial statements due to the likelihood that the
Agreement will not be fulfilled.

As of December 31, 2002, News USA did not meet the guaranteed media
placements and accordingly the unearned advertising cost of $278,017 was
reversed.

NOTE O -- RELATED PARTY TRANSACTIONS

The Company paid $137,500 and $72,500 during the years ended December 31,
2002 and December 31, 2001, respectively, to a law firm where one of the
partners was previously on the Company's Board of Directors. At December 31,
2002 and 2001, the Company had accounts payable to the law firm of $389,181 and
$302,866, respectively. On March 29, 2002, the Company entered into an agreement
with the law firm deferring $272,866 of the accounts payable to January 2, 2003.
The

F-31

MILESTONE SCIENTIFIC INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE O -- RELATED PARTY TRANSACTIONS -- (CONTINUED)

law firm and the former Director also participated in the February 2001 private
placement, each purchasing $50,000 of 10% Senior Secured Promissory Notes and
warrants to purchase 2,381 shares of the Company's Common Stock. The notes were
extended to July 1, 2003.

For the years ended December 31, 2002 and 2001, the Company paid $19,049
and $20,850 to the wife of Milestone's CEO. She was employed by Milestone to
render professional services. At December 31, 2002, the Company had accounts
payable totaling $32,000 to the Company's CEO and his wife.

NOTE P -- STOCKHOLDERS' DEFICIENCY

In January 2001, Milestone entered into a three-year private equity line
agreement with Hillgreen Investments Limited ("Hillgreen"), a British Virgin
Islands corporation, pursuant to which Hillgreen is obligated to purchase,
subject to the fulfillment of specified conditions, up to 700,000 shares of
Milestone common stock over the next 36 months. Hillgreen has allocated
$20,000,000 to fund its purchase obligations. The transaction was arranged by
Jesup & Lamont Securities Corporation, a New York based investment banking firm.
Milestone's right to draw upon this facility is subject to a number of
limitations and conditions, including a limitation on the amounts sold to
Hillgreen within specified periods. Subject to these and other conditions and
limitations, Milestone will have full control over the timing of any financing
under the equity line and is under no obligation to sell any shares to
Hillgreen. Any shares that are sold will be priced at 87.5% of the volume
weighted average market price of Milestone common stock during a fixed period
prior to the sale. Milestone has discretion to establish a floor price below
which shares will not be sold by Milestone to Hillgreen. At April 11, 2003,
without any restrictions and based on the closing stock price, the maximum
proceeds that the Company could receive would be approximately $478,000.

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

NOTE Q -- SUBSEQUENT EVENTS

On January 17, 2003, the Company's CEO provided the Company with a $57,322
short term loan for the express purpose of purchasing Wand handpieces from the
Company's supplier. The Company repaid the loan in full by February 7, 2003. On
February 12, 2003, the CEO provided the Company with a $38,215 loan for the same
purposes as above. The loan is payable on demand and $33,215 remains outstanding
as of March 31, 2003.

On February 13, 2003, the Company received $200,000 from an existing
investor that matures on August 1, 2003. At the option of the Company, the note
and interest can be paid in common stock.

On April 7, 2003, the CEO provided the Company with an additional $35,000
to use for the express purpose of contributing towards the Company's increased
insurance premium.

On December 22, 2003, the Company formed a committee to determine the
amount of the split, if any. Currently it has been estimated that the ratio for
the proposed reverse stock split will be set at 1-for-3. Accordingly, all share
information in these consolidated financial statements has been restated to
retroactively reflect the 1-for-3 combination.

F-32

[MILESTONE SCIENTIFIC LOGO OMITTED]

SafetyWand (Trademark) SafetyWand (Trademark)

[PHOTO OMITTED] [PHOTO OMITTED]

SafetyWand (Trademark) handpiece with SafetyWand (Trademark) handpiece with
needle, in the retracted safe position. needle, in the protraced position,
ready for use.

[PHOTO OMITTED]

CoolBlue Wand (Trademark) Dental Enhancement System.

================================================================================

YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON SHARES
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY OUR COMMON SHARES IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR
SOLICITATION IS UNLAWFUL.

-----------------------------------

TABLE OF CONTENTS

PAGE
-----------

Prospectus Summary ............................ 3
Risk Factors .................................. 8
Forward Looking Statements .................... 12
Recent Developments ........................... 13
Use of Proceeds ............................... 13
Dividend Policy ............................... 15
Capitalization ................................ 15
Price Ranges of Our Common Stock .............. 16
Selected Consolidated Financial Data .......... 17
Management's Discussion and Analysis
or Plan of Operations ...................... 18
Business ...................................... 25
Management .................................... 36
Limitation of Directors' Liability and
Indemnification ............................ 37
Executive Compensation ........................ 38
Certain Relationships and Related Party
Transactions ............................... 41
Security Ownership of Certain
Beneficial Owners and Management ........... 42
Description of Securities ..................... 44
Underwriting .................................. 46
Legal Matters ................................. 48
Experts ....................................... 49
Where You Can Find More
Information ................................ 49
Index to Financial Statements ................. F-1

================================================================================

1,200,000 UNITS

[MILESTONE SCIENTIFIC LOGO OMITTED]

-----------------

PROSPECTUS

-----------------

PAULSON INVESTMENT
COMPANY, INC.

S.W. BACH & COMPANY

, 2003

================================================================================

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

LIMITATION OF DIRECTOR LIABILITY; INDEMNIFICATION

Our Certificate of Incorporation provides that a director will not be
personally liable to us or to our stockholders for monetary damages for breach
of the fiduciary duty of care as a director, including breaches which constitute
gross negligence. This provision does not eliminate or limit the liability of a
director:

o for breach of his or her duty of loyalty to us or to our stockholders;

o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

o under Section 174 of the Delaware General Corporation Law (relating to
unlawful payments or dividends or unlawful stock repurchases or
redemptions),

o for any improper benefit, or

o for breaches of a director's responsibilities under the Federal
securities laws.

Our Certificate of Incorporation also provides that we indemnify and hold
harmless each of our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law, against all expense, liability and loss
(including attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to our
Certificate of Incorporation, Bylaws and the Delaware General Corporation Law,
we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy and is, therefore,
unenforceable.

The Underwriting Agreement provides for reciprocal indemnification between
us and our controlling persons, on the one hand, and the underwriters and their
respective controlling persons, on the other hand, against certain liabilities
in connection with this offering, including liabilities under the Securities Act
of 1933, as amended.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by the Company. Other than the SEC registration fee
and the NASD filing fees all of such expenses are estimated.

Registration fee ....................................... $ 1,625
NASD fee ............................................... $ 2,266
American Stock Exchange listing fee .................... $ 3,000
Printing expenses ...................................... $ 75,000
Accounting fees and expenses ........................... $100,000
Legal fees and expenses ................................ $250,000
Transfer agent and registrar fees and expenses ......... $ 10,000
Miscellaneous .......................................... $ 18,109
--------
Total .................................................. $460,000
========

II-1

RECENT SALES OF UNREGISTERED SECURITIES.

On January 31, 2000, Milestone issued five-year warrants to purchase an
aggregate of 47,619 shares of Common Stock to holders of Milestone's 10% Secured
Promissory Notes, including Cumberland Associates LLC, Strategic Restructuring
Partnership L.P., a former principal of Cumberland Associates, two officers of
the Corporation, an affiliate of one of its directors and six other individuals.
The warrants were issued as consideration for the loans made by these investors
to Milestone at the time of issuance. Each of the warrants, as originally
issued, contained a provision gradually escalating its exercise price from $5.25
in 2000 to a maximum of $21.00 in 2004. However, in March 2001, the exercise
price of these warrants was amended by agreement between Milestone and the
warrant holders to provide for an exercise price of $5.25 per share up to the
date of maturity. The warrants were issued pursuant to the exemption from
registration under the Securities Act of 1933, as amended (the "Act"), provided
by Sections 4(2) and 4(6) of the Act.

Morse, Zelnick, Rose and Lander, LLP, legal counsel to Milestone, and its
affiliates, are the holders of warrants to purchase 10,044 shares of Common
Stock. On February 3, 2000, Milestone reduced the exercise price of all these
warrants to $3.75 and extended their exercise period to February 2, 2005.
Consideration for the amendments were legal services rendered to Milestone by
Morse, Zelnick, Rose & Lander, LLP. The warrants originally were issued pursuant
to the exemption from registration under the Act provided by Sections 4(2) and
4(6) of the Act.

On December 7, 2000, and January 26, 2001, Milestone issued to K. Tucker
Andersen, a major existing investor, warrants to purchase 26,667 and 6,667
shares of Common Stock, respectively, at an exercise price of $3.75 and $5.625
per share, respectively. Each of the aforementioned warrants are exercisable for
five years from the date of issuance and were issued as consideration for loans
of a total of $1,000,000 that the investor made to Milestone. The loans, which
are evidenced by a senior secured promissory note, bear an 8% interest that is
payable quarterly in arrears. Principal payments, in the amount of $500,000
each, are due on June 30, 2003, and December 31, 2003, respectively. The
warrants were issued pursuant to the exemptions from registration under the Act
provided by Sections 4(2) and 4(6) of the Act.

On January 22, 2001, Milestone entered into an agreement to grant to
Hillgreen Investments Limited ("Hillgreen") warrants to purchase 33,333 shares
of Common Stock as consideration for opening an equity put agreement with
Milestone. In addition, as consideration for the services rendered by Jesup &
Lamont Securities Corporation ("Jesup & Lamont") as placement agent in
connection with the equity put, Milestone granted to Jesup & Lamont warrants to
purchase 25,000 shares of Common Stock. The warrants issued to Hillgreen and
Jesup & Lamont are exercisable at any time prior to January 22, 2004 at a price
of $5.58 per share, and were issued pursuant to the exemptions from registration
under the Act provided by Sections 4(2) and 4(6) of the Act.

On January 30, 2001, Milestone issued to Shaul Koren 30,769 shares of
Common Stock, as payment for consulting services performed by Mr. Koren,
pursuant to exemptions from registration under the Act provided by Sections 4(2)
and 4(6) of the Act.

On February 8, 2001, Milestone issued to Cumberland Associates LLC,
Strategic Restructuring Partnership L.P., a former principal of Cumberland
Associates, two officers of the Corporation, an affiliate of one of its
directors and six other individuals, an aggregate of 9,214 shares of Common
Stock in payment of interest on the 10% Secured Promissory Notes issued to these
investors on January 31, 2000. The stock was issued pursuant to the exemption
from registration under the Act provided by Sections 4(2) and 4(6) of the Act.

On March 9, 2001, Milestone issued to K. Tucker Andersen, a major existing
investor a warrant to purchase 33,333 shares of Common Stock, exercisable at any
time for five years from the date of issuance at $3.30 per share, as
consideration for opening a $500,000 line of credit. Milestone pays a 2%
facility fee on the line of credit and interest at a rate of 10% per annum on
monies borrowed. On December 28, 2001, Milestone signed an agreement to issue
11,280 units, consisting of one share and one warrant to purchase one share in
payment of the $27,072 accrued interest through December 31, 2001. The warrants
are exercisable at $2.40 per share through January 31, 2003, thereafter at $3.00
per

II-2

share through January 31, 2004, and thereafter at $6.00 per share through
January 31, 2007, at which time they will expire. All of these units and
warrants were issued in January 2002 pursuant to the exemptions from
registration under the Act provided by Sections 4(2) and 4(6) of the Act.

In March 2001, Milestone signed an agreement with News USA, Inc. and Vested
Media Partners, Inc. to increase the awareness of healthcare professionals and
the public to the benefits of CompuDent(TM), CompuMed(TM), The Wand(R) and
CompuFlo(TM) technologies. Under the agreement, News USA, Inc. is required to
prepare, write and seek to place in newspapers and other media, articles about
Milestone's products and technologies. As consideration for their services,
Milestone granted to News USA, Inc. and Vested Media Partners, Inc. warrants to
purchase an aggregate of approximately 390,667 shares of Milestone's Common
Stock at prices increasing from $3.84, to $9.00 per share during the 3-year
warrant term. The warrants were issued pursuant to the exemptions from
registration under the Act provided by Sections 4(2) and 4(6) of the Act.

On December 28, 2001, Milestone entered into an agreement with its CEO,
Leonard Osser, to issue to him 204,728 units in payment of $491,346 in
compensation, specifically, his salary as Chief Executive Officer of Milestone,
which he voluntarily has deferred since August 5, 2000. In January 2002, the
units were issued and each unit consists of one share of Milestone's common
stock and one warrant to purchase an additional share of such common stock. The
warrants are exercisable at $2.40 per share through January 31, 2003, thereafter
at $3.00 per share through January 31, 2004, and thereafter at $6.00 per share
through January 31, 2007, at which time they will expire. The warrants were
issued pursuant to the exemptions from registration under the Act provided by
Sections 4(2) and 4(6) of the Act.

In December 2001, Milestone entered into an agreement with K. Tucker
Andersen, an existing investor, to issue 108,333 units. The units, which were
issued in January 2002, consist of one share of Milestone common stock and one
warrant to purchase an additional share of such common stock. The warrants are
exercisable at $2.40 per share through January 31, 2003, thereafter at $3.00 per
share through January 31, 2004, and thereafter at $6.00 per share through
January 31, 2007, at which time they will expire. The units were issued in
exchange for $185,000 and the cancellation of a 10% convertible promissory note
issued in October 2001, under which an amount of $75,000 was due at that time.

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

In June 2003 we issued a 6% convertible note in the amount of $50,000 and
an 18 months warrant to purchase 53,419 shares of our common stock at $1.56 per
share, in consideration for a $50,000 loan from an accredited investor.

In September 2003 we issued a 6% convertible note in the amount of $50,000
and an 18 months warrant to purchase 5,000 shares of our common stock at $6.00
per share, in consideration for a $50,000 loan from an accredited investor.

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 4,381 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 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.

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

II-3

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 valuating 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.

EXHIBITS

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

1 Form of Underwriting Agreement

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 (6)

3.5 Certificate of Amendment filed July 23, 2003

3.6 By-laws of Milestone (1)

4.1 Specimen Stock Certificate (2)

4.2 Form of unit certificate (9)

4.3 Form of warrant agreement, including form of warrant

4.4 Form of representative's warrant

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

10.2 Intentionally Left Blank

10.5 Intentionally Left Blank

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

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

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

10.12 Intentionally Left Blank

10.13 Intentionally Left Blank

10.14 Intentionally Left Blank

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

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

10.17 Intentionally Left Blank

10.18 Intentionally Left Blank

10.19 Intentionally Left Blank

10.20 Intentionally Left Blank

10.21 Intentionally Left Blank

10.22 Intentionally Left Blank

10.23 Letter from Leonard Osser and Morse, Zelnick, Rose & Lander, LLP, dated April 9, 2000. (7)

10.24 Letter from Leonard Osser, dated March 28, 2002 deferring compensation payment.

II-4

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

10.25 Letter from Morse, Zelnick, Rose & Lander LLP, dated March 29, 2002, re-deferral of
payment.

10.26 Letter from Leonard Osser, dated April 15, 2003 deferring payment. (9)

10.27 Letter from Morse, Zelnick, Rose & Lander LLP, dated March 2003 deferring payment. (9)

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

10.29 Agreement with DaVinci Systems dated July 30, 2003.

10.30 Agreement with Mark Hochman and amendments thereto dated April 9, 1998, December 16,
1999, November 28, 2001 and October 2002.

10.31 Agreement with Strider dated September 2003.

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

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

10.34 Employment Agreement with Leonard Osser dated __________. (9)

21.1 Subsidiaries of the Registrant. (3)

23.1 Consent of J. H. Cohn LLP

----------

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

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

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

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

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

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

(7) Incorporated by reference to Milestone's Form 10-KSB for the year ended
December 31, 2000.

(8) Incorporated by reference to Milestone's Form 10-KSB for the year ended
December 31, 2001.

(9) To be provided.

UNDERTAKINGS

A. The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and

(iii) to include any additional or changed material information
with respect to the plan of distribution disclosed in the Registration
Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon

II-5

Rule 430A and contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of the registration statement as of the time it was
declared effective.

(5) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

II-6

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on December 22, 2003.

MILESTONE SCIENTIFIC INC.

By: /s/ Leonard Osser
----------------------------------------
Leonard Osser, Chief Executive Officer

ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Leonard Osser his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all pre- or
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any one of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities indicated on December 22, 2003.

SIGNATURE TITLE
-------------------------------- -------------------------------------

/s/ Leonard Osser* Chief Executive Officer and Chairman
--------------------------------
Leonard Osser of the Board of Directors

/s/ Thomas M. Stuckey* Chief Financial Officer
--------------------------------
Thomas M. Stuckey

/s/ Leonard Schiller* Director
--------------------------------
Leonard Schiller

/s/ Paul Gregory* Director
--------------------------------
Paul Gregory

/s/ Jeffrey Fuller* Director
--------------------------------
Jeffrey Fuller

/s/ Leslie Bernhard* Director
--------------------------------
Leslie Bernhard

*By: /s/ Leonard Osser
---------------------------
Leonard Osser

II-7

EXHIBIT INDEX