NOTE M — INCOME TAXES

Milestone’s expected federal income tax benefit computed at the statutory rate (40%) on the pre-tax income (loss) amounted to a liability of $255,000 in 2013 and a benefit of $296,000 in 2012. Such expense/benefit was recognized in the accompanying financial statements as of December 31, 2013, with recognition of a net operating loss carryforward. Due to Milestone’s history of past operating losses, which required a full valuation allowances for all of Milestone’s deferred tax assets at December 31, 2013 and 2012, no recognition was given to the utilization of the remaining net operating loss carryforward.

Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at December 31, 2013 and 2012 are as follows:

	2013			2012
Current Assets
Allowance for doubtful accounts-short term	$	2,000		$	72,000
Inventory allowance		-			79,000
Warranty reserve		10,000			10,000
Impairment of Germany Investment		31,000			31,000
Deferred officers compensation		725,000			600,000
Subtotal		768,000			792,000
Valuation allowance		(768,000	)		(792,000	)
Current deferred tax asset	$	-		$	-
Non-current assets
Allowance for doubtful accounts-long term	$	-		$	67,000
Net operating loss carryforward		14,855,000			16,675,000
Subtotal		14,855,000			16,742,000
Valuation allowance		(14,855,000	)		(16,742,000	)
Non-current deferred tax asset	$	-		$	-

As of December 31, 2013 and 2012, Milestone has federal net operating loss carryforwards of approximately $43,596,000 and $48,537,000, respectively that will be available to offset future taxable income, if any, through December 2032. Milestone has state net operating losses of $515,000 and $2,875,000 in 2013 and 2012, respectively, expiring through December 2029.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 carry forwards before their utilization. Milestone has established a 100% valuation allowance for all of its deferred tax assets due to uncertainty as to their future realization.

A reconciliation of the statutory tax rates for the years ended December 31, is as follows:

	2013			2012
Statutory rate		(34	)%		(34	)%
State income tax - all states		(6	)%		(6	)%
		(40	)%		(40	)%
Current year valuation allowance		40	%		40	%
Benefit for income taxes		0	%		0	%

Accounting for Uncertain Tax Positions:

Milestone follows the Income Taxes Topic of the FASB Accounting Standards Codification, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, disclosure and transition. At December 31, 2013, no significant income tax uncertainties have been included in Milestone’s Balance Sheets. Milestone’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2010, 2011, and 2012 years are subject to audit by federal and state jurisdictions.