Stock Compensation Plans

6 Months Ended

Jul. 03, 2011

Stock Compensation Plans

2.         Stock Compensation Plans:

At July 3, 2011, options for 35,040 shares are available for future grants to officers, key employees, and other individuals under the Company’s Stock Option Plans.  The option price and terms are recommended by the Company’s Compensation Committee to the Company’s Board of Directors for approval.  The maximum contractual term of an option is ten years.  The options granted may qualify as incentive stock options (“ISO’s”).  Compensation expense related to stock options granted is recognized ratably over the vesting period of the option.  The Company issues new shares upon the exercise of stock options.

The Company recorded the following stock-based compensation expense in the Consolidated Statement of Operations (in thousands):

	3 Months Ended					6 Months Ended
	7/3/11			7/4/10		7/3/11			7/4/10
Cost of sales	$	2		$	3	$	4		$	6
Selling and advertising		1			1		3			3
General and administrative		3			5		6			12
Research and development		2			2		3			5
Pre-tax stock-based compensation expense		8			11		16			26
Income tax (benefit)		(1	)		-		(1	)		(1	)
Net stock-based compensation expense	$	7		$	11	$	15		$	25

The estimated fair value of each option grant is determined on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions for stock option grants during the six months ended July 4, 2010 listed in the table below.  No options were granted during the six months ended July 3, 2011.

	2010
Stock options granted	60,000
Weighted-average exercise price	$ 1.32
Weighted-average grant date fair value	$   .55
Assumptions:
Risk-free interest rate	2.4	%
Expected volatility	46	%
Expected term in years	4.8
Expected dividend yield	0	%

The risk-free interest rate is based on the yield on zero-coupon U.S. treasury securities at the time of grant for a period commensurate with the expected term.  The expected volatility is calculated using the Black-Scholes model based on the historic prices for a period commensurate with the expected term.  The expected term of the option is determined by using historical data.

A summary of the activity under all the Company’s stock option plans as of July 3, 2011 and the changes during the six month period then ended are as follows:

	Number of  Shares			Weighted-  Average Exercise Price  Per Share		Weighted-  Average Remaining Contractual  Life  In Years		Aggregate  Intrinsic  Value
Outstanding at December 31, 2010		495,403		$	1.29
Options granted		0
Options exercised		(21,679	)		1.35
Options forfeited or expired		(3,852	)		1.10
Outstanding at July 3, 2011		469,872		$	1.29		3.2	$	677,600
Exercisable at July 3, 2011		370,774		$	1.26		3.2	$	544,220

A summary of the status of the Company’s nonvested stock options as of July 3, 2011 and the changes during the six month period then ended are as follows:

	Shares			Weighted-Average  Grant-Date  Fair Value
Nonvested at December 31, 2010		128,195		$	.68
Granted		-			-
Vested		(29,097	)		.80
Forfeited		-			-
Nonvested at July 3, 2011		99,098		$	.64

At July 3, 2011, there was approximately $37,000 of total unrecognized compensation cost related to nonvested stock options granted.  That cost is expected to be recognized as follows: $14,000 in 2011, $21,000 in 2012, and $2,000 in 2013.  The total grant-date fair value of stock options that vested during the six months ended July 3, 2011 was $23,200.