NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

With respect to options granted to an employee or service provider who, at the time of grant owns stock representing more than 10% of the voting power of all classes of stock of the Company; the per share exercise price shall be no less than 110% of the fair market value on the date of grant.

With respect to options granted to an employee or service provider other than described in the preceding paragraph, the exercise price shall be no less than 100% for incentive stock options and 85% for non-statutory stock options of the fair market value on the date of grant.

As of October 29, 1999, 275,000 options were outstanding at an exercise price of $10.00 per share. During fiscal year 2000, 25,000 options with a weighted average exercise price of $10.00 were cancelled. As November 1, 2002, 250,000 options were outstanding at an exercise price of $10.00 per share.

The following balances are reflected as of Nov. 1, 2002:

Options Outstanding								Options Exercisable
Exercise price		Shares		Weighted average remaining life (years)		Weighted average exercise price		Shares		Weighted average exercise price
$10		250,000		6.5		$10		187,500		$10

The Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 (“FAS 123”). As permitted by FAS 123, the Company measures compensation cost in accordance with APB 25. Therefore, the adoption of FAS 123 had no impact on the Company’s financial condition or results of operations. Had compensation cost for the Company’s Stock Option Plan been determined based on the fair value of the options consistent with FAS 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):

			2002		2001		2000
Net Income	As reported		$1,138		$6,244		$8,766
	Pro forma		$991		$6,007		$8,506
Basic Earning Per Share
	As reported		$.11		$.59		$.80
	Pro forma		$.09		$.57		$.78

The fair value of compensatory stock options was estimated using the Black-Scholes option pricing model using the following weighted average assumptions:

NOTE 4 - INCOME TAXES:

The provision for taxes on income includes the following:

		(in thousands)
		2002		2001		2000
Current:
Federal		$1,073		$2,830		$4,060
State		145		671		819
		1,218		3,501		4,879
Deferred:
Federal		(398)		292		444
State		313		35		51
		(85)		327		495
		$1,133		$3,828		$5,374

The total tax provision differs from the amount computed by applying the statutory federal income tax rate to income before income taxes as follows:

		(in thousands)
		2002		2001		2000
Provision for federal income taxes at the applicable statutory rate		$772		$3,424		$4,808
State income taxes, net of federal income tax benefit		60		376		521
Effect of change in state statutory rate		270		-		-
Other, net		31		28		45
		$1,133		$3,828		$5,374

Deferred income taxes result from differences in the bases of assets and liabilities for tax and accounting purposes

		(in thousands)
		2002		2001
Receivables allowance		$1,679		$319
Inventory capitalization		307		406
Deferred compensation		574		614
Franchise tax		97		148
Employee benefits		1,417		862
Other		(75)		102
Current tax assets, net		$3,999		2,451
Incentive compensation		$775		1,408
Pension and health care benefits		2,420		3,198
Depreciation		(1,216)		(1,165)
Additional accrued minimum pension liability		1,020		-
Non-current tax assets, net		$2,999		3,441

No valuation allowance was provided against deferred tax assets in the accompanying statements.

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