Milestone Scientific Inc. (“Milestone” or the “Company”) was incorporated in the State of Delaware in August 1989.

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

These unaudited financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2007 included in Milestone’s Annual Report on Form 10-KSB. The accounting policies used in preparing these unaudited financial statements are the same as those described in the December 31, 2007 financial statements.

In the opinion of Milestone, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present Milestone’s financial position as of JuneSeptember 30, 2008 and December 31, 2007 and the results of its operations for the sixthree and nine months ended JuneSeptember 30, 2008 and 2007.

The results reported for the three months and sixnine months ended JuneSeptember 30, 2008 are not necessarily indicative of the results of operations which may be expected for a full year.

The Company has incurred operating losses and negative cash flows from operating activities since its inception, including a net loss of $1,089,002$1,275,735 and $1,604,035$2,585,823 for the sixnine months ended JuneSeptember 30, 2008 and 2007, respectively. At JuneSeptember 30, 2008, the Company had cash and cash equivalents and working capital of $260,643$286,020 and $1,487,623,$1,342,830, respectively. Additionally, as discussed in Note 5, on June 28, 2007, the Company secured a revolving line of credit in the aggregate amount of $1,000,000 from a stockholder which line was fully borrowed at December 31, 2007. The Line of Credit was increased by $300,000 to $1,300,000 as of JuneSeptember 30, 2008. All terms and conditions remain unchanged. The Company borrowed $200,000 from the stockholder noted above in July 2008. The borrowing requires a one percent fee at the date of borrowing and an interest rate of six percent per annum, payable at the maturity of the note. The note is due in January 2009 and such amount is included as a current liability in the financial statements at September 30, 2008. The Company is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue based upon management’s assessment of present contracts and current negotiations and reductions in operating expenses; however, the Company does not now have sufficient cash reserves to meet all of its anticipated obligations for the next twelve months. The Company anticipatesHowever, the needinternal sales growth targets have been achieved for a higher levelthe first nine months of marketingthis year and it is anticipated that the future sales efforts that at present it cannot fund.growth targets will be achieved. If the Company is unable to generate positive cash flows from its operating activities it will need to raise additional capital. There is no assurance that the Company will be able to achieve positive operating cash flows or that traditional capital can be raised on terms and conditions satisfactory to the Company, if at all. If additional capital is required and it cannot be raised,future sales growth targets are not achieved, then the Company would be forced to curtail its development activities, reduce marketing expenses for existing dental products and/or adopt other cost saving measures, any of which might negatively affect the Company’s operating results.

The Company’s recurring losses and negative operating cash flows raises substantial doubt about its ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In November 2007, we entered into a collaborative agreementSubsequent to September 30, 2008, the Company borrowed an additional $250,000 from the shareholder noted above with a globally diversified healthcare companyterms and the maturity date the same as the $200,000 noted borrowed in July 2008.

Subsequent to conduct a feasibility study evaluatingSeptember 30, 2008, the potential application of ourCompuFlo technology for injecting certain medicamentsCompany acquired additional patent rights with respect to painless anesthetic injections — specifically rights related to controlling the flow rate or pressure used in providing these injections — through

produced bythe issuance of 260,000 shares of restricted common stock. In connection with this leading company. We have successfully completedacquisition, Milestone terminated its Declaratory Judgment action against Dr. Hodosh related to claimed infringements of his patent rights and Dr. Hodosh agreed to terminate his existing infringement action against the initial study and are now hoping to leverage its findings to progress strategic partnering and product development opportunities with them.Company.

Cash and Cash Equivalents

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

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

Patents are recorded at actual cost to prepare and file the applicable documents with the United States Patent Office, or internationally with the applicable governmental office in the respective country. Although certain patents have not yet been approved, the costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. If the applicable patent application is ultimately rejected, the remaining unamortized balance will be expensed in the period in which the Company receives a notice of such rejection. Patent applications filed and patents obtained in foreign countries are subject to the laws and procedures that differ from those in the United States. Patent protection in foreign countries may be different from patent protection under United States laws and may not be favorable to the Company. The Company also attempts to protect our proprietary information through the use of confidentiality agreements and limiting access to our facilities. There can be no assurance that our program of patents, confidentiality agreements and restricted access to our facilities will be sufficient to protect our proprietary technology.

Revenue from product sales is recognized net of discounts and allowances to our domestic distributors on the date of arrival of the goods at the customer’s location as shipments are FOB destination. Shipments to our international distributors are FOB our warehouse and revenue is therefore recognized on shipment. In both cases, the price to the buyer is fixed and the collectability is reasonably assured. Further, we have no obligation on these sales for any post sale installation, set-up or maintenance, these being the responsibility of the buyer. Customer acceptance is considered made at delivery. Our only obligation after sale is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period.

Royalty income is recognized as earned based on reports received from the licensee and related royalty expense is accrued during the same period.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, 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.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This new standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement does not require any new fair value measurements but provides guidance in determining fair value measurements presently used in the preparation of financial statements. This new standard is

effective for financial statements issued for fiscal years beginning after November 15, 2007. This Standard was adopted as of January 1, 2008 and did not have a significant impact on Milestone’s results of operations or financial position.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial Liabilities -Including—Including an amendment of FASB Statement No. 115”.SFAS No.159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No.159 is effective as of the first fiscal year that begins after November 15, 2007. This Standard was adopted as of January 1, 2008, and did not have any impact on Milestone’s results of operations or financial position.

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.141 (revised), "“Summary No. 141 (revised 2007)”. SFAS No.141 (revised) provides for improving the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial reports about a business combination and its effects. SFAS No.141 (revised) applies prospectively to business combinations for which the acquisition date is on or after December 15, 2008. Milestone is considering the impact of this Statement on its financial statements.

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.160, "“Non-controlling Interest in Consolidated Financial Statements-Statements — and amendment of ARB No. 51”. SFAS No.160 establishes accounting and reporting standards for non-controlling interests, sometimes called minority interests, the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS No.160 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. Milestone is considering the impact of this Statement on its financial statements.

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities — an amendment of FASB No. 133”. This Statement requires enhanced disclosure about an entity’s derivative and hedging activities. The effective date for this Statement is for financial statements issued for fiscal year and interim periods beginning after November 15, 2008. This Statement would not currently impact the financial statements of Milestone Scientific.

In May 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB N0.60. The Statement requires that an insurance enterprise recognize a claim liability prior to an event of default, when the evidence that credit deterioration has occurred in an insured financial obligation. This Statement is effective for fiscal years beginning after December 15, 2008, and interim periods within the fiscal year. This Statement would not currently impact the financial statements of Milestone Scientific.

Milestone presents “basic” earnings (loss) per common share applicable to common stockholders and, if applicable, “diluted” earnings (loss) 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 stockholders by the weighted average number of common shares outstanding and to be issued 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 preferred stock were issued during the period.

Since Milestone had net losses for the three and sixnine months ended JuneSeptember 30, 2008 and 2007, the assumed effects of the exercise of outstanding stock options and warrants were not included in the calculation as their effect would have been anti-dilutive. Such outstanding options and warrants totaled 3,535,4123,537,079 at JuneSeptember 30, 2008 and 3,309,7463,298,413 at JuneSeptember 30, 2007.

Effective January 1, 2006 Milestone adopted SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123” (SFAS No. 123R), under the modified-prospective transition method whereby prior periods will not be restated for comparability. SFAS No. 123R requires all share-based payments to employees, including grants of

During the sixnine months ended JuneSeptember 30, 2008, Milestone recognized $25,477$38,216 of expenses related to non-employee options that vested during the year. The total unrecognized compensation cost related to non-vested options was $ 86,586$73,035 as of JuneSeptember 30, 2008.

As of JuneSeptember 30, 2008, the Fair Market Value of the Company’s stock was less than the exercised price of the options, therefore, there was no aggregate intrinsic value calculated.

In accordance with the provisions of SFAS No.123R, 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 is estimated based on the Black-Scholes option-pricing model, which meets the criteria set forth in SFAS No. 123R, 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 becomes 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.

Milestone’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and trade accounts receivable, and advances to contract manufacturers. Milestone places its cash and cash equivalents with large financial 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, and advances to contract manufacturer. Milestone entered into a purchase agreement, in 2004, with a vendor to supply Milestone with 5,000 units ofCompuDent. As part of this agreement, Milestone has a remaining advance of approximately $977,000$842,000 with the vendor for purchase of materials at JuneSeptember 30, 2008. The advance will be credited to Milestone as the goods are delivered. Milestone does not believe that significant credit risk exists with respect to this advance to the contract manufacturer at JuneSeptember 30, 2008.

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 JuneSeptember 30, 2008.

On June 28, 2007 the Company secured a $1 million line of credit from a stockholder. This borrowing was amended to $1,300,000 as of JuneSeptember 30, 2008 under the same terms and conditions as the original. Borrowings bear interest at 6% per annum, with one year’s interest at 1% payable in advance on each draw. Monies may be drawn by Milestone under the line in multiples of $100,000 upon 5 days’days written notice to you from either Milestone’s Chief Executive Officer or Acting Chief Financial Officer. Monies under the line in excess of $1,000,000 may be drawn in multiples of $25,000. Borrowings may

be prepaid at any time in multiples of $100,000, without penalty. All borrowings and interest thereon must be repaid by June 30, 2010, and after the expiration date of the line, may be repaid by Milestone in cash or, at its option, in shares of common stock valued at the lower of $2.00 per share or 80% of the average closing price of its shares during the 20 trading days ending with December 31, 2008. After December 31, 2008, and before June 30, 2010, the lender may convert all or any part of the then outstanding balance and interest thereon into shares of Common Stock at $4.00 per share. Three year warrants exercisable at $5.00 per share, in an amount determined by dividing 50% of the amount borrowed by $5.00 will be issued on each drawdown. There is no facility fee on the line. The warrants have been valued as of each draw down using the Black-Scholes model and are reflected as a discount against the debt incurred under this line of credit. At JuneSeptember 30, 2008 the remaining balance of Debt Discount was $73,251.$65,325. The full amount of the line of credit and amendment, $1.3 million, has been drawn at JuneSeptember 30, 2008. Interest expense on this Line of Credit for the sixthree and nine months ended JuneSeptember 30, 2008 is $49,592.$23,863 and $73,455, respectively. Accrued interest related to this line of credit was $6,000 and $4,000 at September 30 ,2008 and December 31, 2007, respectively. Additionally, the charge for amortization of Debt Discount related to this Line of Credit is $13,696$21,622 for the sixnine month period ended JuneSeptember 30, 2008.

In January 2007, Milestone finalized an Exclusive Distribution and Supply Agreement with Henry Schein, Inc. Henry Schein, Inc. serving as the exclusive distributor ofSTAandCompuDentsystems (and ancillary products) in both North America and Canada, for a one year period. The exclusive period has expired and the Company has entered alternative marketing and distribution agreements.

The Company has informal arrangements with the manufacturer of ourSTA,CompuDentandCompuMed units, one of the principal manufacturers of our handpieces and for those units pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. The Company has a manufacturing agreement with one of the principal manufacturers of our handpieces pursuant to which they manufacture products under specific purchase orders but without minimum purchase commitments. The Company has established an alternate source of supply for our handpieces in China and other alternate sources of supply exist.

     The following discussions of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Form 10-Q. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. See “Risk Factors” on Part II. ITEM 1A of this Form 10-Q.

     The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Form 10-Q. 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 in our Form-10KSBForm 10-KSB for the year ended December 31, 2007.

     Through strict expense discipline and the implementation of key operational initiatives during the first sixnine months of 2008, the Company was able to make considerable progress with its efforts to achieve two primary strategic business goals for the year:

     In order to succeed in achieving these goals, it is essential that we have the best people possible. In January of 2008, Joseph D’Agostino joined Milestone as our Acting Chief Financial Officer, bringing our Company the skill, talent and experience that are necessary to help us grow and meet critical business plan objectives. HisFollowing a nine month performance assessment by the Board of Directors, Mr. D’Agostino was officially named Milestone’s Chief Financial Officer in October of this year.

     The addition of Joseph D’Agostino to the senior management team has served to strongly complement the hiring of Robert Presutti, who joined Milestone as Vice President of Sales and Marketing in September 2007, and the appointment by our2007. The Board of Directors of former Bayer senior executiveinstalled Joe Martin as our new CEO and Director in December 2007. Joe served as an executive of Bayer for 13 years.

     Through oversight and direction provided by ourThe new leadership team has devoted a great deal of energy and focus on improving all areas of operations. Milestone has succeeded in cutting its total operating expenses by 26% during24%, from $5,457,473 to $4,158,637, in the first halfnine months of 2008, whenthis year compared to the prior year. Moreover, we continuesame nine-month period in 2007. Additionally, the operating losses have been reduced from $2,592,701 to seek and identify opportunities to achieve even greater cost and productivity efficiencies in all areas of our operations.

     Milestone has continued to leverage the product and market intelligence we derived from in-depth customer and dental industry surveying that we conducted in late 2007, to assess and evaluate pricing, positioning and marketing strategies related to our innovative dental injection solution, theSTA System.2007. The insight gained from these studies led management to define and implement a comprehensive new messaging platform for theSTA Systemcreated to emphasize key benefits that Milestone has discovered is of most value to dental professionals. This refined product messaging was launched in January 20082008.

     Based on the fact that Milestone continues to achieve its month-over-month revenue and has subsequently resultedcash flow objectives in a successionkeeping with management’s plan of record monthlyexecution and long term growth strategy, the Company believes its refined product

positioning will continue to resonate with dental professionals worldwide, helping to generate increasingly robust sales results for theSTA System.within our independent distributor network.

     A key 2008 event for Milestone was the first International C-CLAD Summit we sponsoredhosted in New Orleans this past February, where many of the dental industry’s most prominent and respected authorities assembled to review, discuss and

     In June, the Company granted exclusive marketing and distribution rights to two foreign distributors — Istrodent Pty Ltd AB, a leading distributor serving the Southern Africa dental market; and Unident AB, who is now advocating sales of theSTA Systemto dentists in the Scandinavian countries of Denmark, Sweden, Norway and Iceland. Both companies have proven to be among Milestone’s strongest marketing allies outside of the U.S., achieving notable sales performance in their respective regions while supporting our historical worldwide marketing efforts forThe Wand.

     At the FDI Annual World Dental Congress held in Sweden in late September, Unident formally introduced theSTA Systemto the European dental community and enjoyed a strong, favorable response from show attendees.

For the remainder of 2008, managementthe year, the Company will concentratecontinue to focus on expanding Milestone’s worldwide sales and marketing resources to accelerateSTA Systemsales momentum withinaround the U.S. andworld. Particular emphasis will be on establishing defined distribution channels in Canada and around the world.South America. Moreover, we will continue reinforcing and supporting our growing global independent sales and distribution network through training, Milestone-sponsored advertising and marketing campaigns, trade show participation and creative sales incentive programs. We anticipate that our primary challenge going forward will be centered on spreading the ‘right’ message about theSTA, helping to successfully position the instrument as the widely recognized new standard of care for dental anesthesia.

     In keeping with the Company’s stated 2008 goal for leveraging our patentedCompuFlotechnology in new medical applications, Milestone’s management team has also continued to identify and pursue opportunities to form strategic collaborations in the areas of self-administered drug delivery, arthritic joint pain management and epidurals.

     In November 2007, we

new product introduction and research and development expenses. Although the Company anticipates expending funds for research and development in 2008, these amounts will vary based on the operating results for each quarter. The Company has incurred operating losses and negative cash flows from operating activities since its inception. The Company is actively pursuing the generation of positive cash flows from operating activities through increase in revenue, assessment of current contracts and current negotiations and reduction in operating expenses; however the Company does not have sufficient cash reserves to meet all of its anticipated obligations for the next twelve months.

     The technology underlying ourSafetyWandandCompuFlotechnology and an improvement to the controls forCompuDentwere 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, paid on April 1, 2005. In addition, our Director of Clinical Affairs will receive additional deferred contingent payments of 2.5% of our total sales of productsCompDentand Wand Plus units using some of these technologies, and 5% of our total sales of productsSTA units and handpieces using some of our other technologies. If products produced by third parties use any of these technologies, under a license from Milestone, then he will also receive the corresponding percentage of the consideration received by us for such sale or license.

     Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these 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.

set-up or maintenance, these being the responsibility of the buyer. Customer acceptance is considered made at delivery. Our only obligation after sale is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period.

     Royalty income is recognized as earned based on reports received from the licensee and related royalty expense is accrued during the same period.

     For the three months ended JuneSeptember 30, 2008, Milestone’s gross profit increased by 102% over the same three month period in 2007, due to product mix, with higher handpiece sales. For the three month period ending September 30, 2008, Milestone generated a gross profit of $955,453$1,077,817 or 62 %59% as compared to a gross profit of $858,235$533,536 or 48%46% for the three months ended JuneSeptember 30, 2007. The increase in gross profit percentage was due to the product mix of merchandise sold. The total dollar increase in gross profit was $544,281 in 2008. Additionally, included in reduced gross profit for the three months ended September 30, 2007, the Company recorded a write-down of $97,218 is due to a product mix, with more handpiece salesslow moving inventory in 2008 versusthe aggregate of $112,300. Excluding the write down of slow moving inventory, the gross margin would have been 56% for the three months ended September 31, 2007.

     Selling, general and administrative expenses for the sixnine months ended JuneSeptember 30, 2008 and 2007 were $2,839,784$4,039,137 and $3,646,442$5,111,935 respectively. The decrease of $806,658,$1,072,798, or 22.1%21%, is primarily attributable to severalcrossed essentially all business departments. The following discussion highlights the major areas of expense reductions and savings. Insavings in 2008 Milestone received a benefit of reduced bank credit card fees of $42,823 as a result of changing our business model to the exclusive distributor business model. For this period the new product launch expenses were reduced by $303,227 and professional fees were reduced by $509,456 (principally audit fees, legal costs and Sarbanes Oxley documentation and testing procedures). The Company completed the documentation and testing phase of the system of Internal Control in the first quarter of 2008. Royalty and commission expense was lower by $105,913 due to a reduction of commission, based products sold in 2008(nine months ended) as compared to the same period in 2007. There wereMarketing expense decreased by $171,000 due the reduction in the initialSTAlaunch expense in 2007 ($259,000), offset by increased expenses in 2008 in salary and personnel costs of $46,510, based on increased personnel andmedia advertising and promotion cost increase of $65,647. The advertising and promotion costs were($101,000) focused on refining the Company’s messaging platform for theSTAproduct in 2008. General expenses decreased by $920,000 principally in the areas of reduced professional fees ($340,000) based on in house acceptance of certain tasks and lower legal fees. Employment recruiting fees have been reduced by $76,000 due to direct advertising for open positions; bank fees are lower by $43,000, due to our change in business model to a direct distributor business model. Bad debt expense is lower by $69,000, based on lower write-offs of accounts receivable and the Company did not have a loss on disposal of molds and tooling for certain tooth whitening products in 2008 as it did in 2007 ($233,000). Sales expense in 2008 increased by $54,000, principally due to the expense of utilizing an outside sales representative. Salaries for the nine months ended September 2008 increased by $134,000 due the increase of several new positions that did not exist in the same nine month period in 2007.

     Research and development expenses for the sixnine months ended JuneSeptember 30, 2008 and 2007 were $84,319$119,500 and $299,964,$345,538 respectively. TheseThe decreased costs are primarily associated with the development of ourSTAdelivery system product launch in 2007, which is a now complete and continuing effort on theCompuFlo™ technology.

     Interest income of $4,707$6,479 was earned for the sixnine months ended JuneSeptember 30, 2008 compared to $11,135$12,477 for the same period in 2007. The decrease of $6,428$5,998 or 57.7%48% is the result of lower interest rates.rates and lower available excess and invested cash.

     Interest expense for 2008 of $63,287 (interest $49,592$73,455 and amortization of debt issuance $13,696)of $21,622 related to the Line of Credit established in June 2007. See Note B-105 to the Financial Statements

     For the reasons explained above, net loss for the sixnine months ended JuneSeptember 30, 2008 decreased by $515,033$1,310,088 or 32.1%51% over the net loss for the sixnine month period ended JuneSeptember 30, 2007.

     Working capital as of JuneSeptember 30, 2008 was $1,487,623,$1,342,830, a decrease of $33,502$690,162 as compared to June 30,December 31, 2007. Current assets declined by $695,739$1,339,486 (principally in cash, accounts receivable, inventory and inventory)advances to contract manufacturer). Current liabilities decreased by $662,237,$649,324, principally by reducing extended termed accounts payable ($1,027,461) by payment.payment, offset by a new Note Payable-Short Term borrowing of $200,000, see Note 5. Long term accounts payable ($443,847) was extinguished through the issuance of common stock in the first quarter of 2008. The source of funds to reduce the accounts payable was through the borrowing by the Company on a Line of Credit; see Note 5 to the financial statement.Financial Statements. Long termed liabilities increased to $1,300,000 in the secondthird quarter of 2008, as a result of the Company receiving aan additional borrowing on the Line of Credit from a shareholder; see Note B-105 to the Financial Statements. There were no Long Term Liabilities as of June 30, 2007.

     As of JuneSeptember 30, 2008, we had cash and cash equivalents of $260,643$286,020 and working capital of $1,487,623.$1,342,830. The working capital decreased by $545,369$690,162 from December 31, 2007. Net current assets decreased by approximately $1.1$1.3 million, principally in cash, inventories and inventories, while currentadvances to contract manufacturer, offset by an increase in accounts receivable of $397,416. Current liabilities decreased by net $567,978,$649,324, principally by a reduction in accounts payable.payable of $1,027,461 offset by an increase in Notes Payable — Short Term of $200,000 (Note 5). The reduction in cash was attributable to the pay down of accounts payable in the sixnine months ended JuneSeptember 30, 2008. The Company has taken positive steps to reduce inventory levels and will continue this effort in the future. Milestone incurred net losses of $1,089,002$1,275,735 and $1,604,035$2,585,823 and negative cash flows from operating activities of $581,304$693,166 and $998,422$1,412,387 for the sixnine months ended JuneSeptember 30, 2008 and 2007, respectively.

     For the sixnine months ended JuneSeptember 30, 2008, net cash used in operating activities was $589,054.$693,166. This was attributable primarily to a net loss of $1,089,002$1,275,735 adjusted for noncash items of $873,320,$428,365, and changes in operating assets

and liabilities of $365,622.$154,206. The increase in noncash items is principally common stock and options issued for employee compensation, consulting and vendor services.

     For the sixnine months ended JuneSeptember 30, 2008, Milestone used $195,306$265,819 in investing activities. This wasactivities, primarily attributable to $198,760 of legal fees related to newpayment for patent applications. Capital expenditures were $4,296.rights.

As of JuneSeptember 30, 2008, Milestone recorded on the Balance Sheet a $1.3 million Line of Credit from a stockholder. The full credit line was utilized at JuneSeptember 30, 2008. The Company borrowed $200,000 from the stockholder noted above in July 2008. The borrowings require a one percent fee at the date of borrowing and an interest rate of six percent per annum, payable at the maturity of the note. The note is due in January 2009 and such amount is included as a current liability in the financial statements at September 30, 2008. Subsequent to JuneSeptember 30, 2008, the line of credit was increased by

On August 24, 2007In October 2008, Milestone commenced aannounced that it acquired additional patent rights with respect to painless anesthetic injections — specifically rights related to the flow rate or pressure used in providing these injections — through the issuance of 260,000 shares of restricted common stock. In connection with this acquisition, Milestone also agreed to terminate its Declaratory Judgment Actionaction against Dr. Milton Hodosh DMD in the United States District Court for the Districtrelated to claim infringements of New Jersey seeking a determination by that Court that neither itsSingle Tooth Anesthesia (STA) Systemnor itsCompuDentsystem infringed claims set forth in United States Patent No. 6,159,161 byhis patent rights and Dr. Hodosh on July 8, 1998 and issued byagreed to terminate his existing infringement action against the United States Patent Office on December 12, 2000. Milestone’s basic patents covering these systems were issued by the United States Patent Office in January 1993. Subsequent to the commencement of Milestone’s actionMilestone. Each party is responsible for Declaratory Judgment, Dr. Hodosh commenced a patent infringement suit in the United States District Court for the Southern District of New York. Milestone has received opinions from patent counsel, not involved in the litigation, to the effect that neither theSTA Systemnor theCompuDentsystems infringe any of the claims of Dr. Hodosh’s patents. Milestone believes that it has meritorious defenses to Dr. Hodosh’s action and it intends to vigorously defend this law suit. The case is currently in the discovery phase.their own legal fees.

     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:

For the sixnine months ended JuneSeptember 30, 2008 and 2007 our revenues were approximately $2.9$4.8 million and $4.1$5.3 million respectively. In addition, we have had losses for each year since the commencement of operations, including net losses of approximately $1,089,000$1,275,735 and $1,604,000$2,585,823 for the nine months ended September 30, 2008 and 2007, respectively. At JuneSeptember 30, 2008, we had an accumulated deficit of approximately $57.1$57.3 million. At JuneSeptember 30, 2008, the Company had cash and cash equivalents $260,643$286,020 and working capital of $1,487,623.$1,342,830. Additionally, the Company secured a Line of Credit in the aggregate amount of $1.3 million from a stockholder as of JuneSeptember 30, 2008, as discussed in Note 5. SubsequentThe Company borrowed $200,000 from the stockholder noted above in July 2008. The borrowings require a one percent fee at the date of borrowing and an interest rate of six percent per annum, payable at the maturity of the note. The note is due in January 2009 and such amount is included as a current liability in the financial statements at September 30, 2008. In October 2008, subsequent to June 30, 2008, the Line of Credit was increased by $200,000 to $1,500,000.Financial Statement date, the Company borrowed an additional $250,000 from the stockholder above. The terms and maturity date of this borrowing is identical to the $200,000 note are not finalized at this date, but the terms of the new borrowing are not anticipated to be substantially different from the previous loan agreement.in July 2008. The Company is actively pursuing the generation of positive cash flows from operating activities through increases in revenues based upon management’s assessment of present contracts and current negotiations and reductions in operating expenses; however, the Company does not now have sufficient cash reserves to meet all of its anticipated obligations for the next 12 months. The Company anticipates a needHowever, the internal sales growth targets have been achieved for a higher levelthe first nine months of marketingthis year and it is anticipated that the future sales efforts that at present it cannot fund.growth targets will be achieved. If the Company is unable to generate positive cash flows from its operating activities it will need to raise additional capital. There is no assurance that the Company will be able to achieve positive operating cash flows or that additional capital can be raised on the terms and conditions satisfactory to the Company if at all. If additional capital is required and it cannot be raised,future sales growth targets are not achieved, then the Company would be forced to curtail its development activities, reduce marketing expenses for existing dental products and/or adopt other cost savings measures , any of which might negatively affect the Company’s operating results.

     The Company’s recurring losses and negative operating cash flows raise substantial doubt about its ability to continue as a going concern.

     There are no other changes to our risk factors from those disclosed in our Annual Report on Form 10-KSB for the year ended December 31, 2007.

Recent Sales of Unregistered Securities

     In the quarter ended JuneSeptember 30, 2008, Milestone issued total 106,88676,528 shares valued at $94,583$42,125 as follows: