Preheat oven to 350 degrees F. Place sliced almonds in a shallow baking pan. Bake 5 to 7 minutes or until almonds are toasted; set aside to cool completely.
Meanwhile, in a medium bowl, place 1/4 cup softened butter and 1 cup powdered sugar; stir together with a whisk. Stir in in 1 teaspoon milk and a few drops almond extract. Stir until smooth. Stir in additional milk, 1 teaspoon at a time, until frosting reaches spreading consistency.
Spread doughnut holes with frosting and sprinkle with almonds. Let stand until set.