Stock Options

12 Months Ended

Jun. 29, 2014

Stock Options

Stock Options

NOTE H - STOCK OPTIONS:

In June 2005, the 2005 Employee Incentive Stock Option Award Plan (the “2005 Employee Plan”) was approved by the Company’s shareholders with a plan effective date of June 23, 2005.  Under the 2005 Employee Plan, officers and employees of the Company are eligible to receive options to purchase shares of the Company’s common stock.  Options are granted at market value of the stock on the date of grant, are subject to various vesting and exercise periods as determined by the Compensation Committee of the Board of Directors, and may be designated as non-qualified or incentive stock options.  A total of 1,000,000 shares of common stock are authorized for issuance under the 2005 Employee Plan.  During the 2014 fiscal year, options to purchase 139,228 shares were granted under the 2005 Employee Plan.  Also during the 2014 fiscal year, 39,144 shares of common stock were issued upon the exercise of options.  As of June 29, 2014, there were 471,828 shares available to be issued under the plan.

The shareholders also approved the 2005 Non-Employee Directors Stock Award Plan (the “2005 Directors Plan”) in June 2005, to be effective as of June 23, 2005.  Directors not employed by the Company are eligible to receive stock options under the 2005 Directors Plan.  Options for common stock equal to twice the number of shares of common stock acquired during the previous fiscal year, up to 40,000 shares per year, are automatically granted to each non-employee director on the first day of each fiscal year.  Options are granted at market value of the stock on the first day of each fiscal year, with vesting periods beginning at a minimum of six months and with exercise periods up to ten years.  A total of 650,000 shares of Company common stock are authorized for issuance pursuant to the 2005 Directors Plan as amended.  During the 2014 fiscal year, 8,664 options were granted under the 2005 Directors Plan, all of which were outstanding at June 29, 2014.  As of June 29, 2014, there were 207,830 shares available to be issued under the plan.

A summary of stock option transactions under all of the Company’s stock option plans and information about fixed-price stock options is as follows:

	Year Ended
	June 29, 2014					June 30, 2013
				Weighted-					Weighted-
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Outstanding at beginning
of year		851,306		$	2.54		486,506		$	2.80
Granted		147,892		$	4.92		464,800		$	2.70
Exercised		(39,144	)	$	2.12		-
Forfeited/Canceled/Expired		(38,856	)	$	3.15		(100,000	)	$	4.72
Outstanding at end of year		921,198		$	2.92		851,306		$	2.54
Exercisable at end of year		473,659		$	2.43		459,439		$	2.42
Weighted-average fair value of
options granted during the year				$	3.64				$	1.29
Total intrinsic value of
options exercised				$	82,845				$	-

At June 29, 2014, the total intrinsic value of options outstanding was $3.1 million and of options exercisable was $1.2 million.

The following table provides information on options outstanding and options exercisable as of June 29, 2014:

	Options Outstanding			Options Exercisable
		Weighted-
		Average
	Options	Remaining	Weighted-	Options	Weighted-
Range of	Outstanding	Contractual	Average	Exercisable	Average
Exercise Prices	at June 29, 2014	Life (Years)	Exercise Price	at June 29, 2014	Exercise Price
$1.55 - 1.95	136,506	5.2	$1.90	136,506	$1.90
$1.96 - 2.35	130,000	4.0	$2.32	130,000	$2.32
$2.36 - 2.75	412,000	8.2	$2.57	88,000	$2.65
$2.76 - 3.30	115,000	6.4	$3.13	115,000	$3.13
$3.31 - 3.81	41,528	8.5	$3.81	4,153	$0.00
$5.51 - 5.74	8,664	0.7	$5.74	-	$0.00
$5.95 - 6.05	62,500	9.8	$6.02	-	$0.00
$8.16	15,000	9.4	$8.16	-	$0.00
	921,198	7.0	$2.92	473,659	$2.43

 We determine fair value following the authoritative guidance as follows:

Valuation and Amortization Method.  We estimate the fair value of share-based awards granted using the Black-Scholes option valuation model.  We amortize the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

Expected Life.  The expected life of awards granted represents the period of time that they are expected to be outstanding.  Unless a life is specifically stated, we determine the expected life using the “simplified method” in accordance with Staff Accounting Bulletin No. 110 since we do not have sufficient historical share option exercise experience.

Expected Volatility.  Using the Black-Scholes option valuation model, we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock.

Risk-Free Interest Rate.  We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

Expected Dividend Yield.  We have not paid any cash dividends on our common stock in the last ten years and we do not anticipate paying any cash dividends in the foreseeable future.  Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model.

Expected Forfeitures.  We use historical data to estimate pre-vesting option forfeitures.  We record stock-based compensation only for those awards that are expected to vest.

The following weighted average assumptions were used for options granted or had options been granted:

	June 29,			June 30,
Fiscal Years Ended	2014			2013
Expected life (in years)		6.0			6.0
Expected volatility		42.8	%		48.9	%
Risk-free interest rate		1.5	%		1.1	%
Expected forfeiture rate		58.2	%		61.8	%

The share based compensation expense is included in general and administrative expense in the statement of operations.

At June 29, 2014, the Company had unvested options to purchase 447,539 shares with a weighted average grant date fair value of $2.00.  The total remaining unrecognized compensation cost related to unvested awards amounted to approximately $0.3 million at June 29, 2014.  The weighted average remaining requisite service period of the unvested awards was 21.1 months.  Stock compensation expense of $0.1 million and $0.2 million was recognized in fiscal years 2014 and 2013, respectively.