-----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, EZA+z2+XFb1icxB3J4Tej6JBvSZav4jFWLoBxzbZ3xWTKYq3Vc8+Av5wN++T7Uh7 HN16JDsLmD3shpysaNZ87w== 0001157523-05-009781.txt : 20051107 0001157523-05-009781.hdr.sgml : 20051107 20051107164851 ACCESSION NUMBER: 0001157523-05-009781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051002 FILED AS OF DATE: 20051107 DATE AS OF CHANGE: 20051107 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: 051183860 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 a5013083.txt VALPEY-FISHER 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 October 2, 2005 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] Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes [ ] No [X] As of November 4, 2005, the number of shares outstanding of Registrant's Common Stock, par value $.05 was 4,246,503. -1- Valpey-Fisher Corporation INDEX PAGE ----- ---- PART I. FINANCIAL INFORMATION ITEM 1. - Financial Statements - Consolidated Condensed Balance Sheets - October 2, 2005 (Unaudited) and December 31, 2004 (Audited) 3 Consolidated Statements of Operations - (Unaudited) Three Months and Nine Months Ended October 2, 2005 and September 26, 2004 4 Consolidated Condensed Statements of Cash Flows - (Unaudited) Nine Months Ended October 2, 2005 and September 26, 2004 5 Notes to Consolidated Condensed Financial Statements 6-8 ITEM 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 ITEM 3. - Quantitative and Qualitative Disclosures About Market Risk 11 ITEM 4. - Controls and Procedures 12 PART II. OTHER INFORMATION ITEM 6. - Exhibits 13 SIGNATURES 14 - 2 - PART I - FINANCIAL INFORMATION Item 1. Financial Statements Valpey-Fisher Corporation and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except share data)
10/2/05 12/31/04 (Unaudited) (Audited) ------------------------------ ASSETS Current assets: Cash and cash equivalents $ 7,250 $ 6,455 Accounts receivable, net of allowances of $98 in 2005 and $100 in 2004 1,499 1,137 Inventories, net 1,351 1,501 Deferred income taxes and other current assets 608 629 - -------------------------------------------------------------------------------------------------------- Total current assets 10,708 9,722 Property, plant and equipment, at cost 10,903 10,807 Less accumulated depreciation 8,375 7,808 - -------------------------------------------------------------------------------------------------------- 2,528 2,999 Other assets 153 143 - -------------------------------------------------------------------------------------------------------- $13,389 $12,864 ======================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 483 $ 409 Accrued liabilities 1,474 1,246 - -------------------------------------------------------------------------------------------------------- Total current liabilities 1,957 1,655 Deferred income taxes 492 578 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: 4,246,503 and 4,222,519 shares 212 211 Capital surplus 5,102 5,076 Retained earnings 5,739 5,502 Less unearned compensation (113) (158) - -------------------------------------------------------------------------------------------------------- Total stockholders' equity 10,940 10,631 - -------------------------------------------------------------------------------------------------------- $13,389 $12,864 ========================================================================================================
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 ------------------------------ -------------------------- 10/2/05 9/26/04 10/2/05 9/26/04 ------------------------------ -------------------------- Net sales $ 2,780 $ 3,043 $ 8,817 $ 8,961 Cost of sales 1,813 2,107 5,829 6,316 - ------------------------------------------------------------------------------------------------------------- Gross profit 967 936 2,988 2,645 Operating expenses: Selling and advertising 366 379 1,121 1,176 General and administrative 416 467 1,356 1,455 Research and development 83 53 248 164 - ------------------------------------------------------------------------------------------------------------- 865 899 2,725 2,795 Operating profit (loss) 102 37 263 (150) Other income: Interest income 44 8 97 22 Gain on sale of assets - - - 13 - ------------------------------------------------------------------------------------------------------------- 44 8 97 35 Earnings (loss) from continuing operations before income taxes 146 45 360 (115) Income tax (expense) (50) - (123) - - ------------------------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations 96 45 237 (115) (Loss) from discontinued operations, net of taxes - - - (110) - ------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 96 $ 45 $ 237 $ (225) ============================================================================================================= Basic and diluted earnings (loss) per share: Continuing operations $ .02 $ .01 $ .06 $ (.03) Discontinued operations - - - (.02) - ------------------------------------------------------------------------------------------------------------- $ .02 $ .01 $ .06 $ (.05) ============================================================================================================= Basic weighted average shares 4,247 4,217 4,237 4,209 Diluted weighted average shares 4,343 4,263 4,310 4,209
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 ---------------------------------- 10/2/05 9/26/04 ---------------------------------- Cash flows from operating activities: Net earnings (loss) from continuing operations $ 237 $ (115) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 567 626 Deferred income taxes (34) - Net non-cash stock compensation 28 29 Gain on sale of assets - (13) Changes in operating assets and liabilities 70 1,190 - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 868 1,717 - -------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (96) (95) Collection of note receivables - 19 Proceeds from sale of assets - 25 Other, net (10) (8) - -------------------------------------------------------------------------------------------------------- Net cash (used) by investing activities (106) (59) - -------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Stock options exercised 62 13 Purchases of common stock (18) - - -------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 44 13 - -------------------------------------------------------------------------------------------------------- Net cash (used) by discontinued operations (11) - - -------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 795 1,671 Cash and cash equivalents: Beginning of period 6,455 4,209 --------------------------------- End of period $7,250 $5,880 ================================= Supplemental Cash Flow Information Cash paid during the period for: Income taxes $ 73 $ -
Noncash Investing and Financing Activities: In 2004, the Company issued 29,500 shares of stock valued at $85,500 to four employees in payment for a bonus accrued in 2003. 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 unaudited interim financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company's 2004 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 ("SFAS") 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 earnings (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) 10/2/05 9/26/04 - ----------------------------------------------------------------------------------------------------------------------------------- (unaudited) Net earnings, as reported $ 96 $ 45 Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (44) (9) ------------------------------ Pro forma net earnings $ 52 $ 36 ============================== Basic and diluted earnings per share, as reported $ .02 $ .01 ============================== Basic and diluted earnings per share, pro forma $ .01 $ .01 ============================== Nine Months Ended (in thousands, except per share amounts) 10/2/05 9/26/04 - ----------------------------------------------------------------------------------------------------------------------------------- (unaudited) Net earnings (loss), as reported $ 237 $ (225) Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects (125) (41) ------------------------------ Pro forma net earnings (loss) $ 112 $ (266) ============================== Basic and diluted earnings (loss) per share, as reported $ .06 $ (.05) ============================== Basic and diluted earnings (loss) per share, pro forma $ .03 $ (.06) ==============================
- 6 - 3. Comprehensive Income (Loss): During the three months and nine months ended October 2, 2005 and September 26, 2004, there were no differences between comprehensive income (loss) and net income (loss). 4. Inventories, net:
Inventories, net of reserves, consist of the following: (in thousands) 10/2/05 12/31/04 --------------------------------------------------------------------------------------------------------------------------- (unaudited) Raw materials $ 809 $ 964 Work in process 206 204 Finished goods 336 333 ---------------------------- $ 1,351 $ 1,501 ============================
5. Earnings (Loss) Per Share: Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the net incremental shares that would be issued if dilutive outstanding stock options were exercised using the treasury stock method. The computation of diluted earnings per share excludes stock options with an exercise price in excess of the average market price as they are antidilutive. During the three months ended October 2, 2005, the computation of dilutive earnings per share included 96,187 of net incremental shares from dilutive stock options and excluded stock options to purchase 28,750 shares, as the exercise prices were greater than the average market price. During the nine months ended October 2, 2005, the computation of dilutive earnings per share included 72,995 of net incremental shares from dilutive stock options and excluded stock options to purchase 28,750 shares, as the exercise prices were greater than the average market price. During the three months ended September 26, 2004, 163,750 of common shares issuable under stock options have not been included in the computation of "Diluted Earnings (Loss) per Share" as the exercise prices were greater than the average market price. During the nine months ended September 26, 2004, 578,438 common shares issuable under stock options have not been included in the computation of "Diluted Earnings (Loss) per Share" because of the antidilutive effect of the options since the Company reported a loss from operations in this period. 6. Discontinued Operations: During 1998, the Company sold the assets of its Bergen Cable Technologies, Inc. subsidiary. As a result of the sale, the Company was required to perform environmental cleanup at the site. During the nine months ended September 26, 2004, the Company expensed $110,000 to increase the environmental expense accrual to reflect the revised estimate to complete the next phase of the remediation. This after-tax expense of $110,000 is presented in the Consolidated Statements of Operations under the caption "(Loss) from discontinued operations". As of October 2, 2005, $1,060,000 has been expensed for the cleanup and accrued liabilities include $132,000 for future payments. These costs represent the Company's best estimate, but the ultimate costs will not be known until the remediation is complete. The Company has set up an escrow remediation trust fund ("fund") to cover periodic payments as required. At October 2, 2005, the fund balance is approximately $101,000 and is included in the cash and cash equivalent amount in the consolidated balance sheet. - 7 - 7. Income Taxes: In October 2004, the American Jobs Creation Act of 2004 ("Act") was passed. The Act allows for a federal income tax deduction for a percentage of income earned from certain domestic production activities. The Company's domestic production activities may qualify for the deduction. Based on the effective date of the Act, the Company would be eligible for this deduction starting on January 1, 2005. In December 2004, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") No. 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004". FSP 109-1, which was effective upon issuance, states the deduction under this provision of the Act should be accounted for as a "special deduction" in accordance with SFAS 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. The Company has not yet quantified the benefit that may be realized from this provision of the Act. 8. Recent Accounting Pronouncements: In December 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment," which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. On April 14, 2005, the U.S. Securities and Exchange Commission adopted a new rule amending compliance dates for SFAS No. 123R. In accordance with the new rule, the Company will be required to adopt the accounting provisions of SFAS No. 123R in its first quarter of 2006, beginning January 1, 2006. The Company currently estimates that stock option expense for the year ended December 31, 2006 will be approximately $162,000. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. Opinion No. 20 had required that changes in accounting principles be recognized by including the cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS No. 154 requires retrospective application of the change to prior periods' financial statements, unless it is impracticable to determine the period-specific effects of the change. The Statement is effective for fiscal years beginning after December 15, 2005. The Company does not believe the adoption of this statement will have a material impact on its financial statements. - 8 - 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 Company's critical accounting policies could materially affect its consolidated financial statements. The Company's most critical accounting policies, which were discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2004, pertain to accounts receivable, inventories and income taxes. Those policies continue to be the Company's most critical accounting policies for the period covered by this report and there were no significant changes in the application of those policies during this reporting period. Liquidity and Capital Resources Cash and cash equivalents increased $795,000 during the nine months ended October 2, 2005. During this period, the Company's operations provided $868,000 of cash, investing activities used cash of $106,000 and financing activities provided $44,000 of cash. Cash provided by operations of $868,000 resulted mainly from the net earnings of $237,000, the net effect of non-cash items, mainly depreciation and amortization, of $561,000 and a $70,000 decrease in working capital. The net decrease in working capital was mainly due to a $150,000 reduction in inventory and a $302,000 increase in current liabilities, offset in part by a $362,000 increase in accounts receivable, net. The reduction in inventory is mainly due to a continuing control of inventory levels. The increase in current liabilities is mainly due to increases in accounts payable primarily due to the timing of inventory and equipment purchases and in federal income tax payable. The increase in accounts receivable is mainly due to a combination of the increased sales level compared to the 4th quarter of 2004 and the increase in the day's sales outstanding from 44 days at December 31, 2004 to 52 days at October 2, 2005. During the nine months ended October 2, 2005, capital expenditures amounted to $96,000. Management believes that based on its current working capital and the expected cash flow from operations, the Company's resources are sufficient to meet its financial needs and to fund the capital expenditures for the projected levels of business in 2005 and 2006. Off-Balance Sheet Arrangements The Company does not maintain any off-balance sheet financing arrangements. Contractual Obligations During the normal course of business, the Company incurs certain commitments to make future payments for the purchase of inventory and production supplies based on projected requirements. At October 2, 2005, the Company has outstanding purchase commitments totaling approximately $506,000, all of which are expected to be fulfilled within the next 12 months. - 9 - Results of Operations During the quarter ended October 2, 2005, net sales decreased $263,000 or 9% from the comparable quarter in 2004 mainly due to lower sales of manufactured products. Sales in the buy and resell product line increased slightly over the 2004 level. During the nine months ended October 2, 2005, net sales decreased $144,000 or 2% from the 2004 period. During both the three and nine month periods in 2005, the actual number of units sold has decreased about 34% from the prior year, as the Company continues to move to more value-added, high reliability ("high-rel") products with higher overall average selling prices. Since the latter part of the quarter ended July 3, 2005, the Company has experienced softness in new order bookings. The book-to-bill ratio during the quarter ended October 2, 2005 was .97, versus 1.00 in the previous quarter of 2005, and 1.03 during the first quarter of 2005. The Company's backlog amounted to $1.8 million at October 2, 2005, compared to $1.8 million at December 31, 2004 and $2.0 million at September 26, 2004. Management believes that the market softness for the Company's products, in particular those for the telecom market, may continue through the end of 2005. In addition, 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 and our industry's over capacity issues. The Company reported a $967,000 gross profit (35% of net sales) in the current quarter versus a $936,000 gross profit (31% of net sales) in the 2004 quarter. For the nine months ended October 2, 2005, the gross profit amounted to $2,988,000 (34% of net sales) compared to $2,645,000 (30% of net sales) in the 2004 period. The higher margins during both periods were mainly attributable to decreases in raw material costs due to changes in product mix toward the more value-added, high-rel products with higher selling prices and yield improvements. Direct labor and overhead costs as a percentage of sales in the 2005 periods remained fairly consistent with that in the 2004 periods. During the quarter ended October 2, 2005, selling and advertising expenses decreased $13,000 or 3% from the comparable quarter in 2004. The primary reason for the expense decrease was a reduction in commission expense to the outside manufacturers' representatives due to the lower sales level. For the nine months ended October 2, 2005, selling and advertising expenses decreased $55,000 or 5% from the 2004 period. The primary reasons for the net expense decrease were reductions in personnel and benefit expenses of $39,000, commission expense of $16,000, and travel expenses of $13,000 offset in part by a $10,000 increase in advertising expense. Current quarter general and administrative expenses decreased $51,000 (11%) from the comparable 2004 period. The primary reason for the decrease was a reduction in professional and recruitment expenses of $50,000. During the nine months ended October 2, 2005, general and administrative expenses decreased $99,000 (7%) from the comparable period last year. The primary reasons for the decrease were reductions in professional and recruitment expenses of $64,000 and personnel and benefit expenses of $24,000. During the quarter and nine months ended October 2, 2005, research and development expenses increased $30,000 and $84,000, respectively, over the comparable periods in 2004 primarily as a result of increased personnel expenses. These expense increases are consistent with the Company's plan to make significant engineering investments in new product development in 2005. The increases in interest income for both periods in 2005 over the comparable periods in 2004 were due to a combination of higher average cash balances and higher interest rates during the current year. During the nine months ended September 26, 2004, the Company sold equipment and realized a $13,000 gain. The annual combined federal and state income tax rate for 2005 is estimated to be 34%. As the Company has state income tax NOL carryforwards available, there is no estimated state income tax provision for 2005. During the quarter ended and nine months ended September 26, 2004, the Company did not provide for income taxes based on the estimated taxable loss for the year and the uncertainty surrounding the realization of these future tax benefits. - 10 - For the quarter ended October 2, 2005, the Company reported an operating profit of $102,000 compared to an operating profit of $37,000 in comparable quarter of 2004. The $65,000 improvement in operating performance was due to the $31,000 increase in gross margin in 2005 and a $34,000 or 4% reduction in operating expenses. As a result, the Company reported a pre-tax profit of $146,000 from continuing operations during the quarter ended October 2, 2005 compared to a pre-tax profit of $45,000 in the comparable 2004 period. The Company reported net earnings of $96,000 for the quarter ended October 2, 2005 versus net earnings of $45,000 in the comparable quarter of 2004. For the nine months ended October 2, 2005, the Company reported an operating profit of $263,000 compared to an operating loss of $150,000 in the comparable period of 2004. The $413,000 improvement in operating performance was due to the $343,000 increase in gross margin in 2005 and a $70,000 reduction in operating expenses. As a result, the Company reported a pre-tax profit of $360,000 from continuing operations during the nine months ended October 2, 2005 compared to a pre-tax loss of $115,000 in comparable 2004 period. During the nine months September 26, 2004, the Company reported a $110,000 loss from discontinued operations. For the nine months ended October 2, 2005, the Company reported net earnings of $237,000 versus a net loss of $225,000 in the comparable period of 2004. 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 Company's ability to continue to achieve profitability, the current production over-capacity within the suppliers of frequency control devices, 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, the ability to limit the amount of the negative effect on operating results caused by pricing pressure and the Company's ability to comply with Section 404 of the Sarbanes-Oxley Act. 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 October 2, 2005, and assuming the balance was totally invested in money market instruments for the full year, a hypothetical 1% point increase or decrease in interest rates would result in an approximate $72,500 increase or 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. - 11 - 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 the Company's management, including the Company's President and Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded, except as noted below, that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic SEC filings and that information required to be disclosed by the Company in these periodic filings is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. As stated in the Company's 2004 Form 10-K, the Company's independent registered accounting firm advised management and the audit committee in March 2005, that the following identified internal control deficiencies constituted a significant deficiency in the Company's internal control. 1. Reliance on the Chief Financial Officer for period end financial reporting functions, accounting estimates and income taxes. 2. The lack of adequate segregation of duties in certain accounts payable and payroll functions and certain account reconciliations. We believe that these deficiencies did not affect the accuracy of our financial statements in this report. Effective April 3, 2005, the Company has instituted certain management review procedures to correct certain lack of segregation of duties and account reconciliations described above. Management will continue to evaluate the employees involved and the control procedures in place, the risks associated with such lack of segregation of duties and whether the potential benefits of adding employees to clearly segregate duties or other alternatives justifies the expense associated with the changes. Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Management is aware that there is a lack of segregation of duties in some areas due to the size of the Company and the limited number of employees within the financial and administrative departments of the Company. In addition, management has and will continue to review this matter with its outside consultants to examine other available alternative solutions. Changes in internal control. Other than as discussed above, during the third quarter of 2005, 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. - 12 - PART II - OTHER INFORMATION Item 6. 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. - 13 - 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, 2005 /s/ Michael J. Ferrantino -------------------------- Michael J. Ferrantino, President and Chief Executive Officer Date: November 7, 2005 /s/ Michael J. Kroll -------------------- Michael J. Kroll Vice President, Treasurer and Chief Financial Officer - 14 - EX-31.1 2 a5013083ex31_1.txt EXHIBIT 31.1 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, 2005 /s/ Michael J. Ferrantino ------------------------- Michael J. Ferrantino President and Chief Executive Officer - 15 - EX-31.2 3 a5013083ex31_2.txt EXHIBIT 31.2 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, 2005 /s/ Michael J. Kroll ---------------------- Michael J. Kroll Vice President, Treasurer and Chief Financial Officer - 16 - EX-32.1 4 a5013083ex32_1.txt EXHIBIT 32.1 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 October 2, 2005 ("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, 2005 /s/ Michael J. Ferrantino ------------------------- Michael J. Ferrantino, President and Chief Executive Officer Date: November 7, 2005 /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. - 17 - -----END PRIVACY-ENHANCED MESSAGE-----