10-Q 1 a6093890.htm VALPEY-FISHER CORPORATION 10-Q a6093890.htm
UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 10-Q

[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [  ]   No [  ]

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act: (Check one):
                   Large accelerated filer [  ]          Accelerated filer [  ]
                   Non-accelerated filer [  ]            Smaller reporting company [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 8, 2009, the number of shares outstanding of Registrant’s Common Stock, par value $.05 was 4,297,898.
 

Valpey-Fisher Corporation
 
INDEX

 
PAGE
  
       
PART I.                      FINANCIAL INFORMATION
      
       
     
       
    3  
    4  
    5  
    6-10  
         
                   Results of Operations
     10-12  
         
    13  
         
    13-14  
         
         
         
       
         
    14  
ITEM 6.     Exhibits
     14  
         
    15  
         
         
 
-2-


Valpey-Fisher Corporation and Subsidiaries
(In thousands, except share data)
 

   
9/27/09
    
12/31/08
  
    (Unaudited)     (Audited)  
 
            
ASSETS
            
Current assets:
            
 Cash and cash equivalents
   $ 4,288     $ 4,515  
  Receivables, net of allowances of $95 in 2009 and $105 in 2008
     1,701       1,631  
  Inventories, net
     1,150       1,376  
  Deferred income taxes
     781       826  
  Other current assets
     30       40  
            Total current assets
     7,950       8,388  
 
                
Property, plant and equipment, at cost
     11,447       11,257  
  Less accumulated depreciation
     10,040       9,749  
 
     1,407       1,508  
 
                
Other assets                      
     201       190  
 Total assets
   $ 9,558     $ 10,086  
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
  Accounts payable
   $ 670     $ 606  
  Accrued liabilities                                
     1,186       1,610  
           Total current liabilities                                                      
     1,856       2,216  
 
                
Deferred income taxes                                           
     177       150  
                 
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: 4,297,898 and 4,297,898 shares                                                                                                
     215       215  
  Capital surplus                                
     5,652       5,610  
  Retained earnings                                
     1,658       1,895  
 Total stockholders’ equity                                           
     7,525       7,720  
 Total liabilities and stockholders’ equity
   $ 9,558     $ 10,086  
                 

See notes to consolidated condensed financial statements.
 
-3-

Valpey-Fisher Corporation and Subsidiaries
(In thousands, except per share data)
(Unaudited)

 
 
   
Three Months Ended
    
Nine Months Ended
  
   
9/27/09
    
9/28/08
    
9/27/09
    
9/28/08
  
                         
Net sales
   $ 2,502     $ 3,346     $ 7,580     $ 10,063  
Cost of sales
     1,621       1,998       5,035       5,986  
   Gross profit
     881       1,348       2,545       4,077  
                                 
Operating expenses:
                                
  Selling and advertising
     410       446       1,238       1,363  
  General and administrative
     332       413       1,005       1,273  
  Retirement agreement
     265       -       265       -  
  Research and development
     138       150       423       467  
      1,145       1,009       2,931       3,103  
                                 
Operating profit (loss)
     (264 )     339       (386 )     974  
                                 
Interest income
     7       55       27       173  
Earnings (loss) before income taxes
     (257 )     394       (359 )     1,147  
Income tax (expense) benefit
     119       (197 )     122       (534 )
Net earnings (loss)
   $ (138 )   $ 197     $ (237 )   $ 613  
                                 
Basic and diluted earnings (loss) per share
   $ (.03 )   $ .05     $ ( .06 )   $ .14  
                                 
                                 
Basic weighted average shares
     4,298       4,280       4,298       4,281  
Diluted weighted average shares
     4,298       4,343       4,298       4,374  
                                 
Cash dividend per share – declared
   $ -     $ 1.50     $ -     $ 1.50  

See notes to consolidated condensed financial statements.

-4-

Valpey-Fisher Corporation and Subsidiaries
(In thousands)
(Unaudited)
 
 
   
Nine Months Ended
  
 
  
9/27/09
    
9/28/08
  
Cash flows from operating activities:
            
 Net earnings (loss)
   $ (237 )   $ 613  
 Adjustments to reconcile net earnings (loss) to net cash
   provided (used) by operating activities of continuing operations:
                
    Depreciation
     291       340  
    Deferred income taxes
     71       87  
    Stock-based compensation
     42       62  
    Changes in operating assets and liabilities:
                
         Receivables, net
     (70 )     (48 )
         Inventories, net
     227       (353 )
         Other current assets
     10       ( 16 )
         Accounts payable and accrued liabilities
     (227 )     (79 )
       Net cash provided by operating activities of continuing operations
     107       606  
Cash flows from operating activities: - Discontinued Operations
                
    Change in accrued expenses
     (133 )     (65 )
       Net cash (used) by operating activities of discontinued operations
     (133 )     (65 )
       Net cash provided (used) by operating activities
     (26 )     541  
Cash flows from investing activities:
                
 Capital expenditures
     (190 )     (156 )
 Other, net
     (11 )     (10 )
       Net cash (used) by investing activities
     (201 )     (166 )
Cash flows from financing activities:
                
 Purchase of common stock
     -       (32 )
 Stock options exercised
     -       69  
      Net cash provided by financing activities
     -       37  
Net increase (decrease) in cash and cash equivalents
     (227 )     412  
Cash and cash equivalents:
                
 Beginning of period
     4,515       10,001  
 End of period
   $ 4,288     $ 10,413  
                 
Supplemental Cash Flow Information                 
 Cash paid during the period by continuing operations for income taxes   $  87     $  432  
                 
Noncash Financing Activity                 
 Dividend declared not paid   $  -     $  6,447  

See notes to consolidated condensed financial statements.

-5-

Valpey-Fisher Corporation and Subsidiaries
(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 2008 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

2.             Stock Compensation Plans:
 
At September 27, 2009, options for 125,040 shares are available for future grants to officers, key employees, and other individuals under the Company’s four Stock Option 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”).  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.
 
The Company recorded the following stock-based compensation expense in the Consolidated Statement of Operations (in thousands):
 
   
3 Months Ended
    
9 Months Ended
  
   
9/27/09
    
9/28/08
    
9/27/09
    
9/28/08
  
 
                        
Cost of sales
   $ 3     $ 5     $ 11     $ 18  
Selling and advertising
     3       5       11       17  
General and administrative
     4       5       13       19  
Research and development
     2       2       7       8  
Pre-tax stock-based compensation expense
     12       17       42       62  
Income tax (benefit)
     (1 )     (1 )     (3 )     (2 )
Net stock-based compensation expense
   $ 11     $ 16     $ 39     $ 60  
 
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 nine months ended September 27, 2009 and September 28, 2008:

   
2009
    
2008
  
                Stock options granted
     45,000       10,000  
                Weighted-average exercise price
   $ 1.43     $ 4.10  
                Weighted-average grant date fair value
   $ .59     $ 1.62  
                Assumptions:
                
                Risk-free interest rate
     2.4 %     2.7 %
                Expected volatility
     46 %     47 %
                Expected term in years
     4.8       4.0  
                Expected dividend yield
     0 %     0 %
 
-6-
 
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 historical data.
 
A summary of the activity under all the Company’s stock option plans as of September 27, 2009 and the changes during the nine month period then ended are as follows:

   
 
 
 
Number of
Shares
    
 
Weighted-
Average
Exercise Price
Per Share
    
Weighted-
Average
Remaining
Contractual
Life
In Years
    
 
 
Aggregate
Intrinsic
Value
  
                         
Outstanding at December 31, 2008
     823,265     $ 1.45              
Options granted
     45,000       1.43              
Options exercised
     0                      
Options forfeited
     (10,374 )     1.26              
Outstanding at September 27, 2009
     857,891     $ 1.45       3.8     $ 118,677  
                                 
Exercisable at September 27, 2009
     751,510     $ 1.46       3.6     $ 110,216  
                                 

A summary of the status of the Company’s nonvested stock options as of September 27, 2009 and the changes during the nine month period then ended are as follows:
 
   
 
Shares
    
Weighted-Average
Grant-Date
Fair Value
  
Nonvested at December 31, 2008
     123,313     $ 1.70  
Granted
     45,000       .59  
Vested
     (60,894 )     1.77  
Forfeited
     (1,038 )     1.82  
Nonvested at September 27, 2009
     106,381     $ 1.19  
 
At September 27, 2009, there was approximately $62,000 of total unrecognized compensation cost related to nonvested stock options granted.  That cost is expected to be recognized as follows: $13,300 in 2009, $28,500 in 2010, $14,100 in 2011, and $6,100 in 2012..  The total grant-date fair value of stock options that vested during the nine months ended September 27, 2009 was approximately $107,500.

3.            Comprehensive Income (Loss):
 
During the three months and nine months ended September 27, 2009 and September 28, 2008, there were no differences between comprehensive income (loss) and net income (loss).

-7-

4.             Inventories, net:
 
Inventories, net of reserves of $1,217,000 in 2009 and $1,050,000 in 2008, consist of the following:
 
(in thousands)                                           
  
9/27/09
    
12/31/08
  
   
(unaudited)
        
   
 
  
Raw materials
   $ 702     $ 903  
Work in process
     188       150  
Finished goods
     260       323  
    $ 1,150     $ 1,376  

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 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:
 
·  
the amount paid to the Company upon exercise of the option;
·  
compensation expense for future services that the Company has not yet recognized; and
·  
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.  In a period of a loss, all outstanding options are considered antidilutive and are excluded from the calculation of diluted loss per share.
 
The following table shows a reconciliation of weighted average shares (in thousands):

   
Three Months Ended
    
Nine Months Ended
  
   
9/27/09
    
9/28/08
    
9/27/09
    
9/28/08
  
                         
Weighted average shares outstanding
     4,298       4,280       4,298       4,281  
 Dilutive effect of stock options outstanding, using the
   treasury stock method
      -        63        -        93  
Diluted weighted average shares outstanding
     4,298       4,343       4,298       4,374  

During the three and nine months ended September 27, 2009, stock options to purchase 857,891 common shares were not  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 these periods.  During the three and nine months ended September 28, 2008, stock options to purchase 38,750 and 28,750 common shares, respectively,  were not included in the computation of "Diluted Earnings (Loss) per Share" because the exercise price was greater than the average market price.

-8-
 
 
6.  
    Income Taxes:

Refundable federal income taxes included in Receivables, net at September 27, 2009 totaled $146,900. The Company had no reserves for unrecognized tax benefits on the balance sheet at September 27, 2009  and December 31, 2008.
 
The Company’s federal income tax return for 2007 is currently under examination by the IRS and the state of Massachusetts tax returns for 2005 through 2008 are open tax years.  The Company’s 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:
 
Effective June 29, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) ASC 105-10, “Generally Accepted Accounting Principles – Overall” (“ASC 105-10”).  ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).  Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants.  All guidance contained in the Codification carries an equal level of authority.  The Codification superseded all existing non-SEC accounting and reporting standards.  All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative.  The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.  Instead, it will issue Accounting Standards Updates (“ASUs”).  The FASB will not consider ASUs as authoritative in their own right.  ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification.  References made to FASB guidance throughout this document have been updated for the Codification.
 
Effective January 1, 2008, the Company adopted FASB ASC 820-10, “Fair Value Measurements and Disclosures – Overall” (“ASC 820-10”) with respect to its financial assets and liabilities.  In February 2008, the FASB issued updated guidance related to fair value measurements, which is included in the Codification in ASC 820-10-55, “Fair Value Measurements and Disclosures – Overall – Implementation Guidance and Illustrations”. The updated guidance provided a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. The Company adopted the provisions of ASC 820-10 for non-financial assets and non-financial liabilities effective January 1, 2009, and such adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.
 
In December 2007, the FASB issued ASC 805, "Business Combinations", (“ASC 805”).  ASC 805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree. The Statement also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC 805 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adopting ASC 805 will be dependent on the future business combinations that the Company may pursue after its effective date.

-9-
 
During the second quarter of 2009, the Company adopted ASC 855, “Subsequent Events” (“ASC 855”).  ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The adoption of ASC Topic 855 did not have a material impact on the Company’s consolidated results of operations or financial condition.   The Company has evaluated subsequent events through November 9, 2009, the date the financial statements were issued.

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, 2008, 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 $4,288,000 at September 27, 2009, a decrease of $227,000 from the December 31, 2008 balance.  During this period, our operations used cash of $26,000 and investing activities used cash of $201,000.

Cash used in operations of $26,000 resulted from the net loss of $237,000 and a $193,000 net cash outflow from changes in our operating assets and liabilities partially offset by the net positive adjustments of $404,000 for the non-cash effects of depreciation, deferred income taxes and stock compensation expense.  The net cash outflow of $193,000 from changes in our operating assets and liabilities were mainly due to a $424,000 reduction in accrued liabilities offset in part by a $226,000 decrease in inventory.  The main items accounting for the net decrease in accrued liabilities were payments of $280,000 under the 2008 key employee bonus plan, $133,000 for environmental liabilities of our discontinued operation and $87,000 for federal income taxes.  These payments were partially offset by a $265,000 increase in the retirement agreement liability with our former CEO. The inventory decrease of $226,000 is due to a $167,000 increase in the reserve for inventory and a $59,000 decrease in inventory resulting from orders being filled from existing inventory, continued control over inventory purchases and levels required to support the current level of shipments and backlog to meet customer delivery requirements.
 
Capital expenditures during the nine months ended September 27, 2009 amounted to $190,000.
 
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 during the next twelve months.
 
-10-

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 September 27, 2009, we had outstanding purchase commitments totaling approximately $587,000, all of which are expected to be fulfilled in 2009.

Results of Operations for the Three and Nine Months Ended September 27, 2009 Compared to the Three and Nine Months Ended September 28, 2008
 
During the three and nine months ended September 27, 2009, net sales decreased $844,000 (25%) and $2,483,000 (25%), respectively, from the comparable periods in 2008.   During both these periods, most product lines experienced sales decreases resulting primarily from a reduction in the overall number of units sold.  The sales reductions were mainly caused by both lower backlog levels at the beginning of each 2009 period compared to the 2008 period and lower bookings in the 2009 periods compared to 2008.  The order backlog at the beginning of the 2009 third quarter and at the beginning of 2009 were $798,000 and $468,000, respectively, lower than the same periods in 2008.  Bookings during the three and nine months ended September 27, 2009 were $736,000 (22%) and $2,578,000 (25%), respectively, lower than the same periods in 2008.  Our backlog amounted to $1,785,000 at September 27, 2009 versus $2,363,000 at September 28, 2008.  The decreases in bookings and the corresponding sales amounts are mainly due to the continuing general economic slowdown that began in the 4th quarter of 2008 and has negatively impacted the demand for our products.
 
During the three months ended September 27, 2009, gross profit as a percentage of sales was 35% compared to 40% in the comparable 2008 period.  Year-to-date gross profit was 34% of sales versus 41% in the 2008 period.  The unfavorable effect of spreading the fixed overhead costs over the lower sales volume and increased raw material costs were the main reasons for the gross profit percentage decreases.  During both periods, higher raw material costs mainly due to changes in the product mix of sales accounted for about 3 percentage points of the change.
 
Selling and advertising expenses decreased $36,000 (8%) during the three months ended September 27, 2009 from the comparable period in 2008.  A decrease of $44,000 in commission expense to outside sales representatives partially offsetting a $7,000 increase in travel expenses were the main reasons accounting for the lower expenses.  Year-to-date selling and advertising expenses decreased $125,000 (9%) from the 2008 period primarily as a result of reductions of $113,000 in commission expense to outside sales representatives, $21,000 in employee compensation and benefits, and $16,000 in advertising expense partially offset by a $21,000 increase in travel expenses.

General and administrative expenses decreased $81,000 (20%) during the three months ended September 27, 2009 from the comparable 2008 period.  This expense decrease was primarily the result of decreases of $57,000 in employee compensation and benefits and $15,000 in professional fees.   Year-to-date general and administrative expenses decreased $268,000 (21%) from the 2008 period mainly as a result of reductions of $164,000 in employee compensation and benefits and $79,000 in professional fees.  Professional fees in both 2008 periods included expenses incurred as the company considered possible strategic alternatives to increase shareholder value.
 
-11-

On September 3, 2009, the Company and Michael Ferrantino, Sr., Chief Executive Officer ("CEO") and a Director of the Company, entered into a Retirement Agreement and General Release.   Effective on October 31, 2009, the Retirement Date, Mr. Ferrantino, will resign as Chief Executive Officer and a Director of the Company.  The Retirement Agreement provides that the Company will pay Mr. Ferrantino a lump sum retirement payment of $265,225 on November 9, 2009.  Pursuant to the Retirement Agreement, Mr. Ferrantino agreed to a one year non-compete provision, an eighteen month non-solicitation provision and a general release of claims.
 
During the three and nine months ended September 27, 2009, research and development expenses decreased $12,000 (8%) and $44,000 (9%), respectively, from the 2008 periods primarily as a result of reductions in employee compensation and benefits.
 
During the three and nine months ended September 27, 2009, interest income decreased $48,000 (87%) and $146,000 (84%), respectively, from the 2008 periods as a result of the average invested cash balance being approximately $6.4 million lower in the 2009 periods compared to the 2008 periods and the effect of interest rates being approximately 1.1 percentage points lower during the 2009 periods.  In the 4th quarter of 2008, the Company paid a special one-time cash dividend totaling $6,447,000.

The estimated annual combined federal and state income tax rate for 2009 is 34% compared to 47% in 2008.  The 2009 rate differs from the expected combined rate of 40% mainly due to the effects of nondeductible stock option expense and non-deductible expenses.   The 2008 rate differs from the expected combined rate of 40% mainly due to the effects of nondeductible stock option expense and non-deductible expenses and the federal tax effects of state tax operating losses utilized.  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.
 
For the three months ended September 27, 2009, we reported an operating loss of $264,000 compared to an operating profit of $339,000 in 2008.  This $603,000 decrease in operating profit results from a $467,000 reduction in gross profit and $136,000 increase in operating expenses.  The lower gross profit was primarily due to the 25% decrease in sales.  The 2009 operating expenses were $136,000 higher than the 2008 amount as a result of the $265,000 expense related to the retirement agreement with the CEO.  Interest income amounted to $7,000 in 2009, compared to $55,000 in 2008.  As a result, we reported a pre-tax loss of $257,000 during the three months ended September 27, 2009 compared to a pre-tax profit of $394,000 in comparable 2008 period.  For the three months ended September 27, 2009, we reported a net loss of $138,000 versus net earnings of $197,000 in 2008.
 
For the nine months ended September 27, 2009, we reported an operating loss of $386,000 compared to an operating profit of $974,000 in the 2008 period.  The decrease in operating profit of $1,360,000 results from a $1,532,000 reduction in gross profit partially offset by a $172,000 reduction in operating expenses.  The lower gross profit was primarily due to the 25% decrease in sales.  The reduction in 2009 operating expenses is net of an expense increase of $265,000 expense related to the retirement agreement with the CEO.  Interest income amounted to $27,000 in 2009, compared to $173,000 in 2008.  As a result, we reported a pre-tax loss of $359,000 during the nine months ended September 27, 2009 compared to a pre-tax profit of $1,147,000 in comparable 2008 period.  For the nine months ended September 27, 2009, we reported a net loss of $237,000 versus net earnings of $613,000 in 2008.
 
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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 results for 2009 will be negatively impacted by the current global economic conditions and uncertainties,
·  
our ability to develop, market and manufacture new innovative products competitively,
·  
the fluctuations in product demand of the telecommunications industry,
·  
our ability, including that of our suppliers to produce and deliver materials and products competitively,
·  
a significant portion of our revenues is derived from sales to a few customers and  the loss of one or more of our significant customers could have an adverse impact on our operating results and financial condition,
·  
our operating results and financial condition could be negatively affected if after receiving design wins from OEMs, which in turn outsource the manufacture of their products to electronics manufacturing services ("EMS") companies, we fail to negotiate terms and  successfully obtain orders from the EMS companies directly, and
·  
compliance with changing corporate governance and public disclosure regulations may result in additional expenses.

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 September 27, 2009, 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 $43,000 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.
 
We carried out an evaluation, under the supervision and with our  management, including our President and Chief Executive Officer and our Company’s Chief Financial Officer, of the effectiveness of the design and operation of our 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 Chief Financial Officer concluded that our disclosure controls and procedures are effective as of September 27, 2009.
 
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Changes in internal control.
 
Our evaluation did not identify any change in our internal controls over financial reporting that occurred during the quarter ended September 27, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item1A.  Risk Factors
 
Information regarding risk factors are set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2008.  There have been no material changes from the risk factors previously disclosed in the Company’s 2008 Annual Report on Form 10-K.



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.
                            
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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 9, 2009
/s/ Michael J. Ferrantino, Jr.
 
  
 
Michael J. Ferrantino, Jr.
 
President and Chief Executive Officer
   
   
Date:  November 9, 2009
/s/ Michael J. Kroll
 
  
 
Michael J. Kroll
 
Vice President, Treasurer and Chief Financial Officer
 
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