NOTE K — STOCK OPTION PLANS

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 750,000 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.

In December 2007, the Board of Directors authorized Milestone to issue up to $2 million of its common stock to vendors or employees, and to grant them piggy back registration rights in the usual form, at a value of not less than 90% of the market value on the date of the agreement for the vendor or employee to accept said shares. Such future shares are not included in the above noted shares reserved for future issuance.

In November 2009, the Board of Directors authorized 666,667 options be reserved for a special bonus to the Chief Executive Officer of the Company, for obtaining a three year purchase order for the sale of 12,000 STA Instruments and related handpieces over a four year period. These options were reserved and 73,333 were granted but not vested in 2010. The remaining 593,334 were reserved until specific performance targets are achieved. The options will be issued upon achievement of the specific target on a yearly basis. The options were valued at $1.49 per share. The full performance requirements, for the 73,333 options, were met in 2013. Such options are fully vested as of December 31, 2013. The 593,334 options were cancelled in December 2013 due to expiration of the contract that gave rise to the granting of the options.

In June 2011, the Shareholders of the Company approved the 2011 Stock Option Plan (the “2011 Plan”) that provides for stock options to our employees, directors and consultants and incentive and non-qualified stock options to purchase up to 2,000,000 shares of common stock. Such future shares are included in the above noted shares reserved for future issuances.

A summary of option activity for employees under the plans as of December 31, 2013 and 2012, and changes during the year then ended is presented below:

	Number of Options			Weighted Averaged Exercise Price $		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Options Value $
Outstanding, January 1, 2012		1,139,282			0.89		3.62		-
Granted		211,459			0.95		4.38		-
Exercised		-			-		-		-
Forfeited or expired		(67,000	)		1.58		-		-
Outstanding, December 31, 2012		1,283,741			0.79		3.07		-
Exercisable, December 31, 2012		849,066			0.81		2.43		-
Granted		309,090			1.62		5.00
Exercised during 2013		(56,666	)		-		-		-
Forfeited or expired		(51,666	)		0.99		-		-
Outstanding, December 31, 2013		1,484,499			1.03		2.88		996,554
Exercisable, December 31, 2013		1,115,006			0.97		2.41		818,531

	Number of Options			Weighted Averaged Exercise Price $
VESTED OPTIONS
Outstanding, January 1, 2012		638,176			0.89
Exercised during 2012		-			-
Vested Options during 2012		277,222			0.92
Forfeited during 2012		(66,332	)		1.58
Outstanding, December 31, 2012		849,066			0.81
Exercised during 2013		(56,666	)		-
Vested Options during 2013		367,272			1.19
Forfeited during 2013		(46,666	)		0.96
Outstanding, December 31, 2013		1,115,006			0.97
NONVESTED OPTIONS
Nonvested, January 1, 2012		501,106			0.90
Granted during 2012		211,459			0.95
Vested during 2012		(277,222	)		0.92
Forfeited during 2012		(668	)		1.15
Nonvested, December 31, 2012		434,675			0.91
Granted during 2013		309,090			1.62
Vested during 2013		369,272			1.19
Forfeited during 2013		(5,000	)		1.00
Nonvested, December 31, 2013		369,493			1.22

Milestone recognizes compensation expense on a straight line basis over the requisite service period and in case of performance based options over the period of the expected performance. During the years ended December 31, 2013 and 2012 Milestone recognized $219,196, and $142,770 of total employee compensation cost related to options that vested each year, respectively. As of December 31, 2013 and 2012, there was $400,212 and $169,764 of total unrecognized compensation cost related to non-vested options which Milestone expects to recognize over a weighted average period of 1.60 years and 1.60 years for December 31, 2013 and December 31, 2012, respectively.

A summary of option activity for non-employees under the plans as of December 31, 2012 and 2013, and changes during the year ended is presented below:

	Number of Options			Weighted Averaged Exercise Price $		Weighted Average Remaining Contracted Life (years)		Aggregate Intrinsic Options Value $
Outstanding, January 1, 2012		414,999			1.87		1.43		-
Exercisable, December 31, 2012		399,443			1.90		1.36		-
Granted during 2012		100,000			-		-		-
Forfeited during 2012		(175,000	)		1.79		-		-
Outstanding, December 31, 2012		239,999			1.56		1.32		-
Exercisable, December 31, 2012		234,442			1.57		-		-
Forfeited during 2013		(66,667	)		2.50		-		-
Outstanding, December 31, 2013		173,332			0.48		0.59		210,833
Exercisable, December 31, 2013		173,332			0.48		0.59		210,833

	Number of Options			Weighted Averaged Exercise Price $
VESTED OPTIONS
Outstanding, January 1, 2012		399,443			1.90
Exercised during 2012		-			-
Vested during 2012		9,999			1.10
Forfeited during 2012		175,000			1.79
Outstanding, December 31, 2012		234,442			1.57
Exercised during 2013		-			-
Vested during 2013		5,557			1.27
Forfeited during 2013		6,667			2.50
Outstanding, December 31, 2013		173,332			0.48
NONVESTED OPTIONS
Nonvested January 1, 2012		15,556			1.16
Granted during 2012		-			-
Vested during 2012		(9,999	)		1.10
Forfeited during 2012		-			-
Nonvested December 31, 2012		5,557			1.27
Granted during 2013		-			-
Exercised during 2013		-			-
Vested during 2013		5,557			1.27
Outstanding, December 31, 2013		-			-

The fair value of the options was estimated on the date of grant using the Black Scholes option-pricing model. For the year ended December 31, 2013, the following weighted average assumptions were used in calculating fair value; expected life of 3 years; volatility of 117.82 and risk-free interest rate of 1.64%. There were no non-employee options granted for the year ending December 31, 2012. During the year ended December 31, 2013 and 2012, Milestone recognized $0.00 and $2,217 of expense related to non-employee options that vested, respectively. The total unrecognized compensation cost related to nonvested options was $0.00 as of December 31, 2013 and 2012.