-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L5BrLvfonpitNTKyWHwEmH6DXTGRlm4UmA5a/QBGjZRwAhvKawiMSeadBrUkRRDX bShQJSbWprHa6tGaIqJv3Q== 0001157523-03-006399.txt : 20031107 0001157523-03-006399.hdr.sgml : 20031107 20031107071528 ACCESSION NUMBER: 0001157523-03-006399 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030928 FILED AS OF DATE: 20031107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALPEY FISHER CORP CENTRAL INDEX KEY: 0000085608 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 060737363 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04184 FILM NUMBER: 03983594 BUSINESS ADDRESS: STREET 1: 75 SOUTH ST CITY: HOPKINTON STATE: MA ZIP: 01748 BUSINESS PHONE: 5084359039 MAIL ADDRESS: STREET 1: 75 SOUTH STREET CITY: HOPKINTON STATE: MA ZIP: 01748 FORMER COMPANY: FORMER CONFORMED NAME: MATEC CORP/DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: RSC INDUSTRIES INC DATE OF NAME CHANGE: 19840515 FORMER COMPANY: FORMER CONFORMED NAME: REEVES INDUSTRIES INC DATE OF NAME CHANGE: 19710520 10-Q 1 a4511420.txt VALPEY-FISHER CORP 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-4184 Valpey-Fisher Corporation (Exact name of registrant as specified in its charter) Maryland 06-0737363 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 75 South St., Hopkinton, Massachusetts 01748 (Address of principal executive offices) (Zip Code) (508) 435-6831 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes [ ] No [X] As of November 7, 2003, the number of shares outstanding of Registrant's Common Stock, par value $.05 was 4,184,815. - 1 -
Valpey-Fisher Corporation INDEX PAGE ----- ---- PART I. FINANCIAL INFORMATION ITEM 1. - Financial Statements Consolidated Condensed Balance Sheets - September 28, 2003 and December 31, 2002 3 Consolidated Statements of Operations - Three Months and Nine Months Ended September 28, 2003 and September 29, 2002 4 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 28, 2003 and September 29, 2002 5 Notes to Consolidated Condensed Financial Statements 6-10 ITEM 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 ITEM 3. - Quantitative and Qualitative Disclosures About Market Risk 14 ITEM 4. - Controls and Procedures 14 PART II. OTHER INFORMATION ITEM 6. - Exhibits and Reports on Form 8-K 15 SIGNATURES 16
- 2 - PART I - FINANCIAL INFORMATION Item 1. Financial Statements Valpey-Fisher Corporation and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except share data)
9/28/03 12/31/02 ------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $4,570 $5,758 Receivables, net 1,948 2,175 Inventories, net 1,523 2,028 Deferred income taxes and other current assets 944 1,110 - ------------------------------------------------------------------------------ ------------------ --------------- Total current assets 8,985 11,071 Property, plant and equipment, at cost 10,734 10,165 Less accumulated depreciation 6,856 6,231 - ------------------------------------------------------------------------------ ------------------ --------------- 3,878 3,934 Other assets 136 146 - ------------------------------------------------------------------------------ ------------------ --------------- $12,999 $15,151 - ------------------------------------------------------------------------------ ------------------ --------------- - ------------------------------------------------------------------------------ ------------------ --------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ - $1,277 Accounts payable 599 270 Accrued liabilities 902 701 Income taxes 113 117 - ------------------------------------------------------------------------------ ------------------ --------------- Total current liabilities 1,614 2,365 Deferred income taxes 619 704 Stockholders' equity: Preferred stock, $1.00 par value- Authorized 1,000,000 shares; issued none - - Common stock, $.05 par value- Authorized 10,000,000 shares; Issued and outstanding: 4,184,815 and 4,207,115 shares 209 210 Capital surplus 5,004 5,080 Retained earnings 5,785 7,067 Less unearned compensation (232) (275) - ------------------------------------------------------------------------------ ------------------ --------------- - ------------------------------------------------------------------------------ ------------------ --------------- Total stockholders' equity 10,766 12,082 - ------------------------------------------------------------------------------ ------------------ --------------- - ------------------------------------------------------------------------------ ------------------ --------------- $12,999 $15,151 - ------------------------------------------------------------------------------ ------------------ --------------- - ------------------------------------------------------------------------------ ------------------ --------------- See notes to consolidated condensed financial statements.
- 3 - Valpey-Fisher Corporation and Subsidiaries Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended 9/28/03 9/29/02 9/28/03 9/29/02 ---------------- ----------------- ------------- -------------- Net sales $ 2,190 $ 1,617 $ 6,081 $ 5,692 Cost of sales 1,933 2,688 5,532 6,624 - -------------------------------------------------- ---------------- ----------------- ------------- -------------- Gross profit (loss) 257 (1,071) 549 (932) Operating expenses: Selling and advertising 287 389 1,033 1,129 General and administrative 565 281 1,460 874 - -------------------------------------------------- ---------------- ----------------- ------------- -------------- 852 670 2,493 2,003 Operating (loss) (595) (1,741) (1,944) (2,935) Other income (loss): Interest income 8 28 40 83 Interest (expense) - (17) (12) (66) Gain on sale of investment - - - 155 - -------------------------------------------------- ---------------- ----------------- ------------- -------------- 8 11 28 172 (Loss) from continuing operations before income taxes (587) (1,730) (1,916) (2,763) Income tax benefit 191 638 634 1,050 - -------------------------------------------------- ---------------- ----------------- ------------- -------------- (Loss) from continuing operations (396) (1,092) (1,282) (1,713) (Loss) from discontinued operations, net of taxes - - - (45) - -------------------------------------------------- ---------------- ----------------- ------------- -------------- Net (loss) $ (396) $ (1,092) $(1,282) $ (1,758) - -------------------------------------------------- ---------------- ----------------- ------------- -------------- - -------------------------------------------------- ---------------- ----------------- ------------- -------------- Basic and diluted (loss) per share: Continuing operations $ (.09) $ (.26) $ (.31) $ (.41) Discontinued operations - - - (.01) - -------------------------------------------------- ---------------- ----------------- ------------- -------------- $ (.09) $ (.26) $ (.31) $ (.42) - -------------------------------------------------- ---------------- ----------------- ------------- -------------- - -------------------------------------------------- ---------------- ----------------- ------------- -------------- Weighted average shares: Basic and diluted 4,185 4,140 4,189 4,144 See notes to consolidated condensed financial statements.
- 4 - Valpey-Fisher Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended ---------------------------- 9/28/03 9/29/02 -------------- ------------- Cash flows from operating activities: Net (loss) from continuing operations $ (1,282) $ (1,713) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization 625 650 Deferred income taxes 63 (217) Net non-cash stock compensation 27 - Gain on sale of investment - (155) Changes in operating assets and liabilities, excluding the effects of the purchase of MF Electronics 1,557 1,863 - ------------------------------------------------------------------------------- -------------- ------------- Net cash provided by operating activities 990 428 - ------------------------------------------------------------------------------- -------------- ------------- Cash flows from investing activities: Purchase of certain MF Electronics' assets (799) - Capital expenditures (117) (136) Collection of note receivables 18 137 Proceeds from sale of assets 65 155 Other, net (8) (8) - ------------------------------------------------------------------------------- -------------- ------------- Net cash provided (used) by investing activities (841) 148 - ------------------------------------------------------------------------------- -------------- ------------- Cash flows from financing activities: Payments on long-term debt (1,277) (303) Purchases of common stock (60) (57) - ------------------------------------------------------------------------------- -------------- ------------- Net cash (used) by financing activities (1,337) (360) - ------------------------------------------------------------------------------- -------------- ------------- Net cash (used) by discontinued operations - (45) - ------------------------------------------------------------------------------- -------------- ------------- Net increase (decrease) in cash and cash equivalents (1,188) 171 Cash and cash equivalents: Beginning of period 5,758 5,960 -------------- ------------- End of period $ 4,570 $ 6,131 -------------- ------------- -------------- ------------- See notes to consolidated condensed financial statements.
- 5 - Valpey-Fisher Corporation and Subsidiaries Notes to Consolidated Condensed Financial Statements 1. Financial Presentation: The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These interim financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company's 2002 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. 2. Stock Compensation Plans: The Company applies the intrinsic value method, Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock option plans. The Company provides the disclosure requirements of Statement of Financial Accounting Standards Nos. 123 and 148, "Accounting for Stock-Based Compensation," and related interpretations and amendments. The Company adopted the disclosure-only option under SFAS No.123 "Accounting for Stock-Based Compensation." The following table illustrates the effect on net (loss) per share if the Company had applied the fair value recognition provisions of SFAS No.123 to stock-based compensation.
Three Months Ended (in thousands, except per share amounts) 9/28/03 9/29/02 - ------------------------------------------------------------------------------- --------------- -------------- (unaudited) Net (loss), as reported $ (396) $ (1,092) Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax benefit (32) (24) --------------- -------------- Pro forma net (loss) $ (428) $ (1,116) =============== ============== Basic and diluted (loss) per share, as reported $ (.09) $ (.26) =============== ============== Basic and diluted (loss) per share, pro forma $ (.10) $ (.27) =============== ==============
- 6 -
Nine Months Ended (in thousands, except per share amounts) 9/28/03 9/29/02 - -------------------------------------------------------------------------------- --------------- -------------- (unaudited) Net (loss), as reported $ (1,282) $ (1,758) Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax benefit (95) (71) --------------- -------------- Pro forma net (loss) $ (1,377) $ (1,829) =============== ============== Basic and diluted (loss) per share, as reported $ (.31) $ (.42) =============== ============== Basic and diluted (loss) per share, pro forma $ (.33) $ (.44) =============== ==============
3. Acquisition: On May 28, 2003, pursuant to an Asset Purchase Agreement dated April 30, 2003, the Company purchased certain assets consisting primarily of inventories, machinery and equipment and the customer order backlog from MF Electronics Corp. ("MF"), a privately held company located in New Rochelle, NY. MF designs and manufactures a wide range of frequency control products. In addition, the Company acquired for cash the net of the May 28, 2003 MF's accounts receivable less trade accounts payable. The purchase price was $798,718 in cash. The results of MF's operations have been included in the consolidated financial statements since the date of acquisition. During the week of June 30, 2003, the purchased assets and operations of MF were moved to the Company's facility located in Hopkinton, MA. The following table presents the allocation of the purchase price, including transaction costs of $50,000, to the assets acquired and liabilities assumed, based on their fair values: (in thousands) Accounts receivable $ 343 Inventory 125 Machinery and equipment 516 Trade accounts payable and accrued expenses (135) ------------------ $ 849 ================== The following unaudited pro forma financial information presents the results of the Company as if the acquisition of MF was completed January 1, 2002. This pro forma financial information is presented for informational purposes and is not necessarily indicative of the Company's operating results if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any anticipated cost savings or operating efficiencies that the Company believes are achievable. - 7 -
(in thousands, except for per share amounts) Three Months Ended Nine Months Ended 9/28/03 9/29/02 9/28/03 9/29/02 ---------------- -------------- ------------------ -------------- Net sales $ 2,190 $ 3,161 $ 7,972 $10,725 Net (loss) (396) (1,241) (1,694) (1,780) Basic and diluted (loss) per share $ (.09) $ (.30) $ (.40) $ (.43)
4. Comprehensive Income (Loss): During the three months and nine months ended September 28, 2003 and September 29, 2002, there were no differences between comprehensive (loss) and net (loss). 5. Receivables, net: Receivables, net of allowances, consist of the following: (in thousands) 9/28/03 12/31/02 ------------------------------------------------------------------------- ------------- ----------- (unaudited) Accounts receivable, less allowance for doubtful accounts of $74 and $200 $ 1,244 $ 776 Refundable income taxes 680 1,375 Other 24 24 ------------- ----------- $ 1,948 $ 2,175 ============= ===========
6. Inventories, net:
Inventories, net of reserves, consist of the following: (in thousands) 9/28/03 12/31/02 ------------------------------------------------------------ ------------- ------------ (unaudited) Raw materials $ 941 $ 1,560 Work in process 388 153 Finished goods 194 315 ------------- ----------- ------------- ----------- $ 1,523 $ 2,028 ============= ===========
7. Discontinued Operations: During 1998, the Company sold the assets of its Bergen Cable Technologies, Inc. subsidiary. As a result of the sale, the Company is performing environmental cleanup at the site. During the first quarter of 2002, the Company expensed $75,000 to increase the environmental expense accrual to reflect the revised estimate to complete the remediation. This after-tax expense of $45,000 is presented in the Consolidated Statements of Operations under the caption "(Loss) from discontinued operations". For the three months and nine months ended September 28, 2003, $3,000 and $19,000, respectively has been paid for the cleanup expenses. At September 28, 2003 accrued liabilities include $104,000 for future payments. These costs represent the Company's best estimate, but the ultimate costs will not be known until the remediation is complete. - 8 - 8. Gain on Sale of Investment: In the first quarter of 2002, the Company received $155,000 in cash and reported this amount as a gain on sale of investment. This cash represented the Company's share of the net escrow balance from the sale of its common stock investment in Bergen Cable Technology, Inc. The Company sold this common stock investment in 2000 and the gain recognized on the sale in 2000 did not include its share of the sale escrow balance, less any claims for indemnity thereon, if any. 9. (Loss) Per Share: The computation of basic and diluted (loss) per share from continuing operations is computed using the weighted average number of common shares outstanding during the three months and nine months ended September 28, 2003 and September 29, 2002. During the three months and nine months ended September 28, 2003, 578,438 of common shares issuable under stock options have not been included in the computation of "Diluted (Loss) per Share". During the three months and nine months ended September 29, 2002, 314,438 of common shares issuable under stock options have not been included in the computation of "Diluted (Loss) per Share". These shares were not included because of the antidilutive effect of the options since the Company reported a loss from continuing operations in these periods. 10. Recent accounting pronouncements In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations", effective for years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted this SFAS effective January 1, 2003. The adoption of this standard had no material effect on the Company's financial position, results of operations and cash flows. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities," which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, is effective for exit activities initiated after December 31, 2002, and requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Previous accounting guidance recognized a liability for an exit at the date of a commitment to an exit plan. The Company adopted this SFAS effective January 1, 2003. The adoption of this standard had no material effect on the Company's financial position, results of operations and cash flows. In November 2002, the FASB issued Interpretation No. (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". The interpretation expands on the accounting guidance of SFAS Nos. 5, 57, and 107 and incorporates without change the provisions of FASB FIN 34, which is being superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees, such as standby letter of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. FIN 45 is effective on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure requirements are effective for interim or annual periods ending after December 15, 2002. The Company adopted this FIN effective January 1, 2003. The adoption of this standard had no material effect on the Company's financial position, results of operations and cash flows. - 9 - In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities". Many variable interest entities have commonly been referred to as special-purpose entities or off-balance sheet structures. Under the interpretation, certain entities known as "Variable Interest Entities" (VIE) must be consolidated by the primary beneficiary of an entity. The primary beneficiary is generally defined as having the majority of the risks and rewards arising from the VIE. For VIE's in which a significant (but not majority) variable interest is held, certain disclosures are required. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The Company adopted this FIN effective January 31, 2003. The adoption of this standard had no material effect on the Company's financial position, results of operations and cash flows. - 10 - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management believes that judgments and estimates related to the following critical accounting policies could materially affect its consolidated financial statements. Accounts receivable - The Company performs on-going credit evaluations of its customers and assesses the collectibility of its accounts receivable based on a number of factors including the customer's financial condition and collection history, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Inventory - The Company estimates the carrying value of its inventory based upon historic usage and management's assumptions relating to projected customer purchases, product design changes and product obsolescence. The changing technology markets that we supply also affect these estimates. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Income Taxes - The Company has recorded deferred tax assets and liabilities resulting from differing treatment of items for tax and financial statement reporting purposes. The Company must estimate its income tax valuation allowance by assessing which deferred tax assets are more likely than not to be recovered in the future. Based on our assessment of the realization of these assets, the Company has recorded a valuation allowance of $833,000 at September 28, 2003. In reaching our conclusion, we evaluated the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the deductibility of the disposal of scrap and worthless inventory, taxable income in prior carryback years and taxable income by jurisdiction in which we operate and the period over which the deferred tax assets would be recoverable. In the event that actual results differ from these estimates in future periods, the Company may need to establish an additional valuation allowance or reduce the valuation allowance, which could materially impact our financial position and results of operations. Liquidity and Capital Resources Cash and cash equivalents decreased $1,188,000 during the nine months ended September 28, 2003. During this period, the Company's continuing operations provided cash of $990,000, investing activities used cash of $841,000 and financing activities used cash of $1,337,000. Cash provided from operations of $990,000 resulted mainly from the net loss of $1,282,000 adjusted for the non-cash effect of depreciation of $625,000 and the $1,557,000 reduction in working capital. The net reduction in working capital, excluding the effects of the acquisition of MF Electronics, was mainly due to a $629,000 decrease in inventory, a $615,000 net decrease in receivables and a $344,000 increase in accounts payable and accrued expenses. The 31% decrease in inventory was mainly due to orders being filled from existing inventory and a continuing control of inventory levels. The net reduction in receivables was mainly attributable to the cash receipt of a $1.4 million income tax refund. - 11 - The Company acquired certain assets and assumed certain trade payables of MF Electronics Corp. for $799,000 in cash during the nine months ended September 28, 2003. During the nine months ended September 28, 2003 the Company used $1,277,000 of cash to pay-off the remaining balance on its term note and $60,000 to purchase and retire 22,300 shares of its common stock. While the Company is projecting a loss in 2003 based on the current conditions in the telecom market, management believes that based on its current working capital and the expected cash flows from operations, the Company's resources are sufficient to meet its financial needs in 2003 including a remaining capital expenditures budget of approximately $125,000. Results of Operations For the quarter ended September 28, 2003, net sales from continuing operations increased $573,000 or 35% over the comparable quarter in 2002. The 2003 quarter includes $448,000 in sales from the MF Electronics product line acquired at the end of May. Excluding the effect of these sales, revenue increased approximately 8% over the 2002 quarter. For the nine months ended September 28, 2003, net sales increased $389,000 or 7% from the comparable period in 2002. The 2002 net sales amount includes sales cancellation charges of approximately $723,000 from two customers. Excluding the effect on net sales from these sales cancellation charges and the 2003 sales generated from the MF Electronics product line, year-to-date sales increased 8% over the 2002 period. The book-to-bill ratio during the nine months ended September 28, 2003 was slightly better than 1 versus 1.1 during the comparable period in 2002. The Company's backlog amounted to $1.7 million at September 28, 2003 compared to $1.1 million at December 31, 2002 and $1.9 million at September 29, 2002. Management believes that the market conditions for the Company's products, in particular those for the telecom market, are slowly starting to stabilize and in fact show modest growth. However, our near-term visibility continues to be poor and we continue to see customer orders for small quantities with near-term delivery dates. Management is not sure of the potential impact on its future operations from the current continuing telecom market uncertainties. The Company reported a $257,000 gross profit (12% of net sales) in the current quarter versus a $1,071,000 gross loss in the 2002 quarter. For the nine months September 28, 2003, the gross profit was $549,000 (9% of net sales) compared to a gross loss of $932,000 for the comparable period in 2002. Without the effect of the gross profit resulting from the sales cancellation charge in 2002, the Company would have reported a $1,149,000 gross loss on sales for the nine months ended September 29, 2002. During the quarter and nine months ended September 29, 2002, the Company recorded a $900,000 inventory provision for excess inventory and a $50,000 provision for employee severance expense. The MF Electronics product line generated approximately $190,000 and $278,000 in gross profit during the quarter and nine months ended September 28, 2003, respectively. During these periods, direct labor and raw material costs, as a percentage of sales, have decreased slightly from the 2002 periods manly due to changes in product mix and yield improvements. Overhead expenses have increased slightly over the 2002 periods mainly as a result of the expenses associated with the MF Electronics product line. During the quarter and nine months ended September 28, 2003, selling and advertising expenses decreased $102,000 and $96,000, respectively, from the comparable periods in 2002. The quarter and nine months ended September 29, 2002 included a $50,000 provision for employee severance expense. In addition, lower advertising and bad debt expenses amounting to $77,000 during the quarter ended and $118,000 during the nine months ended, partially offset by increased sales commission expense to outside manufacturers' representatives of $19,000 during the quarter ended and $47,000 during the nine months ended, contributed to the 2003 expense reductions. - 12 - During the quarter and nine months ended September 28, 2003, general and administrative expenses increased $284,000 and $586,000, respectively, over the comparable 2002 periods. Increased personnel expenses, including the increased personnel costs associated with the MF Electronics product line acquired in late May 2003, were the main reason for the expense increases. During both the quarter and nine months ended September 28, 2003, the decreases in interest income were mainly due to lower average cash balances and lower interest rates during the current year. The decreases in interest expense from the 2002 amounts are mainly due to the Company paying-off the balance of its outstanding term-debt in the first quarter of 2003. During the nine months ended September 29, 2002, the Company received $155,000 in cash and reported this amount as a gain on sale of investment. This cash represented the Company's estimated share of the net escrow balance relating to the sale of the Company's common stock investment in Bergen Cable Technology, Inc. in 2000. The estimated effective federal and state income tax rate for 2003 is 33% compared to 40% in 2002. The difference in the rates is mainly due to the Company providing a valuation allowance for the full amount of the state income tax benefit in 2003 due to the uncertainty of realization. For the quarter ended September 28, 2003, the Company reported an operating loss of $595,000 compared to an operating loss of $1,741,000 in comparable quarter of 2002. The reduction in the 2003 operating loss from the 2002 operating loss was mainly due to the increases in sales and gross margin in 2003, offset in part by higher operating expenses. As a result, the Company reported a net loss from continuing operations of $396,000 during the quarter ended September 28, 2003 compared to a net loss of $1,092,000 in comparable 2002 period. For the nine months ended September 28, 2003, the Company reported an operating loss of $1,944,000 compared to an operating loss of $2,935,000 in comparable period of 2002. The reduction in the 2003 operating loss from the 2002 operating loss was mainly due to the increases in sales and gross margin in 2003, offset in part by higher operating expenses. Nonoperating income amounted to $28,000 during the nine months ended September 28, 2003 versus $172,000 in the comparable 2002 period. As a result, the Company reported a net loss from continuing operations of $1,282,000 during the nine months ended September 28, 2003 compared to a net loss of $1,713,000 in comparable 2002 period. Loss from discontinued operations during the nine months ended September 29, 2002 amounted to $45,000. In total, the Company reported a consolidated net loss of $1,282,000 during the nine months ended September 28, 2003 versus a consolidated net loss of $1,758,000 in the comparable period of 2002. Forward-Looking Statements Certain statements made herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Words such as "expects", "believes", "estimates", "plans" or similar expressions are intended to identify such forward-looking statements. The forward-looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, but not limited to: the ability to develop, market and manufacture new innovative products competitively, the fluctuations in product demand of the telecommunications industry, the ability of the Company and its suppliers to produce and deliver materials and products competitively, and the ability to limit the amount of the negative effect on operating results caused by pricing pressure. - 13 - Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's cash balances in excess of operating requirements are currently invested in money market accounts. These money market accounts are subject to interest rate risk and interest income will fluctuate in relation to general money market rates. Based on the cash and cash equivalent balance at September 28, 2003, and assuming the balance was totally invested in money market instruments for the full year, a hypothetical 1% point decline in interest rates would result in an approximate $45,700 decrease in interest income. The Company purchases certain inventory from and sells product in foreign countries. As these activities are currently transacted in U.S. dollars, they are not subject to foreign currency exchange risk. However, significant fluctuation in the currencies where the Company purchases inventory or sells product could make the U.S. dollar equivalent of such transactions more or less favorable to the Company and the other involved parties. Item 4. Controls and Procedures Evaluation of disclosure controls and procedures. At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. Changes in internal control. During the third quarter of 2003, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. - 14 - PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. 32.1 Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. (b) Reports on Form 8-K On August 8, 2003, the Registrant filed a report on Form 8-K dated August 8, 2003 reporting under Item 7.(c) Exhibits and Item 12. Results of Operations and Financial Condition. On August 11, 2003, the Registrant filed a Report on Form 8-K/A-1 dated May 28, 2003 reporting under Item 7.(a) Financial Statements of Business Acquired, Item 7 (b) Pro Forma Financial Information and Item 7 (c) Exhibits. - 15 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Valpey-Fisher Corporation Date: November 7, 2003 By /s/ Michael J. Ferrantino ---------------------------- Michael J. Ferrantino, President and Chief Executive Officer Date: November 7, 2003 By /s/ Michael J. Kroll ----------------------- Michael J. Kroll Vice President, Treasurer and Chief Financial Officer - 16 - EX-31 3 a4511420ex311.txt EXHIBIT 31.1 CERTIFICATION OF CEO Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael J. Ferrantino, certify that: 1. I have reviewed this report on Form 10-Q of Valpey-Fisher Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) (Intentionally omitted) c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2003 By /s/ Michael J. Ferrantino ----------------------------- Michael J. Ferrantino President and Chief Executive Officer - 17 - EX-31 4 a4511420ex312.txt EXHIBIT 31.2 CERTIFICATION OF CFO Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael J. Kroll, certify that: 1. I have reviewed this report on Form 10-Q of Valpey-Fisher Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) (Intentionally omitted) c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2003 By /s/ Michael J. Kroll ----------------------- Michael J. Kroll Vice President, Treasurer and Chief Financial Officer - 18 - EX-32 5 a4511420ex321.txt EXHIBIT 32.1 CERTIFICATION Exhibit 32.1 Certification Pursuant to 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Valpey-Fisher Corporation (the "Company"), does hereby certify, to such officer's knowledge, that: 1. The Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 2003 ("Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 7, 2003 By /s/ Michael J. Ferrantino ---------------------------- Michael J. Ferrantino, President and Chief Executive Officer Date: November 7, 2003 By /s/ Michael J. Kroll ----------------------- Michael J. Kroll Vice President, Treasurer and Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. - 19 - -----END PRIVACY-ENHANCED MESSAGE-----