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

FORM 10-KSB

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

For the Fiscal Year ended December 31, 2004

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

For the transition period from __________________ to ___________________

Commission File Number 001-14053

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

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

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

Registrant's telephone number (973) 535-2717

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

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

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

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

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is contained herein, and will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X|

For the year ended December 31, 2004, the revenues of the registrant were $4,751,186.

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

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

DOCUMENTS INCORPORATED BY REFERENCE
None


MILESTONE SCIENTIFIC, INC.

Form 10-KSB Annual Report

TABLE OF CONTENTS

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

PART II
      Item 5.  Market for Common Equity and Related Stockholder Matters..............................  16
      Item 6.  Management's Discussion and Analysis or Plan of Operation.............................  19
      Item 7.  Consolidated Financial Statements.....................................................  28
      Item 8.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..  28
      Item 8A.  Controls and Procedures..............................................................  28

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

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

EXHIBITS.............................................................................................  41

FORWARD-LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-KSB are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Milestone to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Milestone's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Milestone. Although Milestone believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of Milestone's early stage operations, the inclusion of such information should not be regarded as a representation by Milestone or any other person that the objectives and plans of Milestone will be achieved.

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PART I

Item 1. Description of Business

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

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

BUSINESS

Background

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

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

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

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

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

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

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

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

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


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

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

Technology Development

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

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

CompuMed

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

SafetyWand

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

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


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

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

CompuFlo

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

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

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

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

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

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

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

5

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


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

CoolBlue Wand Dental Enhancement System

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

Consumer Tooth Whitening

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

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

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

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Milestone Renaissance

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

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

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

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

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

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

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

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

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

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

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

o Conducting extensive training programs for our new sales force.

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

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

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

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

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Competition

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

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

The Luer Lock needle, sold by us, competes with dental needles produced and distributed by a number of major manufacturers and distributors and other producers or distributors of dental products, many of whom have significant competitive advantages because of their size, strength in the marketplace, financial and other resources and broad product lines. We compete on the basis of convenience since we can package the product with an order for disposable handpieces.

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

Patents And Intellectual Property

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

                                                                                   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
Dental Anesthetic and Delivery Injection Unit with Automated Rate Control ......   6,652,482    11/25/03

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

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

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

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

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

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

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

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

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

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

9

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.

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Though CompuDent, the SafetyWand and CompuMed have received FDA marketing clearance, there can be no assurance that any of our other products under development will obtain the required regulatory clearance on a timely basis, or at all. If regulatory clearance of a product is granted, such clearance may entail limitations on the indicated uses for which the product may be marketed. In addition, modifications may be made to our products to incorporate and enhance their functionality and performance based upon new data and design review. There can be no assurance that the FDA will not request additional information relating to product improvements, that any such improvements would not require further regulatory review thereby delaying the testing, approval and commercialization of our development products or that ultimately any such improvements will receive FDA clearance.

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

We are subject to pervasive and continuing regulation by the FDA, whose regulations require manufacturers of medical devices to adhere to certain QSR requirements as defined by the FDC Act. QSR compliance requires testing, quality control and documentation procedures. Failure to comply with QSR requirements can result in the suspension or termination of production, product recall or fines and penalties. Products also must be manufactured in registered establishments. In addition, labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. The export of devices is also subject to regulation in certain instances.

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

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

Product Liability

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

Employees

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

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CERTAIN RISK FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We currently have outstanding options, warrants and series A convertible preferred stock to purchase 3,229,407 shares of our common stock at prices ranging from $.87 to $13.50 per share with a weighted average exercise or conversion price of $4.86. Holders of these warrants and options are given the opportunity to profit from a rise in the market price of our common stock and are likely to exercise their securities at a time when we would be able to obtain additional equity capital on more favorable terms. Thus, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise terms provided by such outstanding securities. The market price of our common shares has been volatile and may continue to fluctuate significantly because of various factors, some of which are beyond our control.

We are controlled by a limited number of shareholders.

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

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

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

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from $.87 to $13.50 per share with a weighted average exercise or conversion price of $4.86. Holders of these warrants and options are given the opportunity to profit from a rise in the market price of our common stock and are likely to exercise their securities at a time when we would be able to obtain additional equity capital on more favorable terms. Thus, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise terms provided by such outstanding securities. The market price of our common shares has been volatile and may continue to fluctuate significantly because of various factors, some of which are beyond our control. Currently, there are 9,824,287 shares of common stock actually issued and 9,790,954 outstanding. Also, there are another 4,246,292 shares of common stock reserved for future issuance as follows:

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

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

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

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

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

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

o and

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

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

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

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

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

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

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

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

Item 2. Description of Property

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

Item 3. Legal Proceedings

Not applicable

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

Not applicable.

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PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

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

Common Stock

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

                                                             HIGH     LOW
                                                             ----     ---

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

Warrants

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

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

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Holders

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

Dividends

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

Sales of Unregistered Securities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

OVERVIEW

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

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

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

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

o Continue to invest in our core technology platform.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

o Manager of Outside Sales Representatives

Seven outside sales representatives

o Manager of Inside Sales

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

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

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

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

SafetyWand

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

Tooth Whitening and Curing

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

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

o Acquisition for tooling for this product line.

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

CompuFlo

o Development of new software for the epidural clinical studies

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

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

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

Current Condition of Milestone

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

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of our consumable hand piece products.

New Sales Promotion Program:

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

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

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

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

3 Additional new programs have been implemented.

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

Enhanced CompuDent

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

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

SafetyWand

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

Professional Tooth Whitening Product

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

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

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

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

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

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

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

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

Consumer Tooth Whitening Product

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

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

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

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

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

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

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

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

Ionic White was launched via television infomercials in March 2005.

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

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

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

Summary of Significant Accounting Policies

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

Inventory

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

Impairment of Long-Lived Assets

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

Revenue Recognition

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

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Results of Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

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

Recent Accounting Pronouncements

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

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

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

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

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

Item 7. Consolidated Financial Statements

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

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

Not applicable.

Item 8A. Controls and Procedures

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

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PART III

Item 9. Directors and Executive Officers of the Registrant

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

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


(1) Member of the Audit Committee

(2) Member of the Compensation Committee

Leonard A. Osser has been our Chairman and Chief Executive Officer since July 1991. From 1980 until the consummation of Milestone's Public Offering in November 1995, he was engaged primarily as the principal owner and Chief Executive of U.S. Asian Consulting Group, Inc., a New Jersey based provider of consulting services in "work-out" and "turnaround" situations for publicly and privately owned companies in financial difficulty.

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

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

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

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

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

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and insurance consultant at Innovative Programs Associates Inc. and Paul Gregory Associates Inc. since January 1995 and January 1986, respectively, where he services, among other entities, foreign and domestic insurance groups, law and accounting firms and international corporations.

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

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

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

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

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

Section 16(a) Beneficial Ownership Reporting Compliance

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

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

Code of Ethics

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

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Item 10. Executive Compensation.

The following Summary Compensation Table sets forth all compensation earned, in all capacities, during the fiscal years ended December 31, 2004, 2003, and 2002 by (i) Milestone's Chief Executive Officer and (ii) the most highly compensated executive officers, other than the CEO, who were serving as executive officers at the end of the 2004 fiscal year and whose salary as determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals falling within categories (i) and (ii) are collectively referred to as the "Named Executives") and may be provided to any person, without charge, upon a written request, made to Milestone's Chief Financial Officer.

SUMMARY OF COMPENSATION TABLE

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

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

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

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

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

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

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

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STOCK OPTIONS

The following tables show certain information with respect to incentive and non-qualified stock options granted in 2004 to Named Executives under Milestone's 1997 Stock Option Plan and the aggregate value at December 31, 2004 of such options. In general, the per share exercise price of all options is equal to the fair market value of a share of Common Stock on the date of grant.

Option Grants In 2004 Individual Grants Of Options

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

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

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

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

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

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

Employment Contracts

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

32

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

Compensation Of Directors

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

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

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

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

    Executive Officers and Directors

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

----------

* Less than 1%

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

33

(2) A person is deemed to be a beneficial owner of securities that can be acquired by such person within 60 days from the filing of this annual report upon the exercise of options and warrants or conversion of convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not held by any other person) and that are exercisable or convertible within 60 days from the filing of this report have been exercise or converted. Except as otherwise indicated, and subject to applicable community property and similar laws, each of the persons named has sole voting and investment power with respect to the shares shown as beneficially owned. All percentages are determined based on the number of all shares, including those underlying options exercisable within 60 days from the filing of this report held by the named individual, divided by 9,790,954 outstanding shares on December 31, 2004 and those shares underlying options exercisable within 60 days from the filing of this report.

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

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

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

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

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

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

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

34

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

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

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

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

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

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

Item 12. Certain Relationships and Related Transactions

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

35

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

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

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

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

Item 13. Exhibits

Exhibits

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

36

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

3.1         Certificate of Incorporation of Milestone (1)

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

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

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

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

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

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

3.8         By-laws of Milestone (1)

4.1         Specimen stock certificate (2)

4.2         Intentionally Left Blank

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

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

10.2 to

10.25       Intentionally Left Blank

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

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

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

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

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

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

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

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

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

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

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

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

14          Code of Ethics (7)

23.1        Consent of Eisner LLP*

23.2        Consent of J. H. Cohn LLP*

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

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

32.1        Section 1350 Certifications- Chief Executive Officer*

32.2        Section 1350 Certifications- Chief Financial Officer*

----------

* Filed herewith.

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

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

37

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

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

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

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

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

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

38

Item 14. Principal Accountant Fees and Services

Audit Fees

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

Audit-Related Fees

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

Tax Fees

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

All Other Fees

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

Audit Committee Administration of the Engagement

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

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

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

39

SIGNATURES

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

Milestone Scientific Inc.

                                    By: /s/ Leonard Osser
                                        ------------------------------------
                                        Chairman and Chief Executive Officer

Date: March 31, 2005

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on March 31, 2005 .

       Signature                    Date                       Title


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


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


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


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


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


  /s/ Leslie Bernhard          March 31, 2005      Director
------------------------
     Leslie Bernhard

40

Report of Independent Registered Public Accounting Firm

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

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Milestone Scientific, Inc. and subsidiaries as of December 31, 2004, and their consolidated results of operations and their cash flows for the year then ended, in conformity with United States generally accepted accounting principles.

/s/Eisner LLP

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

F-1

Report of Independent Registered Public Accounting Firm

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

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

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

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

/s/J.H. Cohn LLP

Roseland, New Jersey
March 26, 2004

F-2

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

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

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

Commitments and contingencies

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

See Notes to Consolidated Financial Statements

F-3

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

                                                                   2004            2003
                                                               ------------    ------------
Net sales                                                      $  4,751,186    $  3,971,707
Cost of sales                                                     2,415,826       2,003,139
                                                               ------------    ------------

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

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

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

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

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

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

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

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

See Notes to Consolidated Financial Statements

F-4

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

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


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

See Notes to Consolidated Financial Statements

F-5

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

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

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

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

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

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

  Cash paid during the year for taxes                                         $         --    $         --
                                                                              ============    ============

See Notes to Consolidated Financial Statements

F-6

Consolidated Statements of Cash Flows (continued)

Supplemental schedule of noncash financing activities:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F-7

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- ORGANIZATION and BUSINSESS

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

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

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Principles of Consolidation

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

2. Cash and Cash Equivalents

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

3. Inventories

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

4. Equipment

Equipment is recorded at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from 5 to 7 years. The costs of maintenance and repairs are charged to operations as incurred.

5. Investments

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

6. Debt Issue Cost and Debt Discount

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

F-8

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Impairment of Long-Lived Assets

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

8. Revenue Recognition

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

9. Research and Development

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

10. Advertising Expenses

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

11. Income Taxes

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

12. Basic and diluted net loss per common share

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

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

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

13. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of

F-9

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, cash flow assumptions regarding evaluations for impairment of long-lived assets and valuation allowances on deferred tax assets. Actual results could differ from those estimates.

14. Fair Value of Financial Instruments

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

15 Accounting for Stock-Based Compensation

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

If Milestone had elected to recognize compensation expense based upon the fair value at the grant date, consistent with the methodology prescribed by SFAS No. 123, pro forma net loss applicable to common stockholders and net loss per share applicable to common stockholders for the years ended December 31, 2004 and 2003 would have increased to the following pro forma amounts:

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

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

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

F-10

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

16. Concentration of Credit Risk

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

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

F-11

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C -- INVENTORIES

Inventories consist of the following:

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

NOTE D -- ADVANCES TO CONTRACT MANFACTURER

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

NOTE E --EQUIPMENT

Equipment consists of the following:

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

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

NOTE F - INVESTMENT IN DISTRIBUTOR

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

NOTE G -- NOTES PAYABLE TO OFFICER/STOCKHOLDER

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

NOTE H -- NOTES PAYABLE

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

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

F-12

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE I - STOCKHOLDER'S EQUITY

PUBLIC OFFERING

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

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

OTHER ISSUANCES OF COMMON STOCK

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

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

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

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

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

PREFERRED STOCK

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

F-13

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OUTSTANDING WARRANTS

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

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

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

SHARES RESERVED FOR FUTURE ISSUANCE

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

NOTE J -- STOCK OPTION PLAN

In 1997, the Board of Directors approved the adoption of the 1997 Stock Option Plan. The 1997 Stock Option Plan provides for the grant of options to purchase up to 166,667 shares of Milestone's common stock. In 1999, the Plan was amended, providing for the grant of options to purchase up to 333,333 shares of Milestone's common stock. Options may be granted to employees, officers, directors and consultants of Milestone for the purchase of common stock of Milestone at a price not less than the fair market value of the common stock on the date of the grant. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant.

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

F-14

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J (CONTINUED)

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

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

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

F-15

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J (CONTINUED

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

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

$ .8700           16,667              3.0                0

  .9000            8,333              3.7            2,778

 1.5000           26,668              3.2           13,334

 1.6500           16,667              2.0                0

 2.0000           30,000              5.0                0

 2.2500           13,499              2.0           13,499

 2.6250           16,667              0.0           16,667

 3.6000            8,333              2.5            5,555

 4.8300            8,282              0.5            8,282

 4.9200           51,333              4.4                0

 5.4375            2,333              0.1            2,333

 6.0000           16,667              1.0                0

 6.5625           17,334              0.5           17,334

 7.5000           23,333              1.6           23,333

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

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

NOTE K -- EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION

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

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

F-16

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

NOTE L -- LEGAL PROCEEDINGS

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

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

The effect of the settlements was recorded in 2003.

NOTE M -- CLOSING OF DEERFIELD, IL FACILITY

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

F-17

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N -- INCOME TAXES

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

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

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

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

As of December 31, 2004, Milestone has Federal and State net operating loss carryforwards of approximately $32,000,000 that will be available to offset future taxable income, if any, through December 2024. The utilization of Milestone's net operating losses may be subject to a substantial limitation due to the "change of ownership provisions" under
Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their utilization. Milestone has established a 100% valuation allowance for all of its net deferred tax assets due to the significant doubt that their benefit will be realized in the future.

NOTE O -- PRODUCT SALES AND SIGNIFICANT CUSTOMERS

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

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

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

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

F-18

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O (CONTINUED)

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

NOTE P -- COMMITMENTS AND CONTINGENCIES

Lease Commitments

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

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

Year Ending December 31,

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

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

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

Contract Manufacturing Agreement

Milestone has informal arrangements for the manufacture of its products. CompuDent and CompuMed units are manufactured for Milestone by Tricor Systems, Inc. pursuant to specific purchase orders. The Wand disposable handpiece is manufactured for Milestone in Mexico by Nypro Precision Assemblies ("NPA"), a subsidiary of Nypro Inc., pursuant to scheduled production requirements. The Wand Handpiece with Needle is supplied to Milestone by United Systems, which arranges for its manufacture by manufacturers in China. Milestone may expand its relationship with this supplier to include production of other types of handpieces. The termination of the manufacturing relationship with any of the above manufacturers could have a material adverse effect on Milestone's ability to produce and sell its products. Although alternate sources of supply exist and new manufacturing relationships could be established, Milestone would need to recover its existing tools or have new tools produced. Establishment of new manufacturing relationships could involve significant expense and delay. Any curtailment or interruption of the supply, whether or not as a result of termination of such a relationship, would adversely affect Milestone.

F-19

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Commitments

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

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

NOTE Q -- CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

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

NOTE R - SUBSEQUENT EVENTS

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

F-20

                                                                                   LICENSE AGREEMENT

                 This License Agreement (“Agreement”) is made this 20th day of October, 2004 by and between Milestone Scientific, Inc., a Delaware corporation (“Licensor”), whose business address is 220 S. Orange Avenue, Livingston, New Jersey 07039, and International Media Enterprise, a California corporation, dba United Systems, Inc. (“Licensee”), whose business address is
1405 W. Pioneer Street, Brea, California 92821, with reference to the following facts:

                 A. Licensor is the owner of all right, title and interest in a proprietary dental whitening product, now known as the CoolBlue Consumer Whitening System (hereinafter referred to as “Product”).

                 B.  Licensee is a manufacturer and marketer of certain products.

                 C.  On the terms and conditions set forth herein, Licensee desires to receive a license to manufacture, market and sublicense the Product to the consumer market, and Licensor desires to grant a license to manufacture, market and sublicense the Product to the consumer market to Licensee.

                 NOW, THEREFORE, in consideration of the foregoing premises, and the promises and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:

                 1.              Term . The initial term of this Agreement, including the grant of the License (as defined below), shall commence on the date of execution hereof and continue for twenty (20) years (the “Initial Term”), provided that Licensor may terminate this Agreement if sales of the Product are less than 250,000 units per calendar year beginning in 2005 through 2008. Licensee shall have options to extend this Agreement for up to 10 additional years, on a year-by-year basis (the “Renewal Options”) provided that sales of Product in the prior year are at least 250,000 units. Licensee may exercise its Renewal Options by delivering written notice to Licensor, at the address first written above or such other address as Licensor may designate by written notice to Licensee, no later than sixty (60) days prior to the expiration of the Term or any Renewal Option. The Initial Term and any Renewal Options shall collectively be referred to as the “Term.” 

                 2.              License . Licensor hereby grants to Licensee an exclusive worldwide license, subject to the terms and conditions of this Agreement, to use, manufacture, market, distribute, sell and license the Product to the consumer market.

                 3.              Sublicenses . Licensee may, on 15 days’ notice to Licensor, grant sublicenses under this Agreement to Licensees reasonably acceptable to Licensor, provided such sublicenses are in conformity with the provisions of this Agreement.

                 4.              Delivery of Materials . Licensor shall deliver to Licensee plans, drawings, schematics, prototypes, samples, any and all related documentation, and other materials requested by Licensee as


1



may be necessary to manufacture and market the Product.

                 5.              Best Efforts . Licensee shall use its best efforts to manufacture, market, sell and distribute the Product. Notwithstanding the foregoing, the parties agree that there shall be no production quotas or minimum criteria that Licensee is obligated to meet hereunder.

                 6.              Product Pricing.  Licensee shall set the pricing of Products sold to its customers in its sole discretion.

                 7.             Royalty and License Payments .

                                 7.1            Royalty Rate . Licensee shall pay a royalty to Licensor equal to fifty percent (50%) of the gross profits derived from Licensee’s sales or sublicense of the Product. “Gross profits” shall be defined, for the purposes of this Agreement, as gross revenues less manufacturing and marketing costs of the Product.

                                 7.2            Royalty Payment . Payment of royalties shall be made quarterly by Licensee . Concurrently with the royalty payment by Licensee, Licensee shall deliver to Licensor a royalty report disclosing all Product sales and royalty payments occurring during the prior quarter.

                                 7.3            Place of Payment . All amounts due Licensor shall be sent or delivered by Licensee to Licensor at the address first written above or such other address as Licensor may designate from time to time by written notice to Licensee.

                 8.              Updates and Improvements . Any updates, improvements, upgrades to, and new versions of the Product conceived, developed or acquired by Licensor during the Term of this Agreement shall be promptly disclosed in writing to Licensee and shall be, as of the date of such written notice, automatically included as part of the Product and subject to the provisions of this Agreement.

                 9.              Restrictions on Authority.  Except as otherwise provided in this Agreement, the parties hereto shall have no authority to bind or commit the other party to any contract or agreement or otherwise hold itself out as agent of the other party. The parties shall have no authority to incur any liability or obligation on the other party’s behalf. Licensor shall exercise no control over, nor have a right to control the activities or operations of Licensee, except as provided within this Agreement.

                 10.            Proprietary Rights . Licensor hereby represents and warrants to Licensee that it is the exclusive owner of all right, title, and interest in Product, including copyright, Trademarks and Patents (as defined below), and that it has the right to grant to Licensee all rights granted pursuant to this Agreement. Licensor has good and valid title to, free and clear of all liens, the intellectual property associated with the Product, including the Trademarks and Patents. No claim adverse to Licensor’s rights in the intellectual property associated with the Product is pending or has been made or, to the knowledge of Licensor, threatened. To Licensor’s knowledge, no basis exists for any such


2



claim.  To Licensor’s knowledge, no person has infringed or otherwise violated Licensor’s rights in any of the intellectual property associated with the Product. Licensor further hereby agrees to defend, indemnify and hold Licensee harmless from any and all claims, losses, damages and liabilities arising out of or incurred in connection with any infringement of intellectual property rights of others, associated with the Product.

                 11.           (a) Trademark Rights . Licensor grants to Licensee an exclusive royalty free license to use any Licensor’s trademarks, trade names and service marks listed on Exhibit A (the “Trademarks”) solely in the promotion, sale, marketing and distribution of Product during the Term of this Agreement. The use of the Trademarks shall always be accompanied by the appropriate trademark designation. Licensee agrees to comply with any and all instructions from Licensor regarding the use, placement and design of the Trademarks. Licensee acknowledges Licensor’s right, title and interest in the Trademarks, and Licensee shall not claim any right thereto.

                                 (b)            Patent Rights . Licensor grants to Licensee an exclusive royalty free license to use the Licensor’s patent rights claimed in United States patent application listed as Exhibit B and any US patent issued with respect thereto and any foreign patents related to such US patent application or US patents (the “Patents”) during the Term of this Agreement.

                 12.            Rights and Obligations With Respect To Intellectual Property

                                (a) Licensor shall have the right to inspect any of Licensees facilities, or those of its suppliers of Product, during regular business hours and upon reasonable notice. If desired by Licensee any such inspection shall be conducted in the presence of an officer, partner or authorized representative of Licensee.

                                (b) Prior to use of any trademark, Licensee shall submit to Licensor for review and approval specimens of the Product and its packaging. If Licensor does not respond to any such submission within five (5) business days approval shall be deemed to have been granted. Once Licensor has approved the standard product packaging, Licensee may make minor modifications without having to resubmit the packaging for approval. Similarly, Licensee shall submit to Licensor all packaging, promotional literature and guidelines for any advertising campaigns to be conducted by it or its sub-licensees to be used in connection with marketing or merchandizing the Product. Product, packaging and promotional material and guidelines

                                (c) After Licensor has given approval of product samples and specimen promotional material, the approved Product quality and specifications packaging advertising promotional literature shall be standard for all Products produced and sold thereafter (the “Approved Quality”).

                                (d) The Licensee shall not at any time use, promote, advertise, display or otherwise publish any trademarks or material utilizing the trademarks except as specifically provided in this agreement, without the prior written consent of Licensor.


3



                 13.            Exclusion and Limitation of Damages . Each party hereto agrees that neither party shall be liable for incidental, special nor consequential damages based upon the use of Product or related products or documentation by Licensee or the distribution, marketing, and installation of Product, even if one party has been notified of the possibilities of such damages. The parties hereby acknowledge that the other portions of this Agreement have been made in reliance upon inclusion of this Section.

                 14.           Warranty, Remedy and Exclusions .

                                 14.1    Warranty .

 
14.1.1      Licensor warrants that the Product will operate in conformance with existing technical specifications, so long as the Product has not been modified, and has been manufactured and used solely according to the specifications outlined by Licensor.
 
14.1.2      Licensor represents and warrants that it is the exclusive owner of all right, title, and interest in Product, including Trademarks and Patents, and that it has the right to grant to Licensee all rights granted pursuant to this Agreement. Licensor has good and valid title to, free and clear of all liens, the intellectual property associated with the Product, including the Trademarks and Patents. No claim adverse to Licensor’s rights in the intellectual property associated with the Product is pending or has been made or, to the knowledge of Licensor, threatened. To Licensor’s knowledge, no basis exists for any such claim. To Licensor’s knowledge, no person has infringed or otherwise violated Licensor’s rights in any of the intellectual property associated with the Product.
 

                                 14.2     Remedy . Licensor shall use its best efforts to correct any design defect of the Product that is documented by Licensee. Upon correction of such documented defect, Licensor shall deliver to Licensee new plans, drawings, schematics, and prototypes of the Product.

                 15.           Infringement . If any third party shall, in the reasonable opinion of either party to this Agreement, infringe any of the Trademarks or Patents, such party to this Agreement shall promptly notify the other party. Licensor and Licensee shall then jointly decide whether to institute and diligently prosecute proper legal proceedings for infringement against the third party. If there is a mutual decision to prosecute, both parties shall take all appropriate or necessary actions to assist in the prosecution of such action. Each party shall bear its own internal expenses and both shall share 50/50 external legal and other costs and expenses associated with the action (including without limitation court costs).

                 16.           Failure to Defend . In the event that the parties fail to take appropriate and diligent action with respect to any infringement, pursuant to Section 15, within ninety (90) days after


4



discovery of the existence of the infringement, Licensee shall have the right to (i) take such action in the name of Licensor with the right to enforce and collect any judgment thereon, or (ii) terminate this Agreement with thirty (30) days prior written notice to Licensor.

                 17.            Indemnity . Each party shall indemnify, defend, and hold the other party harmless from and against any and all claims, losses, damages and liabilities arising out of or incurred in connection with the indemnifying party’s negligent acts and omissions, willful misconduct, or material breaches of this Agreement. The indemnified party shall give the indemnifying party written notice as soon as practicable of any such claim or action to which the foregoing provisions apply.

                 18.            Arbitration . Any dispute, claim or controversy between the parties arising out of or relating to this Agreement, or breach hereof, shall be submitted to arbitration in accordance with the applicable arbitration rules of the American Arbitration Association which are in effect on the date of the delivery of the demand for arbitration. Any arbitration proceedings shall take place in New York City before a single arbitrator. The decision rendered by the arbitrator shall be binding. Judgment upon the decision of the arbitrator may be entered into any court having jurisdiction thereof. Each party shall pay the expenses of the American Arbitration Association and the arbitrator equally. Further, each party shall have the same right to take depositions and to obtain discovery as if the proceedings were pending in a civil action before a court of general jurisdiction in the State of New Jersey.

                 19.           Miscellaneous Provisions .

                                 19.1          Entire Agreement and Severability Provisions . This Agreement constitutes the entire understanding and agreement between Licensor and Licensee and supersedes any and all prior, contemporaneous oral or written communications relating to the subject matter hereof, all of which are merged herein. This Agreement can only be modified, amended, or altered by an instrument in writing, mutually signed by the parties hereto. Such amendment shall be binding with or without any additional consideration. If any provision of this Agreement is held unenforceable, said holding shall not be deemed to impair the validity of the remaining provisions of the Agreement which shall remain in full force and effect.

                                 19.2          Governing Law . This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey applicable to contracts wholly executed and wholly performed therein.

                                 19.3          Attorney’s Fees . The prevailing party in any action or proceeding between Licensee and Licensor arising out of or related to this Agreement shall be entitled to recover its reasonable attorney’s fees and costs incurred in connection therewith.

                                 19.4          Notices . All notices, requests, demands and other communications required under this Agreement shall be deemed duly given to the respective parties at the addresses first set forth above or at such other addresses as designated in writing by either party in accordance with this Section upon (a) personal delivery, or (b) delivery by U.S. mail, postage pre-paid, or (c) receipt by


5



the transmitting party of confirmation or answer back if delivery is by facsimile.

                 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written:

       
“Licensor”   “Licensee”
       
Milestone Scientific, Inc.,
a Delaware corporation
  International Media Enterprise,
a California corporation
dba United Systems, Inc.
         
By:   /s/ Stuart Wildhorn    By:   /s/ Tom Cheng 
    ————————————       ————————————
         
Title:  President   Title: President 
       ————————————         ————————————

6



EXHIBIT A
 

 


7



EXHIBIT B
 
PATENT APPLICATION NO. 10/925,820

TEETH WHITENING COMPOSITION AND METHOD

 
CROSS REFERENCE TO RELATED APPLICATIONS

                 This Patent Application claims priority from U.S. Provisional Patent Application Serial No. 60/499,692, filed on September 3, 2003, U.S. Provisional Application Serial No. 60/498,990, filed on August 29, 2003 and U.S. Provisional Application Serial No. 60/ 505,196, filed on September 23, 2003, the contents of which are incorporated herein by reference in their entirety.

FIELD OF THE INVENTION

                 The present invention relates to light activated dental compositions and a light emitting dental tray for treating teeth surfaces. In particular, the present invention is directed to dental compositions, such as tooth bleaching compositions, used in combination with a light emitting dental tray having reservoirs for holding the dental composition located adjacent the teeth surfaces to be treated.

BACKGROUND OF THE INVENTION

                 Increasingly, it has become popular to whiten teeth that are naturally off white or have become stained by smoking or food intake. In order to whiten teeth in the past, people either have had them capped or have had veneers placed over them, which both entail costly and involved dental procedures. Recently, chemical bleaching of teeth has allowed people to whiten their teeth without


8



resorting to these previously costly and involved dental procedures.

                 In early bleaching methods, dental patients who desired to have their teeth bleached had to utilize conventional dental office bleaching techniques. These techniques usually involved placing a peroxide solution on the teeth, protecting the sensitive soft tissues with a ligated rubber dam, and applying heat or light to the solution. Unfortunately, the lights used in dental office procedures are high power high voltage lights that desiccate teeth and cause greater postoperative sensitivity. Additionally, such dental office treatments are extremely time consuming as they typically required multiple appointments for a significant color change. The need for multiple professional office visits results in a procedure that is costly. Despite the expense and other problems associated with professional whitening of teeth, these professional methods are primarily concerned with the whitening of only the buccal, facial surface only.

                 Because of the time consuming nature of these multiple office visits and costs associated therewith, there has been a growing interest within the dental profession for in-home tooth bleaching products and methods. One of the first in-home approaches required a professional making an alginate impression of a patient’s teeth; making a cast of the impression; vacuum forming a tray from the cast, and trimming the impression to exclude gingival coverage. In using this early home use apparatus and method, the patient is instructed to place several drops of bleaching solution into each area of the tray for each tooth to be bleached, placing the tray containing the bleaching solution in the mouth and expectorating any excess bleaching solution. Unfortunately, use of this apparatus and method requires the patient to change the bleaching solution every 1 to 2.5 hours, and remove the dental tray during meals. As a result, this in-home approach is expensive, time consuming, cumbersome and suffers from a lack of compliance.


9



                 As a result of this inconvenient and expensive in-home method, there have been more recent in-home approaches that embed various bleaching agents onto substrates such as fabric or fiber strips that a patient applies to their teeth at bedtime. One known in-home method uses various peroxides within gel foam as dental bleaching agents. The most commonly used dental bleaching agent is 10% carbamide peroxide (CO(NH 2 ) 2 H 2 O 2 ), also called urea hydrogen peroxide, hydrogen peroxide carbamide, and perhydrol-urea.

                 While useful results have been experienced using the foregoing in-home techniques, their effectiveness has been largely dependent upon such factors as type and intensity of tooth enamel stain, bleaching agent contact time, and the amount of available active ingredient in the bleaching agent. The advantage, however, is that the time commitment for the actual bleaching process takes place outside the dental office and without the need for professional application. Thus, the cost for these in-home procedures is substantially less than conventional in-office bleaching techniques.

                 Unfortunately, despite improvements in these in-home methods, there remain disadvantages and limitations to in-home bleaching products and techniques. A significant disadvantage of the known in-home approaches is the long application or contact time needed by these methods. Because of the required long contact time, bleaching agent must be frequently replaced or replenished during application. Replenishment is needed because of saliva dilution and swallowing of the bleaching agent causing the volume of bleaching agent in the dental application tray to diminish rapidly over time. Various studies have shown that after one hour, less than one-half the original volume of bleaching agent was present in an application tray. Thus, existing bleaching agents, because of their method of application and the need for a long contact time, need to be replenished about every hour in order to be effective.


10



                 Because of the inconvenience of replacing bleaching agents constantly and the long contact time needed, patient compliance is difficult to maintain and therefore in-home methods have not achieved the level of success as professional in-office bleaching techniques.

                 An additional problem with current in-home bleaching compositions and methods is that it often takes several weeks of application to see desired results. Although some methods have promoted lightening of teeth in shorter periods of time, noticeable results of in-home bleaching requires approximately 4 to 6 weeks. This lengthy period of treatment and compliance issues have resulted in dissatisfaction with many if not all of the present in-home compositions and methods.

                 It should therefore be appreciated that what is needed in the art are improved compositions and methods for faster and more efficient treatment of tooth surfaces which facilitate greater patient compliance and satisfaction. Additionally, it would be a significant advancement in the art to provide fast acting dental bleaching compositions for treating tooth surfaces which do not need to be continuously replaced so that patient compliance is enhanced.

                 Thus there is a need for a tooth whitening method that will bleach stained teeth and inhibit tooth yellowing that does not require complex, time consuming and expensive equipment.

SUMMARY OF INVENTION

                 In a first illustrative embodiment, according to the invention, a tablet formulation containing a metal ion catalyst and an alkaline pH raising compound is chewed by a patient followed by rinsing their teeth with a peroxide composition having a concentration of about 1 percent to about 15 percent peroxide. The combination of the tablet formulation containing the metal ion within an alkaline composition along with the peroxide rinse forms a dental composition having foam like consistency,


11



which whitens substantially all of the surfaces of the patient’s teeth. The process of whitening the patient’s teeth is accelerated by using a light-emitting device producing a selected wavelength range to assist the decomposition of the peroxide intra orally by activating the metal ion catalyst within the dental composition. The light emitting device can be incorporated into a dental tray that captures the whitening composition and holds the whitening composition on the surface of the teeth.

                 In a further illustrative embodiment, according to the invention, a solution having a gel consistency comprising selected peroxides and selected transitional metal ions, such as ionized silver, zinc, manganese or the like is sprayed onto the surface of a patient’s teeth. The sprayed solution is followed by a rinse of an additional low concentration peroxide, such as hydrogen period or carbamide peroxide, or calcium peroxide. The additional peroxide can be applied to the teeth using a conventional dental tray or by merely rinsing the oral cavity with a low concentration solution. The dental tray can further include a light source having a selected wavelength that activates the metal ion within the dental composition. The pH of the above spray is adjusted to about 6 to about 8 or above by the use of an alkaline agent, which allows for a faster decomposition of the peroxide. The light source is directed within the oral cavity for a period of about two minutes to about 20 minutes. The selected light source activates the photo sensitive metal ions and further produces heat hastening the decomposition of peroxides thereby accelerating the whitening effect.

                 It is contemplated within the scope of the invention that the light source may be embedded into a conventional dental tray, where the dental tray further allows the containment of the above dental composition allowing the patient to hold the whitening composition within the mouth for a desired period of time.

                 The light source in one illustrative embodiment uses light emitting diodes or traditional small


12



bulbs that are either blue, cyan, amber or white in color. The temperature produced by such a bulb or LED illumination raises the temperature of the dental composition. The increased temperature helps decompose the peroxides by a factor of about 2.4 for every 10 o C rise in temperature. The light source according to the invention is battery powered allowing hands free operation of the light equipped dental tray. The lighting system according to the invention is a low voltage, low intensity system that works well because of proximity of the treating surfaces to the light source itself. It is envisioned that other power sources may be employed, such as, for example, A/C wall outlet, etc.

                 In a further illustrative embodiment the dental try is fabricated from a light transmitting polymer that acts as a fiber optic transmitter allowing the light source to be emitted from substantially all surfaces of the dental tray whitening front, sides and the back of teeth.

BRIEF DESCRIPTION OF THE DRAWINGS

                 The foregoing and other features and advantages of the present invention will be more fully understood from the following detailed description of illustrative embodiments, taken in conjunction with the accompanying drawings in which:

                 FIG. 1 is a flow diagram depicting an illustrative method according to the invention;

                 FIG. 2 is a flow diagram depicting an alternative illustrative method according to the invention;

                 FIG. 3 is a top view of a dental tray according to the invention; and

                 FIG. 4 is a side perspective view of the dental tray, with parts separated, according to the invention.


13



DETAILED DESCRIPTION OF THE INVENTION

 
 
Detailed embodiments of the present invention are disclosed herein, however, it is to be understood that the disclosed embodiments are merely exemplary of the invention, which may be embodied in various forms. Therefore, specific functional details disclosed herein are not to be interpreted as limiting, but merely as a basis for the claims and as a representative basis for teaching one skilled in the art to variously employ the present invention in virtually any appropriately detailed embodiment.
 

                 According to the invention, a dental whitening composition having teeth whitening properties is disclosed. In a first illustrative embodiment, the dental whitening composition is formed from a first gel and a second gel. The first gel, according to the invention, is a peroxide gel having about 1 to about 15 percent peroxide by weight. The peroxide gel composition, according to the invention, is formed by mixing approximately 3 gm of a gelling powder, Micropore Gel® powder, Bioserve, San Diego, California, with approximately 97 gm of deionized water. The gelling powder is mixed with the deionized water for approximately one-half hour until a clear flowable gel is formed.

                 The flowable gel is then mixed with approximately 10.98 gm of a 50 percent hydrogen peroxide solution and stirred slowly for approximately 15 minutes. In this first illustrative embodiment Peralkali®, a 50% peroxide solution, Degussa Manufacturing, was used. It is contemplated that other peroxides known in the art may be used such as carbamide peroxide, potassium peroxide, calcium peroxide, or the like. A citric acid buffer is added until the mixture achieves a pH of approximately 3.5. Approximately 2 gm of a dry flavoring is added to the buffered gel composition. The formed buffered peroxide gel will stabilized to about a pH of 5 after about 24 hours.


14



                 The second gel, is an accelerating gel formed by mixing approximately 3 gm of Micropore® Gel powder with approximately 97 gm of deionized water. This mixture is stirred for approximately one-half hour until a clear flowable gel is formed. The flowable gel is mixed with approximately 3.2 gm of silver ion solution (500ppm). Approximately 10.40 gm of Tri (hydroxymethyl)-aminomethane, Angus Chemical Company, Buffalo Grove, Illinois, is added to approximately 1 gm of water forming a buffering solution. The buffering solution is added to the ionized gel solution forming the accelerating gel. The accelerating gel is contained within an opaque container until use with the peroxide gel.

                 The whitening composition is formed by applying the peroxide gel to the inventive dental tray along with the accelerating gel. The combined gels form a whitening composition that is activated by a selected light source within the inventive dental tray.

                 In a further illustrative embodiment, a metal ion accelerator is provided in a tablet formulation having a metal ion catalyst and an alkaline component. After apply a peroxide gel composition according to the invention, the accelerator tablet is chewed by a patient. Transitional metal ions such as ionized silver, zinc, manganese or the like may be used as a catalyst according to the invention. It is contemplated that other ions that are photo sensitive and strongly reactive to light may be used. Alkaline compounds such as sodium bicarbonate, sodium hydroxide, [tri(dydroxymethyl)aminomethane] or the like may be used to raise the pH of the whitening composition. In this further illustrative embodiment the tablets are comprised of deionized water approximately 75% by weight; ionized silver ion approximately 21% by weight; Tris Amine approximately 4% by weight; and flavoring.

                 In yet a further illustrative embodiment a peroxide solution rather than a gel can be used as an


15



oral rinse containing about 1 percent to about 15 percent hydrogen peroxide. It is contemplated that other peroxides known in the art may be used such as carbamide peroxide, potassium peroxide, calcium peroxide, or the like. The combination of the metal ion alkaline tablet with the peroxide rinse forms a dental composition within a patient’s oral cavity having foam like consistency. This dental composition whitens the surface of the patient’s teeth.

                 According to a further illustrative embodiment, an activated dental whitening composition can be formed from two solutions. The first solution contains approximately between 1 percent and 15 percent hydrogen peroxide with selected flavoring. It is contemplated within the scope of the invention that the first solution can also contain colorants such as pigments and dyes to impart a desired color to the solution.

                 The second solution contains an activating silver ion solution having approximately 10 ppm to 1000 ppm of silver ion. In an illustrative embodiment the second solution contains approximately 125 ppm of silver ion in about 100 gm of deionized water. The second solution is buffered by adding approximately 10.32 grams of Tri(hydroxymethyl) aminomethane added to about 1 gm of water forming a buffering solution having a pH of about 10. It is contemplated within the scope of the invention that a buffers such as Tri(hydroxymethyl) aminomethane can be used in a concentration in the second solution of about 1 percent by weight to about 15 percent by weight. This buffering solution is added to the silver ion solution along with approximately 2 gm of dry flavoring. According to the invention the first solution containing the peroxide and the second solution containing the silver ion are applied to the patient’s teeth by spraying each solution in a predetermined amount onto the patient’s teeth. It is contemplated within the scope of the invention that these solutions can be used alone or in conjugation with the peroxide gel and accelerator gel


16



according to the invention. It is further contemplated that these solutions and gels can be used along with the accelerator tablets according to the invention.

                 A light source having a wavelength selected that is specific to the photo-sensitive metal ion within the dental whitening composition may be used to activate the dental whitening composition by increasing the decomposition of the peroxide used. This decomposition allows for a hastening of the whitening effect and a dramatic decrease in contact time. According to the invention, a light bulb or LED producing wavelengths forming blue, cyan, amber or white light can be used to activate the photo ions. It is contemplated, within the scope of the invention, that the desired selected light wavelength can be produced by a bulb or LED selected or by the use of an optical wavelength filter allowing for the selection of a desired wavelength range.

                 In a first illustrative embodiment, a LED, Nichia Corporation, of Japan, part number, NSPB 310a, is employed producing a wavelength within the range of about 430 nm to about 490 nm. The LED used in this illustrative embodiment has the following specifications: Chromaticity Coordinate Typical (x,y) 0.130 to 0.75; Luminous intensity (mcd) 3900; Forward Voltage 3.5 max 4.0; Direction Characteristics 30 degrees Size 3.0mm.

                 Referring to FIG. 1, the dental whitening composition is employed in a teeth whitening procedure that includes brushing a patient’s teeth (step 110). The dental whitening composition is formed from a peroxide gel and an accelerator gel forming an activated gelling agent (step 112). The activated gelling agent is then coated onto the teeth and added to a dental tray’s dental receiving area before the patient inserts the tray into their mouth and illuminates the surfaces of their teeth with the light source embedded into the Dental tray. (step 114). The light source illuminates the coated teeth for approximately two minutes (step 116). The activated gelling agent mixture is swished about the


17



patient’s mouth after illumination (step 118). The patient’s teeth are brushed (step 120).

                 Referring to FIG. 2, the dental whitening composition is employed in a teeth whitening procedure that includes brushing the patient’s teeth (step 201) and placing a peroxide gel onto the patient’s teeth surfaces (step 202). The patient then chews an activator tablet (step 203) forming a whitening composition. The patient then places peroxide gel into the dental receiving area along with activator gel (step 204), which is placed on top of the peroxide gel. The resulting whitening composition is illuminated for approximately two minutes or more (step 205). The illuminated composition is then swished around the oral cavity for as long as desired (step 206). The oral cavity is rinsed and the patient brushes their teeth (step 207).

                 According to the invention, the light source can be embedded in a dental tray 300 or be in optical communication with the dental tray 300. As shown in FIG. 3 and FIG. 4, the dental tray 300 has a bottom rigid tray 302 having a dental receiving area 304. The dental receiving area 304 is formed in the shape of orthodontic wire and the curvature of a patient’s teeth. The dental receiving area 304 is loose fitting allowing both sides of the teeth to receive gel or rinse material.

                 The bottom rigid tray 302 is formed from a rigid polymeric material. The dental receiving area 304 is formed from a pliable polymeric material and is fixably attached to the bottom rigid tray 302. In a first illustrative embodiment, the dental receiving area 304 is formed from a pliable silicone that is transparent to the wavelength range of a light source attached to the bottom rigid tray 302. It is contemplated within the scope of the invention that the dental receiving area 304 can be fabricated from any polymeric compound that is pliable and translucent to a selected wavelength range. It is further contemplated within the scope of the invention that the polymeric composition forming the dental receiving area 304 has light transmitting properties allowing the dental receiving


18



area 304 to act as a fiber optic bundle transmitting light to all areas of the dental receiving area 304.

                 The bottom tray 302 in this first illustrative embodiment is equipped with at least one LED 306 that produces a light having a selected wavelength. In a first illustrative embodiment several LED 306 are mounted in the bottom tray 302 so that their emitted light is directed around the curvature of the dental receiving area 304. It is contemplated within the scope of the invention that focusing optics or filtering optics can be mounted in front of the light emitting portion of the LEDs 306. These optics can direct the emitted light or filter the emitted light to a desired wavelength range. It is also contemplated within the scope of the invention that a singular LED or light source can be positioned in optical communication with a fiber optic bundle that delivers the emitted light from the light source to desired locations within the dental receiving area 304.

                 The LEDs 306 are powered by a battery pack 308 that is in electrical communication with each LED 306. The battery pack 308 in a first illustrative embodiment is a standard 9 volt battery. It is contemplated within the scope of the invention that a rechargeable battery or batteries may be used that produce the needed electrical power specifications for the LED 306 or other light source used. It is also contemplated that the LEDs 306 can be powered by standard household electricity using a transformer capable of providing the desired voltage or recharging rechargeable batteries. The electrical communication of the LEDs 306 is controlled by a single pole electrical switch 310 allowing a user to power on and off the LEDs 306. In a first illustrative embodiment an electrical resistant element (not shown) is incorporated into the electrical circuit allowing the dental tray to warm to approximately 100 o Fahrenheit. It is contemplated within the scope of the invention that the electrical switch 310 may further contain a timer element allowing the user to select a desired operational time and in one illustrative embodiment a pre-selected operational time.


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                 The battery pack 308, the electrical communication to the LED 306 and the electrical switch 310 are protected from dental compositions utilized and outside elements by the use of a cover plate 312 that is removably attached to the bottom plate 302. The cover plate 312 is formed from a polymeric material such as ABS, polycarbonate, or the like. It is contemplated within the scope of the invention that the bottom plate 302 and the cover plate 312 can be fabricated from various metals.

                 Although the illustrative embodiments show the use of metal ions within the activating solution, gel or tablet, it will be understood by those skilled in the art that ions other than metal ions may be used to accelerate the breakdown of peroxides during the bleaching process. Likewise it will also be understood that ions that are highly sensitive to heat may be used to accelerate the breakdown of peroxides during the bleaching process.

                 The principles, preferred embodiments and modes of operation of the presently disclosed light activated dental whitening composition and light embedded tray have been described in the foregoing specification. The presently disclosed light activated dental whitening composition and light embedded tray, however, is not to be construed as limited to the particular embodiments shown, as these embodiments are regarded as illustrious rather than restrictive. Moreover, variations and changes may be made by those skilled in the art without departing from the spirit and scope of the light activated dental whitening composition and light embedded tray and disclosed herein and recited in the appended claims.


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PATENT

 
         Attorney Docket No.: 813126/7
 

WHAT IS CLAIMED IS:

                 1.             A method for whitening teeth comprising the steps of :

                                 providing an alkaline composition having a photo-sensitive ion;

                                 providing a bleaching agent;

                                 mixing the alkaline composition with the bleaching agent forming a whitening composition; and

                                 irradiating the whitening composition with a selected wavelength range that excites said photo-sensitive ion.

                 2.             The method according to claim 1, wherein said photo-sensitive ion is a metal-ion selected from the group consisting of ionized silver, ionized zinc and ionized manganese.

                 3.             The method according to claim 1, wherein said alkaline composition is formed from an alkaline compound selected from the group consisting of sodium bicarbonate, sodium hydroxide and [tri(dydroxymethyl)aminomethane].

                 4.             The method according to claim 1, wherein said bleaching agent is a peroxide.

                 5.             The method according to claim 4, wherein said peroxide is selected from the group consisting of carbamide peroxide, calcium peroxide, potassium peroxide and hydrogen peroxide.

                 6.             The method of claim 1, further comprising the step of heating said whitening


21



composition.

                 7.             The method according to claim 1, wherein said whitening composition is a viscous foam that allows greater contact time with said teeth.

                 8.             The method according to claim 1, wherein said excited photo-sensitive ion decreases the time needed for decomposition of said bleaching agent.

                 9.             The method according to claim 1, wherein said selected wavelength range is from about 430nm to about 490nm.

                 10.           The method according to claim 1, wherein said selected wavelength range is produced by the emittance of a light source.

                 11.           The method according to claim 1, wherein said selected wavelength range is produced by the filtered emittance of a light source.

                 12.           The method according to claim 10 and 11, wherein said light source is a LED.

                 13.           The method of claim 1, wherein said selected wavelength is delivered to all exposed surfaces of said teeth.

                 14.           An apparatus for whitening teeth comprising:

                                 a bottom plate and a cover plate;

                                 a dental receiving area fixably attached to said bottom plate; and

                                 a light emitting device incorporated into said dental receiving area, said light emitting device producing a selected wavelength range.


22



                 15.           The dental whitening apparatus according to claim 14, wherein said light emitting device comprises at least one LED.

                 16.           The dental whitening apparatus according to claim 15, wherein said at least one LED is in optical communication with said dental receiving area.

                 17.           The dental whitening apparatus according to claim 15, wherein said at least one LED emits light in a selected wavelength range of about 430 nm to about 490 nm.

                 18.           The dental whitening apparatus according to claim 15, wherein said dental receiving area is fabricated from a light transmitting composition.

                 19.           The dental whitening apparatus according to claim 14, wherein said light emitting device is in optical communication with a fiber optic bundle said fiber optic bundle directing light to at least one portion of said dental receiving area.

                 20.           The dental whitening apparatus according to claim 14, wherein said selected wavelength range is produced by the emittance of a light source.

                 21.           The dental whitening apparatus according to claim 14, wherein said selected wavelength range is produced by the filtered emittance of a light source.

                 22.           The dental whitening apparatus according to claim 14, wherein said selected wavelength is delivered to all exposed surfaces of said teeth.


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ABSTRACT OF THE DISCLOSURE

                A dental whitening composition is formed from tablet formulation containing a metal ion catalyst and an alkaline pH raising compound and a peroxide solution having a concentration of about 1 percent to about 15 percent peroxide. The combination of the tablet formulation containing the metal ion within an alkaline composition along with the peroxide rinse forms a dental composition having foam like consistency, which whitens the surface of teeth. The tablet formulation can also be in the form of a gel or solution. The process of whitening teeth is accelerated by using a light emitting device producing a selected wavelength range. The light emitting device can be incorporated into a dental tray having a dental receiving area formed from a polymer having optical properties.


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27


TECHNOLOGY SALE AGREEMENT

                TECHNOLOGY SALE AGREEMENT made as of the 1st day of January, 2005, between MILESTONE SCIENTIFIC INC., a Delaware corporation (“Milestone”), and CLAUDIA HOCHMAN and MARK HOCHMAN (collectively the “Sellers”).

                WHEREAS, the Sellers have developed the technology, know-how and other intellectual property underlying their invention of (i) a “Pressure/Force Computer Controlled Drug Delivery System”, (ii) a “Universal Syringe Holder Enhancement” (iii) a non-deflecting, non-clogging single use disposable hypodermic needle, (iv) a Handpiece for Injection Device with a retractable rotating needle (US Patent No. 6,428,517 B1), Anti-deflection/force penetration reduction rotating syringe (US Patent No. 6,428,517), for use as a separate drug delivery or aspiration system or as an adjunct to Milestone’s computer controlled anesthesia system known as “The CompuDent/CompuMed/Wand TM , (v) a Local Anesthetic and Delivery Injection Unit with Automated Rate Control (US Patent No. 6,652,482 B2), (vi) Safety IV Catheter Infusion Device (US Utility Patent App 10/174,246) (vii) Drug Delivery System with Profiles (notice of allowance issued) and Pressure/Force Computer Controlled Drug Delivery with automated changing (notice of allowance issued) (viii) any and all other patent submissions, past, present and future, that bear the name of one or both of the Sellers (collectively, the Intellectual Property); and

                WHEREAS, the Sellers desire to sell to Milestone and Milestone desires to purchase from Sellers all their rights in and to the Intellectual Property on the terms hereinafter set forth.

                NOW, THEREFORE, in consideration of the sales transaction and the agreements set forth below, the parties have entered into the following transaction and agreements:

1.              Sale of Intellectual Rights . Sellers by this instrument do hereby sell, transfer and assign to Milestone, all of their rights in and to the “Intellectual Property”, including any and




all inventions, patent applications and other indicia evidencing or embodying their proprietary rights therein and agree to turn over and deliver to Milestone all documentation relating to the Intellectual Property.

2.              Obtaining Patents . The Sellers agree that they will use their best efforts in cooperation with, and at the request of, Milestone to obtain United States and worldwide patent rights to the Intellectual Property and any improvements thereon or thereto, which together with all patents and patent applications are collectively referred to as the “Proprietary Rights”. The expense for preparing and filing appropriate patent applications and if commercially reasonable, obtaining foreign patents in such jurisdiction as appropriate, shall be borne by Milestone. Sellers shall assign all rights in and to all patent applications, patents and other Proprietary Rights not previously assigned or developed after the date hereof to Milestone.

3.              Further Documentation . The Sellers shall from time to time at the request of Milestone execute and deliver to Milestone such further documentation as requested by Milestone to more effectively transfer and assign the Proprietary Rights to Milestone and to otherwise give effect to this Agreement.

4.             Purchase Price .

                               (a)

 
                   (1)  As consideration for for US Patent No. 6,652,482 B2 embodying defined newly essential elements to the technology, defining additional elements of the system, and providing longevity for the inclusive and comprehensive patent coverage to previous and current products including The Wand w/ Cruise, WandPlus TM , CompuDent TM , CompuMe TM . the Sellers transfer of the rights in and to the Intellectual Property, including their agreements to cooperate with Milestone in prosecuting patent applications with respect thereto and to transfer and assign any and all Proprietary Rights, Milestone shall pay to Sellers an initial fixed purchase price of 43,424 shares of restricted Common Stock at the time of execution and $145,000 in cash on or about
 



 
  April 1 st , 2005  after the execution hereof and a deferred contingent purchase price in an amount equal to 0.025 (2.5%) percent of the “Net Sales”, as defined below, subsequent to January 1, 2005, of those products sold by Milestone (the “Products”), which embody any of the Proprietary Rights of US Patent No. 6,652,482 B2,as follows:
 

ASSUMPTIONS AND EXAMPLES:                 

 
  1. Proprietary Rights are patented, US Patent No. 6,652,482 B2.
     
  2. The Product which embodies technology underlying such Proprietary Rights is sold for $660.00 per unit.
     
  3.  Number of units sold is 10 units.
     
  4.  There were no discounts, returns or allowances.
     
  5.  Net Sales of all Products which use such Proprietary rights are $6600.00
 

THEN Royalties shall be calculated as follows:

 
 

Price per Unit         x       No. of Units           x                Royalty Rate

   
 

$660.00                  x               10                   x                    0.025

   
 

$6,600.00               x              0.025    Royalty Rate     =   $165.00

   
or-
 
 

Net Sales             x               Royalty Rate   =      Royalty

   
 

$6,600                 x                      2.5%          =        $165.00




                                (2) As consideration for U.S. Patent No. 6,428,517 “Hand-Piece for Injection Device With A Retractable And Rotating Needle”, U.S. Patent No. 6,200,289 B2 “Pressure/Force Computer Controlled Drug Delivery System and The Like, U.S. Patent No. 6,726,658 B2 “Safety IV Catheter Infusion Device, U.S. Patent No. 6,786,885 B2 ”Pressure/Force Computer Controlled Drug Delivery System with Exit Pressure Control, Drug Delivery System with Profiles (notice of allowance issued) and Pressure/Force Computer Controlled Drug Delivery with automated changing (notice of allowance issued), and all derivative, divisional and secondary patents of the aforementioned patents, and for any and all other patent submissions, past, present and future, that bear the name of one or both of the Sellers with the exception of Proprietary Rights covered by section 4 (a)(1), Milestone shall pay to the Sellers an amount equal to 0.05% (5%) of the Net Sales of those products sold by Milestone subsequent to January 1, 2005, which embody the Proprietary Rights underlying the above-mentioned patents. The products currently that have embodied these Proprietary rights are the SafetyWand TM , The CompuMed/Wand-PDL Drive Unit device, a.k.a. The CompuDent Single Tooth Anesthesia Drive Unit device, The CompuFlo TM .  device, and the SuperSafe – safety engineered dental syringe device.

ASSUMPTIONS AND EXAMPLES:

 
1. Proprietary Rights are patented.
 
2. The Product which embodies technology underlying such Proprietary Rights is sold for $2.00 per unit.
 
3. Number of Units Sold are 10 units.
 
4. There were no discounts, returns or allowances.
 
5. Net Sales of all Products which embody such Proprietary rights are $20.00.
 

THEN Royalty shall be calculated as follows:




 

Price per Unit        x       No. of Units          x                Royalty Rate

   
 

$2.00                     x               10                   x                    0.05

   
 

$200.00                 x              0.05    Royalty Rate     =   $10.00

   
or-
 
 

Net Sales            x               Royalty Rate   =      Royalty

   
 

$200                   x                      5%             =        $10.00

                   (3)              if Milestone sells all or part of the Proprietary Rights or licenses others to use all or any portion of such rights in the production by those other parties of their products, Sellers shall be entitled to receive royalties calculated as provided in 4(a)(1) and 4(a)(2) above on the consideration received by Milestone from any such sale or license. This consideration shall be treated as Milestone’s “Net Sales” for purposes of this Section 4(a)(3).
 

                               (b)               Milestone shall within 45 days after the end of each calendar quarter pay Sellers the amount of purchase price owing to them for the quarter. Such payment shall be accompanied by statements showing the basis used in calculating the royalties for such period and for each product individually.

                               (c)               For purposes of this section 4 Net Sales shall mean gross sales less returns, discounts and allowances. Purchase price payments for any quarterly period shall be adjusted in subsequent quarters to take into account returns and allowances occurring in these later periods. If by reason of (d) below payments are payable for only a portion of a quarterly period, Sellers shall be entitled to a payment in the amount they would have received if they were entitled to royalties for the full quarterly period multiplied by a fraction in which the numerator shall be the number of days in which they are entitled to royalties and the denominator shall be 90.




                                (d)               Payments shall be made hereunder only until the expiration of the last patent covering any portion of device or devices which embody the Proprietary Rights; provided, however that if no patent has issued and a Milestone Product incorporating the Proprietary Rights faces substantial competition from other products using similar technology the payment hereunder shall be appropriately adjusted by Milestone to eliminate the competitive disadvantage.

                                 (e)              In addition Milestone agrees that if one or more patents issues with respect to any pending or future patent application relating to the Proprietary Rights, Milestone will, as soon as practicably thereafter, issue to Sellers five year options to purchase an aggregate of 8,333 shares of Milestone Common Stock at an exercise price per share equal to the fair market value of a share on the date of grant.

                                 (f)              Sellers by signing this agreement confirm that (i) they are each an “accredited investor” within the meaning of Rule 215 of the Rules and Regulations under the Securities Act, and (ii) they have acquired the shares to be issued hereunder for investment and acknowledge that the shares cannot be resold or otherwise disposed of until they are registered under the Securities Act and any applicable state securities laws or an exemption from registration is available. Further since the shares will not be registered at the time of issuance, the certificates representing the shares delivered hereunder will bear the following legend:

 
 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE ACT.
 
 

                                 (g)            Registration Rights . Milestone shall, as soon as is practicable, but in no event more than thirty (30) days after it has filed it annual report on Form 10-KSB for the




financial year 2004, file with the Securities and Exchange Commission, and use its best efforts to cause to become effective, a registration statement on Form S-3 under the Securities Act of 1933 which shall provide for the registration of the shares delivered upon execution of this agreement.

5.              Sellers Warranty . Sellers jointly and severally represent and warrant to Milestone that they have not sold, assigned, transferred or encumbered the Proprietary Rights or any interest thereon to any third party.

6.              Indemnification . Milestone shall defend, at its own cost and expense, any infringement suits that may be brought against Sellers or Milestone on account of the manufacture, production, use or marketing of the Proprietary Information by Milestone or its licensees. Milestone shall indemnify and save harmless Sellers against any and all such patent infringement suits and any claims, costs, expenses and damages which may be incurred by Sellers therein or in settlement thereof. When information is brought to Milestone’s attention indicating that others are unlawfully infringing on its rights with respect to the Proprietary Information, Milestone shall take all steps and commence such legal action which, in the judgment of Milestone, are (a) necessary to protect Milestone’s rights thereto and (b) consistent with Milestone’s then business and financial condition. Seller shall cooperate with Milestone in the prosecution of any such action or litigation.

7.              Governing Law . This Agreement shall be construed and interpreted according to the laws of the State of New York.

8.              Severability . In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

9.              Notice . All notices required or permitted to be delivered pursuant hereto shall be in writing and shall be deemed to have been given upon personal delivery or two (2) days after




deposit in the United States mail by registered or certified mail, first class postage prepaid, with return receipt requested, addressed as follows:




If to Milestone   Milestone Scientific, Inc.
    220 South Orange Avenue
    Livingston, New Jersey 07039
    Attn: Leonard Osser
 

                    

 
     
With a copy to:   Morse, Zelnick, Rose & Lander
    405 Park Avenue
    New York, NY 10022
    Attn: Stephen A. Zelnick, Esq.
 

                

 
 If to Sellers:   Claudia Hochman, D.D.S
    Mark Hochman, D.D.S.
    26 Meadow Woods Road
    Great Neck, New York 11020
 

or to such other addresses as may from time to time be designated by the parties by like notice.

10.            Binding Effect . This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors, assigns and/or legal representatives. In the event that the obligations under this Technology Sale Agreement, do not, for any reaon, automatically survive a sale or transfer of all or a significant part of Milestone’s business or assets to a third party (the “Transferee”), Milestone shall cause the Transferee to assume all of Milestone’s obligations under this Technology Sale Agreement, as amended from time to time. If the undertaking of these obligations, whether by way of automatic survival or by way of assumptions, in their entirety or in part, is impossible, impracticable or of significantly different economic impact on Sellers, Milestone shall use its best efforts to cause the Transferee to provide the Sellers with alternatives that are essentially equivalent in value to the existing obligations of Milestone under this Technology Sale Agreement.

11.            Headings . The descriptive headings used and inserted in this Agreement are for convenience only and shall not be deemed to affect the meaning or construction of any provisions hereof.




12.            Entire Agreement . This Agreement and any documents or agreements executed by the parties simultaneously herewith constitute the entire understanding and agreement of the parties hereto with respect to the sale of the rights described herein and supersede all other prior agreements or understandings, written or oral, between the parties with respect thereto. This Agreement may not be amended except by a writing signed by Milestone and the Sellers.

N WITNESS WHEREOF, the parties hereto have executed this Technology Sale Agreement as of the day and year first above written.

 
                   MILESTONE SCIENTIFIC, INC.
 
                   By: /s/ Leonard Osser                
                   Leonard Osser, CEO
 
                       /s/ Claudia Hochman DDS                 
                   Claudia Hochman, D.D.S.
 
                       /s/ Mark Hochman DDS                
                   Mark Hochman, D.D.S.


SECOND ADDENDUM TO LEASE

BETWEEN:           LIVINGSTON CORPROATE PARK ASSOCIATES, L.L.C.
                               A Limited Liability Company of the State of the New Jersey
                               820 Morris Turnpike, Suite 301
                               Short Hills, New Jersey 07078
                               (hereinafter referred to as “Landlord”)

AND:                     MILESTONE SCIENTIFIC
                               220 South Orange Avenue, First Floor
                               Livingston, New Jersey 07039
                               (hereinafter referred to as “Tenant”)

PROPERTY:         220 South Orange Avenue, First Floor
                               Livingston, New Jersey 07039

DATED:                April   28   , 2004

   

   
               This Second Addendum to Lease is intended to supplement the Lease Agreement dated November 25, 1996 and Addendum to Lease dated March 2002 between the Landlord and Tenant. The terms contained in this Second Addendum will be as effective as if they were typewritten in the Lease Agreement and prior Addendum. In the event there is any conflict between the Lease Agreement as amended and this Second Addendum, the provisions of this Second Addendum will prevail. As used in this Addendum, the words “this Lease” will mean the Lease Agreement as amended to which this Second Addendum is attached as modified below:             
  
1. The term of the Lease is hereby extended to June 30, 2009.
   
2.
The leased premises currently consisting of approximately 2,693 rentable square feet (“Existing Space”), shall be increased by Landlord by 1,810 rentable square feet (“Expansion Space”) bringing the total rentable square footage leased to Tenant to 4,503 rentable square feet of leased office space.
   
3.
Upon execution of this Second Addendum, Tenant’s rent for the Existing Space shall be decreased from five thousand one hundred sixty-one dollars and fifty-eight cents ($5,161.58) per month to four thousand three hundred seventy-six dollars and twelve cents ($4,376.12) per month, until such time that the Expansion Space is delivered to Tenant.
   
4.
Upon delivery of the substantially completed Expansion Space, the Tenant’s basic rent shall be increased to Seven Thousand Three Hundred Seventeen Dollars and Thirty-Seven Cents ($7,317.37) per month.
   
5.
In addition to the basic rent indicated in Paragraphs 3 and 4 above, the Tenant shall be responsible for Tenant’s proportionate share of all charges, including but not limited to Real Estate Taxes based on both the existing and increased square footage of the Expansion Space, as provided for in the Tenant’s Lease Agreement.
   
6.
Upon execution of this Lease Addendum, the Tenant shall deposit with the Landlord the sum of Three Thousand Two Hundred Seventy-Seven Dollars and Eighty-Seven Cents ($3,277.87) to be added to the existing security deposit of Four Thousand Thirty-Nine Dollars and Fifty Cents ($4,039.50), bringing the total amount of Tenant’s security deposit to Seven Thousand Three Hundred Seventeen Dollars and Thirty-Seven Cents ($7,317.37) security for the payment of rent hereunder and the full and faithful performance by the Tenant of the covenants and conditions on the part of the Tenant to be performed. Said security shall be returned to the Tenant without interest, after the expiration of the term hereof as may be extended, provided that the Tenant has fully and faithfully performed all such covenants and conditions and is not in arrears in rent. During the term hereof, the Landlord may, if the Landlord so elects, have recourse to such security, to make good any default by the Tenant, in which event the Tenant shall, on demand, promptly restore said security to this original amount. Liability repay said security to the Tenant shall run with the reversion and title to said premises, whether any change in ownership thereof be by voluntary alienation or as the result of judicial sale, foreclosure or other proceedings, or the exercise of a right of taking or entry by any mortgagee. The Landlord shall assign or transfer said security, for the benefit of the Tenant, to any subsequent owner or holder of the

 


 
revision of title to said premises, in which case the assignee shall become liable for the repayment thereof as herein provided, and the assignsor shall be deemed to be released by the Tenant from all liability to return such security. This provision shall be applicable to every alienation or change in title and shall in no wise be deemed to permit the Landlord to retain the security after termination of the Landlord’s ownership of the revision or title. The Tenant shall not mortgage, encumber or assign said security without the written consent of the Landlord.
   
7.
Tenant shall accept the Expansion Space in “as is” condition, with the exception of Landlord renovating the premises pursuant to Exhibits C and C-1 attached to this Addendum.
   
8.
All other terms and conditions of the Lease Agreement entered into between Landlord and Tenant dated November 25, 2004 as amended in March 2002 shall remain in full force and effect except as amended herein.
   
  IN WITNESS WHEREOF, the parties hereto set their hands and seals on the date indicated above.
   
WITNESS OR ATTEST :     LIVINGSTON CORPORATE PARK
ASSOCIATES, L.L.C. -LANDLORD
 
         
    :  
         
      MILESTONE SCIENTIFIC - TENANT  
         
     

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference of our report dated February 22, 2005 except as to Note R, the date of which is March 31, 2005, on our audit of the consolidated financial statements of Milestone Scientific, Inc. and Subsidiaries as of December 31, 2004 and for the year then ended included in this Annual Report on Form 10-KSB, in the following Registration Statement previously filed by Milestone with the Securities and Exchange Commission pursuant to the Securities Act of 1933 on Form S-3 (SEC File no. 333-118807). We also consent to the reference to our firm as experts in Form S-3.

/s/ Eisner LLP

New York, New York
April 1, 2005

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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Our report on our audit of the consolidated financial statements of Milestone Scientific, Inc. and Subsidiaries for the year ended December 31, 2003, included in this Annual Report on Form 10-KSB for the year ended December 31, 2004 is dated March 26, 2004. We consent to the incorporation by reference of our report in the following Registration Statements previously filed by Milestone Scientific, Inc. with the Securities and Exchange Commission pursuant to the Securities Act of 1933, Form S-3 (SEC File No.333-39784) and Form S-3 (SEC File no. 333-118807).

/s/ J.H. Cohn LLP

Roseland, New Jersey
March 30, 2005

42

Exhibit 31.1

CERTIFICATION

I, Leonard Osser, certify that:

1. I have reviewed this annual report on Form 10-KSB of Milestone Scientific, Inc. ("the registrant").

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant`s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and

5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2005

                                          /s/ Leonard Osser
                                          -----------------
                                          Leonard Osser
                                          Chairman and Chief Executive Officer

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Exhibit 31.2

CERTIFICATION

I, Kevin T. Lusardi, certify that:

1. I have reviewed this annual report on Form 10-KSB of Milestone Scientific, Inc. ("the registrant").

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant`s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2005

                                      /s/ Kevin T. Lusardi
                                      --------------------
                                      Kevin T. Lusardi
                                      Vice President & Chief Financial Officer

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Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Milestone Scientific, Inc. on Form 10-KSB for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leonard Osser, Chief Executive Officer of Milestone, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Milestone.

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

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Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Milestone Scientific, Inc. on Form 10-KSB for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin T. Lusardi, Chief Financial Officer of Milestone, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Milestone.

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

46