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STOCK BASED COMPENSATION PLANS

12 Months Ended

Jun. 26, 2016

NOTE H - STOCK BASED COMPENSATION PLANS:

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 were eligible to receive options to purchase shares of the Company's common stock. Options were granted at market value of the stock on the date of grant, were subject to various vesting and exercise periods as determined by the Compensation Committee of the board of directors, and could be designated as non-qualified or incentive stock options. A total of 1,000,000 shares of common stock were authorized for issuance under the 2005 Employee Plan. During the 2015 fiscal year, options to purchase 92,000 shares were granted under the 2005 Employee Plan. Also during the 2015 fiscal year, 3,000 shares of common stock were issued upon the exercise of options granted under the 2005 Employee Plan. The 2005 Employee Plan expired by its terms on June 23, 2015. During fiscal 2016, contingencies were satisfied with respect to options to purchase 18,500 shares of common stock previously conditionally granted under the 2005 Employee 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 were 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, were automatically granted to each non-employee director on the first day of each fiscal year. Options were 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 were authorized for issuance pursuant to the 2005 Directors Plan. During the 2015 fiscal year, 28,800 options were granted under the 2005 Directors Plan. Also during the 2015 fiscal year, 167,200 shares of common stock were issued upon the exercise of options granted under the 2005 Directors Plan. The 2005 Directors Plan expired by its terms on June 23, 2015.

The 2015 Long Term Incentive Plan (the "2015 LTIP") was approved by the Company's shareholders on November 18, 2014, and became effective June 1, 2015. Officers, employees and non-employee directors of the Company are eligible to receive awards under the 2015 LTIP. A total of 1,200,000 shares of common stock are authorized for issuance under the 2015 LTIP. Awards authorized under the 2015 LTIP include incentive stock options, non-qualified stock options, restricted shares, restricted stock units and rights (either with or without accompanying options). The 2015 LTIP provides for options to be granted at market value of the stock on the date of grant and have exercise periods determined by the Compensation Committee of the board of directors. The Compensation Committee may also determine the vesting periods, performance criteria and other terms and conditions of all awards under the 2015 LTIP. The Compensation Committee has adopted resolutions under the 2015 LTIP automatically granting to each non-employee director on the first day of each fiscal year options to purchase twice the number of shares of common stock acquired during the previous fiscal year, up to a maximum of 40,000 shares. Such options are exercisable at the market value of the stock on the first day of the fiscal year, vest six months from the date of grant and expire 10 years from the date of grant. During fiscal 2016, options to purchase 24,286 shares of common stock and 100,190 restricted stock units (representing the right to receive up to 150,285 shares of common stock) were granted under the 2015 LTIP and represent the only awards outstanding thereunder.

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

Stock Options:

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:

	Fiscal Year Ended
	June 26, 2016					June 28, 2015
				Weighted-					Weighted-
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price

Outstanding at beginning
of year		871,798		$	3.51		921,198		$	2.92

Granted		42,786		$	10.92		120,800		$	6.57
Exercised		(27,916	)	$	3.65		(170,200	)	$	2.50
Forfeited/Canceled/Expired		(39,112	)	$	5.67		-		$	-

Outstanding at end of year		847,556		$	3.77		871,798		$	3.51

Exercisable at end of year		558,620		$	2.71		406,378		$	2.63

Weighted-average fair value of
options granted during the year				$	4.24				$	3.16

Total intrinsic value of
options exercised				$	102,010				$	425,944

At June 26, 2016, the total intrinsic value of options outstanding was $8.2 million and of options exercisable was $5.8 million.

The following table provides information on options outstanding and options exercisable as of June 26, 2016:

		Options Outstanding						Options Exercisable
				Weighted-
				Average
		Options		Remaining		Weighted-		Options		Weighted-
Range of		Outstanding		Contractual		Average		Exercisable		Average
Exercise Prices		at June 26, 2016		Life (Years)		Exercise Price		at June 26, 2016		Exercise Price

$	1.55 - 1.95		81,306		3.1	$	1.90		81,306	$	1.90
$	1.96 - 2.35		90,000		2.0	$	2.32		90,000	$	2.32
$	2.36 - 2.75		390,000		6.2	$	2.58		250,000	$	2.58
$	2.76 - 3.30		55,000		6.0	$	3.11		55,000	$	3.11
$	5.51 - 5.74		8,664		7.0	$	5.74		8,664	$	5.74
$	5.95 - 6.25		153,300		7.9	$	6.06		66,150	$	3.40
$	6.26 - 8.16		69,286		8.3	$	9.85		7,500	$	8.12
			847,556		5.9	$	3.77		558,620	$	2.71

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 in the last two fiscal years:

	June 26,	June 28,
Fiscal Year Ended	2016	2015

Expected life (in years)	5.7	5.9
Expected volatility	36.0%	39.1%
Risk-free interest rate	1.6%	1.9%
Expected forfeiture rate	61.8%	47.1%

At June 26, 2016, the Company had unvested options to purchase 288,936 shares with a weighted average grant date fair value of $4.47. The total remaining unrecognized compensation cost related to unvested stock options amounted to approximately $0.2 million at June 26, 2016. The weighted average remaining requisite service period of the unvested awards was 9.3 months. Stock compensation expense related to stock options of $0.2 million and $0.1 million was recognized in fiscal years 2016 and 2015, respectively.

Restricted Stock Units:

Restricted stock units awarded under the 2015 LTIP represent the right to receive shares of common stock upon the satisfaction of vesting requirements, performance criteria and other terms and conditions. During the third quarter of fiscal 2016, an aggregate of 100,190 restricted stock units were granted to certain employees.

The restricted stock units granted to each recipient are allocated among performance criteria pertaining to various aspects of the Company's business, as well as its overall operations, measured based on its fiscal year ending June 24, 2018. Achievement of the various performance criteria entitles the recipient to receive shares of common stock in amounts ranging from 50% to 150% of the number of restricted stock units granted. Grantees of restricted stock units do not have any rights of a stockholder, and do not participate in any distributions on our common stock, until the award fully vests upon satisfaction of the vesting schedule, performance criteria and other conditions set forth in their award agreement. Therefore, unvested restricted stock units are not considered participating securities under ASC 260, "Earnings Per Share," and are not included in the calculation of basic or diluted earnings per share.

Compensation cost is measured as an amount equal to the fair value of the restricted stock units on the date of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with the amount of the expense recognized based on the best estimate of the ultimate achievement level. The grant date fair value of the restricted stock units granted in fiscal 2016 is $5.99 per unit. The Company incurred compensation expense of $33 thousand and recorded no income tax benefit due to a full valuation allowance.

A summary of the status of restricted stock units as of June 26, 2016, and changes during the fiscal year then ended is presented below:

Number of Restricted Stock Units

Vested at June 28, 2015			-
Granted			100,190
Vested			-
Forfeited			20,570
Unvested at June 26, 2016			79,620

As of June 26, 2016, there was $0.2 million of total unrecognized compensation cost related to unvested restricted stock units granted under the 2015 LTIP, of which $79 thousand is expected to be recognized in each of fiscal 2017 and fiscal 2018, and $23 thousand is expected to be recognized in fiscal 2019.