-----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, KHS/vPKAkEYDbCy/W4ASBFAXs8xMImnn6vbCk9cadsqy9eAVkR87y6k+8eNcGhbE jlK1+9VCWzRwdBCVnmNSMQ== 0001157523-07-005053.txt : 20070511 0001157523-07-005053.hdr.sgml : 20070511 20070511161518 ACCESSION NUMBER: 0001157523-07-005053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20070401 FILED AS OF DATE: 20070511 DATE AS OF CHANGE: 20070511 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: 07842512 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 a5398623.txt VALPEY-FISHER CORPORATION 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 April 1, 2007 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 large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act): (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [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 May 10, 2007, the number of shares outstanding of Registrant's Common Stock, par value $.05 was 4,268,503. - 1 - Valpey-Fisher Corporation INDEX PAGE ----- ------ PART I. FINANCIAL INFORMATION ITEM 1. - Financial Statements - Consolidated Condensed Balance Sheets - April 1, 2007 (Unaudited) and December 31, 2006 (Audited) 3 Consolidated Statements of Operations - (Unaudited) Three Months Ended April 1, 2007 and April 2, 2006 4 Consolidated Statements of Cash Flows - (Unaudited) Three Months Ended April 1, 2007 and April 2, 2006 5 Notes to Consolidated Condensed Financial Statements - (Unaudited) 6-9 ITEM 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 ITEM 3. - Quantitative and Qualitative Disclosures About Market Risk 12 ITEM 4. - Controls and Procedures 12-13 PART II. OTHER INFORMATION ITEM 1A. - Risk Factors 14 ITEM 6. - Exhibits 14 SIGNATURES 15 - 2 - PART I - FINANCIAL INFORMATION Item 1. Financial Statements Valpey-Fisher Corporation and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except share data) 4/1/07 12/31/06 --------------------- (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 9,129 $ 9,184 Accounts receivable, net of allowance of $115 in 2007 and 2006 1,686 1,614 Inventories, net 1,113 810 Deferred income taxes 838 798 Other current assets 153 69 - -------------------------------------------------------------------------------- Total current assets 12,919 12,475 Property, plant and equipment, at cost 10,763 10,719 Less accumulated depreciation 8,960 8,826 - -------------------------------------------------------------------------------- 1,803 1,893 Other assets 171 161 - -------------------------------------------------------------------------------- Total assets $ 14,893 $ 14,529 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 936 $ 649 Accrued liabilities 1,441 1,674 - -------------------------------------------------------------------------------- Total current liabilities 2,377 2,323 Deferred income taxes 321 343 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: 4,256,503 and 4,256,503 shares 213 213 Capital surplus 5,314 5,276 Retained earnings 6,695 6,415 Less unearned compensation (27) (41) - -------------------------------------------------------------------------------- Total stockholders' equity 12,195 11,863 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 14,893 $ 14,529 ================================================================================ 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 4/1/07 4/2/06 ------------------ Net sales $ 3,242 $ 2,872 Cost of sales 1,921 1,861 - -------------------------------------------------------------------------------- Gross profit 1,321 1,011 Operating expenses: Selling and advertising 462 405 General and administrative 468 463 Research and development 115 127 - -------------------------------------------------------------------------------- Total operating expenses 1,045 995 Operating profit 276 16 Interest income 97 61 - -------------------------------------------------------------------------------- Earnings before income taxes 373 77 Income tax (expense) (93) (44) - -------------------------------------------------------------------------------- Net earnings $ 280 $ 33 ================================================================================ - -------------------------------------------------------------------------------- Basic and diluted earnings per share .07 $ .01 ================================================================================ Basic weighted average shares 4,257 4,247 Diluted weighted average shares 4,273 4,247 See notes to consolidated condensed financial statements. - 4 - Valpey-Fisher Corporation and Subsidiaries Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended ------------------ 4/1/07 4/2/06 ------------------ Cash flows from operating activities: Net earnings $ 280 $ 33 Adjustments to reconcile net earnings to net cash provided (used) by operating activities of continuing operations: Depreciation 134 170 Deferred income taxes (63) (31) Stock-based compensation 42 42 Non-cash restricted stock compensation, net of taxes 11 9 Changes in operating assets and liabilities: Accounts receivable, net (73) (34) Inventories, net (303) 112 Other current assets (84) 11 Accounts payable and accrued expenses 61 (562) - -------------------------------------------------------------------------------- Net cash provided (used) by operating activities of continuing operations 5 (250) Cash flows from operating activities: - Discontinued Operations Change in accrued expenses (6) (37) - -------------------------------------------------------------------------------- Net cash (used) by operating activities of discontinued operations (6) (37) - -------------------------------------------------------------------------------- Net cash (used) by operating activities (1) (287) - -------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (44) (51) Other, net (10) (8) - -------------------------------------------------------------------------------- Net cash (used) by investing activities (54) (59) - -------------------------------------------------------------------------------- Cash flows from financing activities: - -------------------------------------------------------------------------------- Net cash provided by financing activities - - - -------------------------------------------------------------------------------- Net (decrease) in cash and cash equivalents (55) (346) Cash and cash equivalents: Beginning of period 9,184 7,920 ------------------ End of period $ 9,129 $ 7,574 ================== Supplemental Cash Flow Information Cash paid during the period by continuing operations for income taxes $ 3 $ 240 See notes to consolidated condensed financial statements. - 5 - Valpey-Fisher Corporation and Subsidiaries Notes to Consolidated Condensed Financial Statements (Unaudited) 1. Financial Presentation: The unaudited interim financial statements, 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 2006 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. 2. Stock Compensation Plans: Effective January 1, 2006, the Company began recording compensation expense associated with stock options in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment" using the modified prospective method. Under this method, compensation expense associated with stock options recognized in the first quarter of 2007 and 2006 includes: (a) expense related to the remaining unvested portion of all stock option awards granted prior to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123, and (b) expense related to all stock option awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. As a result of the adoption of SFAS No. 123R, the Company recorded the following stock-based compensation expense in the Consolidated Statement of Operations (in thousands): 3 Months Ended ----------------------- 4/1/07 4/2/06 ----------------------- Cost of sales $ 7 $ 8 Selling and advertising 7 7 General and administrative 25 25 Research and development 3 2 ----------------------- Pre-tax stock-based compensation expense 42 42 Income tax (benefit) (1) (1) ----------------------- Net stock-based compensation expense $ 41 $ 41 ======================= - 6- At April 1, 2007, the Company has four Stock Option Plans that allow for the granting of options to officers, key employees, and other individuals to purchase a maximum of 1,000,000 shares of the Company's common stock. At April 1, 2007, options for 172,666 shares remain available for future grants under the Plans. The option price and terms are recommended by the Company's Compensation Committee to the Company's Board of Directors for approval. The maximum contractual term of an option is ten years. The options granted may qualify as incentive stock options ("ISO's"). Options granted prior to December 31, 2005 generally vested 20% per year on each of the first, second, third, fourth, and fifth anniversaries of the date of grant with a contractual life of ten years. The options granted in 2006, vest 33% on each of the first, second and third anniversaries of the date of grant and have a contractual life of five years. Compensation expense related to stock options granted is recognized ratably over the vesting period of the option. The Company issues new shares upon the exercise of stock options. There were no stock option grants in the quarter ended April 1, 2007. Stock options for 10,000 shares were granted in the quarter ended April 2, 2006. The estimated fair value of each option grant is determined on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for stock option grants during the quarter ended April 2, 2006: Stock options granted 10,000 Weighted-average exercise price $ 3.25 Weighted-average grant date fair value $ 1.06 Assumptions: Risk-free interest rate 4.6% Expected volatility 36% Expected term in years 3.5 Expected dividend yield 0% The risk-free interest rate is based on the yield on zero-coupon U.S. treasury securities at the time of grant for a period commensurate with the expected term. The expected volatility is calculated using the Black-Scholes model based on the historic prices for a period commensurate with the expected term. The expected term of the option is determined by using the "simplified method" as provided for in Staff Accounting Bulletin No. 107. A summary of the activity under all the Company's stock option plans as of April 1, 2007 and the changes during the three month period then ended are as follows: Weighted- Average Weighted- Remaining Average Contractual Aggregate Number of Exercise Price Life Intrinsic Shares Per Share In Years Value ----------- -------------- ----------- ---------- Outstanding at December 31, 2006 486,250 $ 3.39 Options granted 0 ----------- Outstanding at April 1, 2007 486,250 $ 3.39 6.3 $ 568,125 =========== =========== ========== Exercisable at April 1, 2007 286,304 $ 3.66 5.8 $ 307,741 =========== =========== ========== - 7 - A summary of the status of the Company's nonvested stock options as of April 1, 2007 and the changes during the three month period then ended is as follows: Weighted-Average Grant-Date Shares Fair Value --------- ---------------- Nonvested at December 31, 2006 205,246 $ 1.76 Granted 0 0 Vested (5,300) 1.30 --------- ---------------- Nonvested at April 1, 2007 199,946 $ 1.78 ========= ================ At April 1, 2007, there was approximately $256,000 of total unrecognized compensation cost related to nonvested stock options granted. That cost is expected to be recognized over a weighted-average period of 1.5 years. The total grant-date fair value of stock options that vested during the three months ended April 1, 2007 was approximately $6,900. 3. Comprehensive Income (Loss): During the three months ended April 1, 2007 and April 2, 2006, 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) 4/1/07 12/31/06 ---------------------------------------------------------------------------- (unaudited) Raw materials $ 505 $ 481 Work in process 155 106 Finished goods 453 223 --------------------- $ 1,113 $ 810 ===================== 5. Earnings Per Share: Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the net incremental shares that would be issued if dilutive outstanding stock options were exercised using the treasury stock method. The assumed proceeds under the treasury stock method include: o the amount paid to the Company upon exercise of the option; o compensation expense for future services that the Company has not yet recognized; and o the amount of excess tax benefits, if any, that would be credited to additional paid-in capital upon exercise of the options. 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. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period. - 8 - The following table shows a reconciliation of weighted average shares (in thousands): Three Months Ended --------------------- 4/1/07 4/2/06 -------- -------- Weighted average shares outstanding 4,257 4,247 Dilutive effect of stock options outstanding, using the treasury stock method 16 0 --------------------- Diluted weighted average shares outstanding 4,273 4,247 ===================== The following table shows the potentially dilutive securities which have been excluded from the dilutive earnings per share calculation (in thousands): Three Months Ended --------------------- 4/1/07 4/2/06 --------------------- Stock options where the exercise price was Greater than the average market price 29 34 Stock options where the assumed proceeds exceed the average market price during the period 180 445 6. Income Taxes: Effective January 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 prescribes how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return. Adoption of FIN 48 on January 1, 2007 did not result in a cumulative effect adjustment to retained earnings. At January 1, 2007 and April 1, 2007, we have no reserves for unrecognized tax benefits on the balance sheet. Our federal income tax return for 2004 has been examined by the IRS. Our state of Massachusetts tax returns for 2003 through 2006 are open tax years. Our policy is to include interest expense on underpayments of income taxes in our income tax provision whereas penalties are included in general and administrative expense. 7. Recent Accounting Pronouncements: In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. We have not yet determined the impact of adopting SFAS No. 157 on our consolidated financial statements. In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 ("SFAS No. 159") which permits an entity to elect to measure certain assets and liabilities at fair value at specified election dates. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. We have not yet determined the impact of adopting SFAS No. 159 on our consolidated financial statements. - 9 - 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 our 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 our critical accounting policies could materially affect its consolidated financial statements. Our most critical accounting policies, which were discussed in our Annual Report on Form 10-K for the year ended December 31, 2006, pertain to accounts receivable, inventories and income taxes. These policies continue to be our 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 amounted to $9,129,000 at April 1, 2007, a decrease of $55,000 from the December 31, 2006 balance. During this period, our operations used cash of $1,000 and investing activities used cash of $54,000. Cash used in operations of $1,000 resulted mainly from the net earnings of $280,000, net adjustments of $124,000 for the non-cash effects of depreciation, deferred income taxes and stock compensation expense offset by a $399,000 increase in working capital. Discontinued operations used cash of $6,000. The inventory increase of $303,000 is mainly due to the increase in finished goods and work-in-process inventory to support the current level of shipments and backlog and to meet customer delivery requirements. The $73,000 increase in accounts receivable is mainly due to the increase in the current quarter's sales over the 4th quarter sales in 2006. Capital expenditures during the quarter ended April 1, 2007 amounted to $44,000. We believe that based on our current working capital and the expected cash flow from operations, our resources are sufficient to meet our financial needs and to fund our capital expenditures for the projected levels of business in 2007. Off-Balance Sheet Arrangements We do not maintain any off-balance sheet financing arrangements. Contractual Obligations During the normal course of business, we incur certain commitments to make future payments for the purchase of inventory, equipment, and production supplies based on projected requirements. At April 1, 2007, we had outstanding purchase commitments totaling approximately $1,157,000, all of which are expected to be fulfilled in 2007. - 10 - Results of Operations During the quarter ended April 1, 2007, net sales increased $370,000 or 13% from the comparable quarter in 2006 mainly as a result of the higher backlog at the beginning of the quarter. Our backlog amounted to $2,028,000 at December 31, 2006 compared to $1,602,000 at December 31, 2005. The sales increase is mainly attributable to a $503,000 or 115% increase in sales of our high precision oscillator and timing module product lines offsetting an $110,000 or 6% decrease in our standard oscillator product line. The increases in our high precision oscillator and timing module product lines is mainly due to a 72% increase in unit sales and to a lesser extent, increases in the average selling prices. Lower sales of our buy and resale products was the primary reason for the decrease in our standard oscillator product line. Bookings during the current quarter amounted to $3,423,000 versus $3,149,000 in the 2006 quarter. Our backlog amounted to $2,253,000 at April 1, 2007 compared to $2,028,000 at December 31, 2006 and $1,884,000 at April 2, 2006. We reported a $1,321,000 gross profit (41% of net sales) in the current quarter versus a $1,011,000 gross profit (35% of net sales) in the 2006 quarter. The higher margin was mainly attributable to a decrease in overhead costs as a percentage of sales resulting from a slight decrease in actual expenses and the favorable effect of spreading the fixed overhead costs over the increased sales volume. Direct labor and raw material costs as a percentage of overall sales in 2007 remained fairly consistent with that in the 2006 period. Selling and advertising expenses increased $57,000 or 14% over the comparable quarter in 2006 mainly due to an increase of $53,000 in personnel expenses and a $5,000 increase in advertising expense. General and administrative expenses were comparable to last year. An increase of $27,000 in personnel expense, mainly due to an increase in the accrued key employee bonus plan, was partially offset by reductions of $10,000 in insurance expense, $7,000 in professional fees and a net $5,000 reduction in the remaining overall expenses. Research and development expenses decreased $12,000 from the $127,000 reported in the comparable 2006 period primarily as a result of a $19,000 decrease in personnel expenses partially offset by a $7,000 increase in operating supplies. The $36,000 increase in interest income in 2007 was due to a combination of higher average cash balances and higher interest rates during the current year. The estimated annual combined federal and state income tax rate for 2007 is 25% compared to 57% in 2006. The 2007 projected rate includes a reduction in the valuation allowance for deferred income taxes which amounts to approximately an 11% point reduction in the 2007 rate. The effect of this valuation adjustment was to reduce income tax expense by $42,500 or $.01 per share in the current quarter. The 2007 and 2006 projected rates were increased by approximately 3% points and 17% points, respectively, as a result of the effect of nondeductible stock option expense resulting from the adoption of SFAS No. 123R. The majority of the stock option expense results from incentive stock options and under SFAS No. 123R, the expense does not generate a tax deduction and related tax benefit. As we have state income tax NOL carryforwards available, there is no estimated state income tax provision for 2007 and 2006. For the quarter ended April 1, 2007, we reported an operating profit of $276,000 compared to an operating profit of $16,000 in comparable quarter of 2006. The operating profit in 2007 and 2006 was reduced by $42,000 for stock option expense resulting from the effect of SFAS No. 123R. Interest income amounted to $97,000 in 2007, compared to $61,000 in 2006. As a result, we reported a pre-tax profit of $373,000 during the quarter ended April 1, 2007 compared to a pre-tax profit $77,000 in comparable 2006 period. For the quarter ended April 1, 2007, we reported net earnings of $280,000 versus net earnings of $33,000 in 2006. - 11 - 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 our current views and assumptions and involve risks and uncertainties that include, but not limited to: our 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 us and our 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 our ability to comply with Section 404 of the Sarbanes-Oxley Act. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our 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 April 1, 2007, 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 $91,300 increase or decrease in interest income. We purchase certain inventory from and sell 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 we purchase inventory or sell product could make the U.S. dollar equivalent of such transactions more or less favorable to us 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, we carried out an evaluation, under the supervision and with our 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. - 12 - As stated in the Company's 2006 Form 10-K, the Company's independent registered accounting firm advised management and the audit committee, that the following identified internal control deficiency constituted a significant deficiency in the Company's internal control. Reliance on the Chief Financial Officer for period end financial reporting functions, accounting estimates and income taxes. We believe that this deficiency did not affect the accuracy of our financial statements in this report. 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 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. In addition, management will be reviewing this matter with its outside consultants to examine other available alternative solutions. Changes in internal control. During the first quarter of 2007, 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. - 13 - PART II - OTHER INFORMATION Item 1A. Risk Factors Information regarding risk factors are set forth under the caption "Forward-Looking Statements" in Part 1, Item 2 of this Form 10-Q and in Part 1, Item 1A. of the Company's Annual Report on Form 10-K for the Year Ended December 31, 2006. There have been no material changes from the risk factors previously disclosed in the Company's 2006 Annual Report on Form 10-K. Item 6. Exhibits 10.1 Key Employee Bonus Plan for 2007. Filed herewith. 10.2 Amendment dated April 4, 2007 to Letter Agreement dated September 10, 2002, between the Company and Michael J. Ferrantino. Filed herewith. 10.3 Change in Control Severance Agreement, dated April 4, 2007, between the Company and Michael J. Kroll. Filed herewith. 10.4 Change in Control Retention Agreement, dated April 4, 2007, between the Company and Michael J. Ferrantino, Jr. Filed herewith. 10.5 Change in Control Retention Agreement, dated April 4, 2007, between the Company and Walt Oliwa. Filed herewith. 10.6 Retention Bonus Plan. Filed herewith. 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. - 14 - 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: May 11, 2007 /s/ Michael J. Ferrantino ------------------------- Michael J. Ferrantino, President and Chief Executive Officer Date: May 11, 2007 /s/ Michael J. Kroll -------------------- Michael J. Kroll Vice President, Treasurer and Chief Financial Officer - 15 - EX-10.1 2 a5398623ex101.txt EXHIBIT 10.1 Exhibit 10.1 Valpey-Fisher Corporation Key Employee Bonus Plan For fiscal year 2007 Purpose of Plan To provide an incentive to those employees who have a major impact on the profitability of the company. Eligibility Must be a fulltime employee and be in continued employment of the Company for the entire fiscal year, unless a waiver of this provision is approved in advance of hiring by the Compensation Committee. In the event the Company is sold before the end of the year, the bonuses earned through the sale date would be prorated. Participants The plan participants will include the CEO and the Management Staff. Bonus Pool - ---------- The 2007 bonus pool is based on achieving certain pre-tax operating profit amounts before the bonus amount, other income/expense, extraordinary income/expense, and the effects of SFAS 123R ("adjusted operating profit") listed below: Adjusted Operating Cumulative Profit Bonus Amount ------------------ -------------- $ 250,000 $ 37,500 750,000 137,500 1,250,000 262,500 1,750,000 412,500 2,250,000 587,500 For adjusted operating profit amounts between the listed amounts, the bonus amount will be prorated. For adjusted operating profit in excess of $2,250,000, the Board of Directors will determine the bonus amount. The Compensation Committee will recommend the bonus payout amount for the CEO to the Board of Directors for their approval. The CEO will decide the payout amount for the remaining participants. The distribution of the bonus and % of individual participation will range from 0% to 100% of salary. The bonus amount includes the profit sharing contribution for the year ended December 31, 2007 as determined by the Board of Directors. - 16 - EX-10.2 3 a5398623ex102.txt EXHIBIT 10.2 Exhibit 10.2 April 4, 2007 Mr. Michael J. Ferrantino P O Box 325 West Harwich, MA 02671 Dear Mike: This letter will confirm the agreement between Valpey-Fisher Corporation (the "Company") and you concerning the amendment of the letter agreement between the Company and you dated September 10, 2002 (the "Letter Agreement"). The Company and you agree that the last sentence of the second paragraph on page 2 of the Letter Agreement is hereby amended to read in its entirety as follows: Also, in the event of the sale of Valpey-Fisher on or before September 30, 2008, you will be paid a 2x base salary severance should you not be offered a position of President and CEO of the new entity immediately following a sale. Please indicate your agreement by signing this letter in the space provided below. Sincerely, VALPEY-FISHER CORPORATION By /s/ Ted Valpey, Jr. ------------------- Ted Valpey, Jr. Chairman AGREED AND ACCEPTED: /s/ Michael J. Ferrantino - ------------------------- Michael J. Ferrantino Date: 4/4/07 - ------------ - 17 - EX-10.3 4 a5398623ex103.txt EXHIBIT 10.3 Exhibit 10.3 April 4, 2007 Mr. Michael J. Kroll 22 Oak St. Uxbridge, MA 01569 Dear Mike: This letter will confirm the agreement between Valpey-Fisher Corporation (the "Company") and you concerning amounts payable to you as severance in the event of a change in control of the Company prior to September 30, 2008. In the event of a change in control of Valpey-Fisher prior to September 30, 2008, you will be paid a 2x annual base salary as severance in the event you are not offered a position of Chief Financial Officer of the new control entity. For the purposes of this letter, a change in control of the Company shall occur: a) if any "Person", as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "exchange Act") (provided that the term "Person" shall not include Theodore Valpey, Jr., the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company), becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 70% or more of the combined voting power of the Company's then outstanding securities; b) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation; other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) 30% or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which no "Person" (as hereinabove defined) acquires 70% or more of the combined voting power of the Company's then outstanding securities; or c) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Please indicate your agreement by signing this letter in the space provided below. Sincerely, VALPEY-FISHER CORPORATION By /s/ Ted Valpey, Jr. ------------------- Ted Valpey, Jr. Chairman - 18 - AGREED AND ACCEPTED: /s/ Michael J. Kroll - -------------------- Michael J. Kroll Date: 4/4/07 ------ - 19 - EX-10.4 5 a5398623ex104.txt EXHIBIT 10.4 Exhibit 10.4 April 4, 2007 Mr. Michael J. Ferrantino, Jr. 12 Martingale Lane Andover, MA 01810 Dear Mike: This letter will confirm the agreement between Valpey-Fisher Corporation (the "Company") and you concerning a retention bonus payable to you under certain circumstances. As you are aware, the Company is currently exploring strategic alternatives which could include merger or sale. As an incentive for your continued employment with the Company, and your efforts on behalf of the strategic alternatives, the Company hereby agrees to pay you a bonus of one times your current base salary in the event of a change in control of the Company prior to September 30, 2008. Payment of the bonus will be made immediately following the change in control. The payment is contingent on your continued employment with the Company through, and immediately following any change in control on or before, September 30, 2008. For the purposes of this letter, a change in control of the Company shall occur: a) if any "Person", as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "exchange Act") (provided that the term "Person" shall not include Theodore Valpey, Jr., the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company), becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 70% or more of the combined voting power of the Company's then outstanding securities; b) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation; other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) 30% or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which no "Person" (as hereinabove defined) acquires 70% or more of the combined voting power of the Company's then outstanding securities; or c) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Please indicate your agreement by signing this letter in the space provided below. Sincerely, VALPEY-FISHER CORPORATION By /s/ Ted Valpey, Jr. ------------------- Ted Valpey, Jr. Chairman - 20 - AGREED AND ACCEPTED: /s/ Michael J. Ferrantino, Jr. - ------------------------------ Michael J. Ferrantino, Jr. Date: 4/4/07 ------ - 21 - EX-10.5 6 a5398623ex105.txt EXHIBIT 10.5 Exhibit 10.5 April 4, 2007 Mr. Walt Oliwa 36 Marton Drive Bedford, NH 03110 Dear Walt: This letter will confirm the agreement between Valpey-Fisher Corporation (the "Company") and you concerning a retention bonus payable to you under certain circumstances. As you are aware, the Company is currently exploring strategic alternatives which could include merger or sale. As an incentive for your continued employment with the Company, and your efforts on behalf of the strategic alternatives, the Company hereby agrees to pay you a bonus of one times your current base salary in the event of a change in control of the Company prior to September 30, 2008. Payment of the bonus will be made immediately following the change in control. The payment is contingent on your continued employment with the Company through, and immediately following any change in control on or before, September 30, 2008. For the purposes of this letter, a change in control of the Company shall occur: a) if any "Person", as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "exchange Act") (provided that the term "Person" shall not include Theodore Valpey, Jr., the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company), becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 70% or more of the combined voting power of the Company's then outstanding securities; b) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation; other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) 30% or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which no "Person" (as hereinabove defined) acquires 70% or more of the combined voting power of the Company's then outstanding securities; or c) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Please indicate your agreement by signing this letter in the space provided below. Sincerely, VALPEY-FISHER CORPORATION By /s/ Ted Valpey Jr. ------------------ Ted Valpey, Jr. Chairman - 22 - AGREED AND ACCEPTED: /s/ Walt Oliwa - -------------- Walt Oliwa Date: 4/4/07 ------ - 23 - EX-10.6 7 a5398623ex106.txt EXHIBIT 10.6 Exhibit 10.6 Retention Bonus Plan On March 29, 2007, the Board of Directors approved a retention bonus plan pool of up to $200,000 to cover non-named executive employees for amounts up to or equal to three months base salary as more fully described in Attachment 1 to this exhibit. - 24 - Attachment 1 to Exhibit 10.6 April , 2007 Dear : This letter will confirm the agreement between Valpey-Fisher Corporation (the "Company") and you concerning a retention bonus payable to you under certain circumstances. As you are aware, the Company is currently exploring strategic alternatives which could include merger or sale. As an incentive for your continued employment with the Company, and your efforts on behalf of the strategic alternatives, the Company hereby agrees to pay you a bonus equal to three months of your current base salary in the event of a change in control of the Company prior to September 30, 2008. Payment of the bonus will be made immediately following the change in control. The payment is contingent on your continued employment with the Company through, and immediately following any change in control on or before, September 30, 2008. For the purposes of this letter, a change in control of the Company shall occur: a) if any "Person", as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "exchange Act") (provided that the term "Person" shall not include Theodore Valpey, Jr., the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company), becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 70% or more of the combined voting power of the Company's then outstanding securities; b) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation; other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) 30% or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which no "Person" (as hereinabove defined) acquires 70% or more of the combined voting power of the Company's then outstanding securities; or c) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. Please indicate your agreement by signing this letter in the space provided below. Sincerely, VALPEY-FISHER CORPORATION By: ---------------------------------------- Michael J. Ferrantino, President and CEO AGREED AND ACCEPTED: - ---------------------------------- Date: ----------------- - 25 - EX-31.1 8 a5398623ex311.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 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: May 11, 2007 /s/ Michael J. Ferrantino ------------------------- Michael J. Ferrantino President and Chief Executive Officer - 26 - EX-31.2 9 a5398623ex312.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: May 11, 2007 /s/ Michael J. Kroll -------------------- Michael J. Kroll Vice President, Treasurer and Chief Financial Officer - 27 - EX-32.1 10 a5398623ex321.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 April 1, 2007 ("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: May 11, 2007 /s/ Michael J. Ferrantino ------------------------- Michael J. Ferrantino, President and Chief Executive Officer Date: May 11, 2007 /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. - 28 - -----END PRIVACY-ENHANCED MESSAGE-----