-----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, Tj7Uqg1b1P8/uKLWdcM9gUzI86SJV2nLbpPnKJAqyGJelgu1s/hUB4tiR/3q1B0Q 7+QauceyCxQFZhwqFpOgbA== 0001157523-10-001717.txt : 20100325 0001157523-10-001717.hdr.sgml : 20100325 20100325082103 ACCESSION NUMBER: 0001157523-10-001717 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100325 DATE AS OF CHANGE: 20100325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALPEY FISHER CORP CENTRAL INDEX KEY: 0000085608 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 060737363 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04184 FILM NUMBER: 10703332 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-K 1 a6221496.htm VALPEY-FISHER CORPORATION 10-K a6221496.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 10-K

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

For the fiscal year ended December 31, 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)

Registrant’s telephone number, including area code: (508) 435-6831
 
Securities registered pursuant to Section 12 (b) of the Act:

Title of each class:
Name of each exchange on which registered:
Common Stock $.05 par value
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12 (g) of the Act:  None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes [  ]   No [X]

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes [  ]   No [X]

 
1
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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]
          (Do not check if a smaller reporting company)
  
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [   ]   No [X]      
 
The aggregate market value of voting stock held by non-affiliates: $3,298,990 (computed by reference to the last sales price of such common stock on June 26, 2009, the last business day of the Registrant’s most recently completed second fiscal quarter, as reported in the NASDAQ Stock Market).

Number of shares of common stock outstanding at March 24, 2010:  4,297,898

Documents incorporated by reference:
 
Portions of the Registrant’s Proxy Statement for the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

 
2
 
Forward Looking Statements
 
 Information included or incorporated by reference in this Annual Report on Form 10-K may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different than the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or o ther variations on these words or comparable terminology.
 
This Annual Report on Form 10-K contains forward-looking statements that  may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and “Business,” as well as in this Annual Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Annual Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual Report will in fact be accurate.


PART I

Item 1.  Business

General

Valpey-Fisher Corporation is incorporated under the laws of Maryland.

Financial Information about Industry Segments

We operate in one business segment.  Information about our export sales is set forth in Note 11 of the Notes to Consolidated Financial Statements in Item 8 of this Report, which Note is incorporated by reference.

 
3
 
Description of Business

Products

We are involved in the design, production, import, and sale of frequency control devices and ultrasonic transducer devices.

Our frequency control devices include quartz crystals and oscillators incorporating these crystals and are used as integral components in electronic circuitry to assure precise timing and frequency reference. Except for more costly atomic standards, quartz crystals and oscillators continue to be one of the most stable references for accurately controlling electronic frequencies and time.

We provide a wide-frequency range of frequency control devices including standard and custom-designed product. Our capabilities include:
-  
high-reliability, precision crystals and oscillators used in sophisticated industrial, military and aerospace applications.
-  
ultra-high frequency crystals used in crystal filters and oscillators for original equipment manufacturers (“OEMs”) telecommunications and microwave applications.
-  
highly-customized timing modules including jitter attenuators and frequency translators for microwave and wireless markets.
-  
high-volume, low cost crystals and oscillators for consumer and commercial applications.
 
Our frequency control products are used by the telecommunications, computer and computer peripheral equipment, scientific, instrumentation, industrial, and aerospace markets.  The majority of our revenue is generated by the telecommunications markets including the wireless, networking and optical networking segments.  Our frequency control products are used in telecommunications infrastructure equipment such as bandwidth multipliers, networking switches and routers, cellular base stations, transceivers and multiplexers.

Our ultrasonic transducer devices are sold to the NDT (nondestructive testing), industrial, research and bio-medical markets.  Applications include weld testing, flaw detection, thickness gauging, and corrosion inspection.

Raw Materials

Quartz crystal bases, ceramic packages and integrated circuits (“ICs”) are the principal raw materials and are available from a number of domestic and foreign suppliers.

We import sub-assemblies and completed products from various Far East (including China, Japan, South Korea, Philippines, and Taiwan) and Russian suppliers for use in our domestically manufactured products and for resale to our customers.  Approximately 14% of our 2009 sales (10% in 2008) were attributable to products manufactured by one supplier.

 
4
 
In order to eliminate the effects of currency fluctuations, we currently and historically have purchased products from our foreign suppliers in U.S. dollars. As exchange rates fluctuate, our cost for these materials may become more expensive than our competitors that have taken measures to protect against exchange rate fluctuations.  In addition, we are subject to the inherent risks involved in international trade such as political instability and restrictive trade policies.
 
Marketing and Customers

Our direct sales personnel, independent manufacturers’ representatives and distributors sell the frequency control products. Our ultrasonic transducer devices are sold primarily by our direct sales personnel.

We sell our frequency control products primarily to original equipment manufacturers (OEMs), electronics manufacturing services (EMS) companies, and distributors.  Our distributors also sell to both the OEMs and EMS companies. Ultrasonic transducer devices are sold primarily to OEMs, colleges and universities and research facilities.

In recent years, OEMs have outsourced a significant amount of their manufacturing capability to EMS companies.  As a result, this has tended to increase the concentration of sales to the EMS companies.  Sales to Flextronics Corporation, an EMS company, accounted for approximately 12 % and 17% of our net sales in 2009 and 2008, respectively.

Sales to our five largest customers accounted for approximately 32% of our sales in 2009 compared to 39% of our sales in 2008.  Sales to EMS companies accounted for approximately 35% of our sales in 2009 compared to 39% in 2008.

Export sales amounted to approximately 34% of our sales in 2009 and 2008.  Information about export sales is set forth in Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Report, which Note is incorporated by reference.  Our international sales are transacted in U. S. dollars.

Seasonal Fluctuations

During the last few years, we have noticed that some of our customers, most notably the EMS companies and the larger OEMs, have closed their manufacturing facilities during the last two or three weeks in December.  These facility closures reduce the number of available days to ship these customers in the 4th quarter.

 
5
 
Research and Development

Research and development expenses amounted to $627,100 in 2009 and $611,300 in 2008.  During 2010, we intend to continue our efforts to develop new products which would leverage off our expertise in the timing area and to invest in the creation of a new microwave component product line.
 
Backlog

Our backlog of firm orders was approximately $2,023,000 at December 31, 2009 compared to $1,666,000 at December 31, 2008.  We expect to ship the entire December 31, 2009 backlog during 2010.

Competition

There are many domestic and foreign suppliers of quartz crystals and oscillators. A number of the competitors are larger and have greater resources than we have including Vectron International (a division of Dover Corporation) and CTS Corporation.   In addition, foreign competitors, particularly from the Far East, continue to dominate the U.S. markets.  However, we believe we can maintain a competitive position in our business based on our quality, strong design and application engineering, responsive customer service and a willingness to provide specialty small quantity orders.

Manufacturing

Our manufacturing facility is located in Hopkinton, Massachusetts.  We have been ISO-9001 certified for the design and manufacture of crystals and crystal oscillators since 1997.

Environmental Regulations

To the best of our knowledge compliance with Federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, has not had, nor will have a material effect upon capital expenditures, earnings from continuing operations or competitive position.

As a result of the sale of our Bergen Cable subsidiary in 1998, we are performing environmental clean up at that site. See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Report, which Note is incorporated by reference.
 
 
6
 
Employees

At December 31, 2009, we employed 53 people.  Our future success depends in large part on the continued service of our key technical and senior management personnel and on our ability to continue to attract and retain highly qualified technical and managerial personnel.  Competition for qualified employees in our industry is at times intense.   None of our employees are represented by a collective bargaining unit. We consider our relations with our employees to be satisfactory.

Available Information
 
Our Internet website address is www.valpeyfisher.com.  Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15 (d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  The information on our website is not incorporated by reference into this report.
 
Foreign and Domestic Operations and Export Sales
 
Financial information about our export sales is set forth in Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Report, which Note is incorporated by reference.

 
7
 
Item 1A.  Risk Factors

Our business, financial condition and results of operations can be affected by a number of factors, including but not limited to those set forth below and elsewhere in this Annual Report on Form 10-K, any one of which could cause our actual results to vary materially from past results or from our anticipated future results.

Our results for 2010 may be negatively impacted by the current global economic conditions and uncertainties.

In 2009 our business was adversely impacted by the world-wide economic downturn.   The uncertainty concerning the potential duration and depth of this downturn persists as we enter 2010.  These conditions make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities.  In addition, our customers and suppliers also may face credit and debt issues, which could have an adverse effect on their operations.  A continued global economic downturn will likely have an adverse effect on our revenue, operating results and cash flow. In addition we could experience decreased demand for our products, increased risk of excess inventories, and increased risk in the collectability of accounts receivable from our customers.
 
If we are unable to introduce new products, including more-value added products, our future operating results may decrease.

Our future operating results are dependent on the timely development, customer acceptance, production, introduction and marketing of new products, including more-value added products.  The time lag between our customer’s acceptance of our product (a design win) and the receipt of production orders affects the timing of our sales growth and operating results.  We have continuing sales of older/mature products that tend to decline in average selling prices over the product life cycle.  By developing these new products, we can replace and/or offset the impact of the lower average selling prices of the older/mature products.

The future demand for our products depends in a large part to growth of the markets that incorporate our frequency control products.  These markets are cyclical and have experienced a modest increase in product demand in recent years.

The future demand for our products depends in a large part to growth of the markets that incorporate our frequency control products.  These markets include telecommunications equipment, computers and computer peripheral and scientific instrumentation.  A decline in the demand for products in these markets could negatively affect our operating results and financial condition.

 
8
 
A significant portion of our revenues is derived from sales to a few customers.  The loss of one or more of our significant customers could have an adverse impact on our operating results and financial condition.

In 2009, sales to our top five customers accounted for approximately 32% of our sales compared to 39% in 2008.  The loss of one or more of our significant customers or a reduction in sales to any one of them could have an adverse impact on our operating results and financial condition.  All our sales are made on a purchase order basis and we do not have long-term purchase contracts with our customers.  As a result, our customers may cancel or change delivery dates within a specific period of time without penalty.

A significant portion of our revenues are to Electronics Manufacturing Services (EMS) companies.  If we fail to successfully obtain orders from the EMS companies, our operating results and financial condition could be negatively affected.

Approximately 34% of the Company’s sales in 2009 were to EMS companies.  There is a continuing trend among original equipment manufacturers (OEMs) to outsource the manufacture of their product to EMS companies.  We first work with and receive design wins from OEMs.  We then have to negotiate pricing, quantities and delivery with the EMS companies.  If we fail to successfully obtain orders from the EMS companies, our operating results and financial condition could be negatively affected.

We rely upon one supplier for a significant portion of our revenue.

Approximately 14% of our 2009 revenue was attributable to products manufactured by one supplier and expect this supplier to account for a similar percentage of our 2010 revenue.  We do not have a written, long-term supply contract with this supplier.  If this supplier is not able or not willing to manufacture and deliver products on time and at quantities and prices acceptable we may be forced to manufacture the products internally or find other replacement suppliers.  We could encounter difficulties in finding another source for these products based on the current supplier’s product knowledge and process capability.  As a result, a significant change in the supplier’s manufacturing capability or in our relationship with this supplier our operating results and financial condition co uld be negatively affected.

There is a limited market and limited trading activity for our common shares.  The purchase or sale of a relatively small number of shares could result in significant share price fluctuations.

There is a limited public market and limited trading activity for our common shares.  Directors and executive officers currently beneficially own 39% of the outstanding shares on a fully diluted basis.  5% holders, other than our directors and executive officers, and institutional holders own approximately 25% of the outstanding shares.   During 2009, the average trading volume of our common stock was approximately 2,800 shares per day.  As a result of the low trading volume and the limited outstanding float, the purchase or sale of a relatively small number of shares could result in significant share price fluctuations.

 
9
 
We may make an acquisition that is not successful.
 
As part of our business strategy, we continue to evaluate acquisition opportunities that could complement, enhance or expand our current business or provide additional product offerings or technologies.  We may have difficulty finding these opportunities or, if we do find an opportunity, we may not be able to complete the transaction for reasons including a failure to secure financing, if necessary.  Any transaction we are able to complete may involve a number of risks including, but not limited to:
·  
the diversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired business,
·  
the possible adverse effects on the Company’s operating results during the integration period,
·  
the loss of key employees, customers and vendors as a result of the change in management, and
·  
our possible inability to achieve the intended objectives of the transaction.

In addition, future acquisitions may result in dilutive issuances of equity securities or the incurrence of debt.

Our success depends on our ability to retain our existing management and technical team and to recruit and retain qualified technical, sales and marketing and management personnel.

Our future growth and success will depend in a large part on our ability to retain our existing management and technical team and to recruit and retain qualified technical, sales and marketing and management personnel.  Competition for qualified employees in our industry is at times intense.  The loss of any of these key personnel or our inability to attract and retain these key employees to operate and expand our business could adversely affect our operations.

We face global business, political and economic risks which may adversely affect us.

We sell our products to customers and purchase inventory from vendors located outside of the United States.  As a result, we face global business, political and economic risks which may adversely affect us.  These risks include, but are not limited to:
·  
political and economic instability in countries where our products are sold or manufactured,
·  
expropriation or the imposition of government controls,
·  
export license requirements,
·  
trade restrictions,
·  
high levels of inflation or deflation,
·  
greater difficulty in collecting our accounts receivable and longer payment terms,
·  
less favorable intellectual property laws, and
·  
increases in duties.

 
10
 
In addition, these same factors may also place us at a competitive disadvantage to some of our foreign competitors.

To date, very few of our international transactions have been denominated in foreign currency.  As a result, a change in the value of the US dollar relative to the foreign currencies could make our products more expensive, and thus less competitive.  We may find it necessary in the future from a competitive position to complete transactions denominated in foreign currency.  This will subject us with the risks associated with fluctuations in these foreign currencies.

Our markets are highly competitive, and we may lose business to larger and better financed competitors.
 
Our markets are highly competitive worldwide with few import barriers. Foreign competitors, particularly from the Far East, continue to dominate the U.S. and world markets.  We compete primarily on our quality, strong design and application engineering, responsive customer service and a willingness to provide specialty small quantity orders.  Our major competitors, most of which are larger than we are, have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer support capabilities than we have.

Certain Directors and Executive Officers Beneficially Own a Substantial Portion of Our Common Stock and May Be in a Position to Determine the Outcome of Our Corporate Elections

Members of the Board of Directors and Executive Officers, beneficially own 39% of the currently outstanding shares of Common Stock on a fully diluted basis.  By virtue of such ownership, such members of the Board and Management including Ted Valpey, Jr. may have the practical ability to determine the election of all directors and control the outcome of substantially all matters submitted to our stockholders.  Such concentration of ownership could have  the effect of making it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of us.

Compliance with changing corporate governance and public disclosure regulations may result in additional expenses.
 
Compliance with the changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 (SOX), new Securities and Exchange Commission regulations and the NASDAQ Stock Market rules, requires significant management attention and has increased our professional fee expense. We will incur additional general and administrative expenses as we continue the ongoing evaluation and testing of our internal control over financial reporting as we comply with Section 404 of SOX.

Item 1B.  Unresolved Staff Comments

Not applicable.

 
11
 
Item 2.  Properties

We own our 32,000 square foot facility located in Hopkinton, Massachusetts that contains office and manufacturing space and serves as our corporate headquarters.

We believe our facility is suitable for our current use and is adequate to satisfy our current production capacity needs.

We lease approximately 1,000 square feet of engineering space in Nashua, NH.

Item 3.  Legal Proceedings

Not applicable.

Item 4.  Reserved

 
12
 
PART II

Item 5.  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Since October 28, 2008, our common stock has been listed and traded on the NASDAQ Capital Market under the symbol VPF.  Prior to October 28, 2008, our common stock had been listed and traded on the American Stock Exchange under the symbol VPF.   The range of high and low prices each quarter for the past two years is shown below:
 
                                                                                                                                           60;                      
For the years ended December 31,    2009     2008  
   
High
    
Low
    
High
    
Low
  
                         
             4th quarter
   $ 1.59     $ 1.20     $ 4.79     $ 0.91  
             3rd quarter
     1.60       1.10       4.86       2.94  
             2nd quarter
     1.58       1.00       5.30       3.80  
             1st quarter
     1.95       0.91       5.10       3.85  

No dividend was paid in 2009.   On October 17, 2008, we paid a special one-time cash dividend in the amount of $1.50 per share to shareholders of record on October 6, 2008.

The number of stockholders of record on March 10, 2010 was 591. This number does not include stockholders for whom shares are held in a “nominee” or “street” name.
 
Equity Compensation Plan Information

The following table presents information as of December 31, 2009 regarding the number of shares of our common stock that may be issued under our equity compensation plans.
 
 
 
 
 
 
 
     Plan Category
  
 
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
    
 
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
    
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the
first column)
  
                   
Equity compensation plans approved by security holders (1)
        887,891     $  1.45          95,040  
Equity compensation plans not approved by security holders (2)
        -0-          -0-          -0-  
 
(1)
Includes the 2003, 2001, 1999 and 1992 Stock Option Plans.
(2)
Does not include 100,000 shares of Restricted Stock awarded pursuant to the Restricted Stock Agreement dated December 19, 2002 between Mr. Ferrantino and us.

 
13
 
Material Feature of Restricted Stock Agreement between Us and Mr. Ferrantino Not Approved by Shareholders

As an inducement to becoming our employee, we entered into a Restricted Stock Agreement dated December 19, 2002 with Michael J. Ferrantino, a director and our Chief Executive Officer (“CEO”) until October 31, 2009.  Pursuant to the agreement, on December 24, 2002 we issued Mr. Ferrantino 100,000 shares of Common Stock for a purchase price of $.05 per share or an aggregate purchase price of $5,000.  All restrictions on transferring the shares pursuant to the Agreement terminated on October 23, 2007.  The Restricted Stock Agreement was not submitted to shareholders for approval.  Mr. Ferrantino resigned as CEO and a Director of the Company on October 31, 2009.

Sale of Unregistered Securities

The 100,000 shares of Common Stock issued to Mr. Ferrantino pursuant to the Restricted Stock Agreement described above in this Item 5 have not been registered under the Securities Act of 1933 (the “Act”).  Transfer of the shares is subject to the restrictions and limitations under the Act.  The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Act as a transaction not involving any public offering.

Stock Repurchases

At December 31, 2009, under prior authorizations from the Board of Directors, we are authorized to purchase up to 219,700 shares of common stock through the open market or negotiated transactions.

We made no repurchases of ours common stock in the fourth quarter of 2009.

 
14
 
Item 6. Selected Financial Data

Five Year Financial Summary

Years Ended December 31,
  
2009 (1)
    
2008 (1)
    
2007 (1)
    
2006(1)
    
2005
  
    (in thousands, except per share data)  
Continuing operations:
                              
      Net sales
   $ 10,378     $ 13,021     $ 13,419     $ 11,782     $ 11,427  
      Gross profit
     3,452       5,061       5,441       4,469       3,814  
      Earnings (loss) before income taxes
     (300 )     1,328       1,712       778       499  
      Income tax (expense) benefit
     87       (592 )     (521 )     71       (195 )
      Earnings (loss)
     (213 )     736       1,191       849       304  
Discontinued operations- net of income tax benefit
     -       -       -       (180 )     (60 )
Net earnings (loss)
   $ (213 )   $ 736     $ 1,191     $ 669     $ 244  
                                         
Basic earnings (loss) per share:
                                        
      Continuing operations
   $ (.05 )   $ .17     $ .28     $ .20     $ .07  
      Discontinued operations
     -       -       -       (.04 )     (.01 )
 
   $ (.05 )   $ .17     $ .28     $ .16     $ .06  
                                         
Diluted earnings (loss) per share:
                                        
      Continuing operations
   $ (.05 )   $ .17     $ .27     $ .20     $ .07  
      Discontinued operations
     -       -       -       (.04 )     (.01 )
 
   $ (.05 )   $ .17     $ .27     $ .16     $ .06  
                                         
Cash dividends per share
   $ -     $ 1.50     $ -     $ -     $ -  
Total assets, end of year
   $ 9,549     $ 10,086     $ 15,950     $ 14,529     $ 13,617  
Long-term debt, end of year
   $ -     $ -     $ -     $ -     $ -  

(1)  
Effective January 1, 2006,  we changed our method of accounting for stock-based compensation to conform to Financial Accounting Standards Board Accounting Standards Codification 717-10, formerly Statement of Financial Accounting Standards No. 123R “Share-Based Payment”.

 
15
 
Item 7. 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 of America.  The preparation of these financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities.  Actual results may differ from these estimates under different assumptions or conditions.

Management believes that judgments and estimates related to the following critical accounting policies could materially affect its consolidated financial statements.
 
Accounts receivable - We perform on-going credit evaluations of our customers and assess the collectability of our accounts receivable based on a number of factors including the customer’s financial condition and collection history, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.

Inventory - We estimate the carrying value of our inventory based upon historic usage and management’s assumptions relating to projected customer purchases, product design changes and product obsolescence.  The changing technology markets that we supply also affect these estimates.  If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Income Taxes - We have recorded deferred tax assets and liabilities resulting from differing treatment of items for tax and financial statement reporting purposes.  We must estimate our income tax valuation allowance by assessing which deferred tax assets are more likely than not to be recovered in the future.  Based on our assessment of the realization of these assets, we do not have a valuation allowance at December 31, 2009.   In reaching our conclusion, we evaluated the existence of deferred tax liabilities that can be used to absorb deferred tax assets, taxable income in prior carryback years and taxable income by jurisdiction in which we operate and the period over which the deferred tax assets would be recoverable.  In the event that actual results differ from these estimates in fut ure periods, we may need to establish an additional valuation allowance or reduce the valuation allowance, which could materially impact our financial position and results of operations.

Financial Condition and Liquidity

Cash and cash equivalents amounted to $4,053,000 at December 31, 2009, a decrease of $462,300 from the December 31, 2008 level as our operations used cash of $93,600 and our investing activities used cash of $368,700.

Cash used in operations of $93,600 resulted from the net loss of $213,500 and a net cash outflow of $461,400 from changes in our operating assets and liabilities partially offset by the net positive adjustments of $581,300 for the non-cash effects of depreciation and provisions for inventory, deferred income taxes and stock compensation. The net cash outflow from changes in our operating assets and liabilities were mainly due to a $749,700 reduction in accrued liabilities offset in part by an $82,200 decrease in net inventory and a $342,900 increase in accounts payable. The main items accounting for the net decrease in accrued liabilities were payments of $280,000 under the 2008 key employee bonus plan, $148,100 for environmental liabilities of our discontinued operation, $87,000 for federal income taxes and a reduction in accrued compensation of $157,100. The inventory decrease results from orders being filled from existing inventory and continued control over inventory purchases and levels required to support the current level of shipments and backlog to meet customer delivery requirements. The increase in accounts payable is primarily due to the timing of inventory and equipment purchases.

 
16
 
Capital expenditures amounted to $356,300 in 2009. Our budget for 2010 capital expenditures is approximately $940,000 and is geared toward new production and test equipment capabilities in connection with the introduction of new products and enhancements to existing products.

We believe that based on our current working capital and the expected cash flows from operations, our resources are sufficient to meet our financial needs and to fund our capital expenditures for the projected levels of business in 2010.

Results of Operations – 2009 versus 2008

Our net sales decreased $2,643,000 (20%) from 2008.   Most product lines experienced sales decreases resulting primarily from a reduction in the overall number of units sold.  The sales reduction was mainly caused by both lower backlog levels at the beginning of 2009 compared to 2008 and lower bookings in 2009 compared to 2008.  The order backlog at the beginning of the 2009 was $468,000 (22%) lower than at the beginning of 2008 and bookings for 2009 were $1,809,000 (14%) lower than in 2008.  Our backlog at December 31, 2009 amounted to $2,023,000 versus $1,666,000 at December 31, 2008.  The decreases in bookings a nd 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.

Our gross profit in 2009 decreased $1,608,000 from the 2008 amount and as a percentage of sales was 33% compared to 39% in 2008.  The main factors contributing equally to the gross profit percentage decrease were the unfavorable effect of spreading the fixed overhead costs over the lower sales volume and increased raw material costs that were mainly due to changes in the product mix of sales.

Selling and advertising expenses decreased $41,000 (3%) from 2008 primarily as a result of reductions of $88,000 in commission expense to outside sales representatives and $23,000 in advertising expense partially offset by increases of $41,000 in travel expenses and $25,000 in employee compensation and benefits.

General and administrative expenses decreased $380,000 (23%) from 2008 mainly as a result of reductions of $238,000 in employee compensation and benefits and $128,000 in professional fees.  Professional fees in 2008 included expenses incurred as the company considered possible strategic alternatives to increase shareholder value.

In the third quarter of 2009, the Company and Michael Ferrantino, Sr., the Chief Executive Officer (“CEO”) and a Director of the Company at that time, entered into a Retirement Agreement and General Release.   Effective October 31, 2009, Mr. Ferrantino resigned as CEO and a Director of the Company.   Pursuant to the Retirement Agreement, the Company paid Mr. Ferrantino a lump sum retirement payment of $265,225 on November 9, 2009 and Mr. Ferrantino agreed to a one year non-compete provision, an eighteen month non-solicitation provision and a general release of claims.

Research and development expenses increased $16,000 (3%) over the 2008 amount primarily as a result of an increase in depreciation expense of $9,000 and operating supplies of $4,000.

 
17
 
During 2009 interest income decreased $160,000 (83%) from 2008 as a result of the average invested cash balance being approximately $4.6 million lower in 2009 compared to 2008 and the effect of interest rates being approximately 1.5 percentage points lower during 2009.  In the 4th quarter of 2008, the Company paid a special one-time cash dividend totaling $6,447,000.

The combined federal and state income tax rate for 2009 is 29% compared to 45% in 2008.  The 2009 rate differs from the expected combined rate of 40% mainly due to the effects of non-deductible stock option and meals and entertainment expenses.  The 2008 rate differs from the expected combined rate of 40% mainly due to the effects of non-deductible stock option and meals and entertainment expenses and the federal tax effects of state tax operating losses utilized.

We reported an operating loss of $332,000 in 2009 compared to an operating profit of $1,136,000 in 2008.  The decrease in operating profit of $1,467,000 results from a $1,608,000 reduction in gross profit partially offset by a $141,000 reduction in operating expenses.  The lower gross profit was primarily due to the 20% decrease in sales.  The reduction in 2009 operating expenses is net of an increase in non-recurring retirement expense of $265,000 expense related to the retirement agreement with the former CEO.  Interest income amounted to $32,000 in 2009, compared to $192,000 in 2008.  We reported a pre-tax loss of $300,000 during 2009 compared to a pre-tax profit of $1,328,000 in 2008.  For 2009, we reported a net loss of $213,000 versus net earnings of $736,000 in 2008.

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, machinery and equipment and production supplies based on our projected requirements.  At December 31, 2009, we had outstanding purchase commitments approximating $1,574,000, all of which we expect to be fulfilled in 2010.  At December 31, 2009, we had no contractual obligations for capital leases, no material contractual obligation for operating leases and no long-term debt.

Recent accounting pronouncements
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105-10, “Generally Accepted Accounting Principles – Overall” (“ASC 105-10”).  ASC 105-10 establishes the FASB Accounting Standards 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.   The Company adopted this standard effective June 29, 2009 and such adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.

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 liabiliti es effective January 1, 2009, and such adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.

 
18
 
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.

Item 7A.  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 December 31, 2009, and assuming the balance was totally invested in money market instruments for the full year, a hypothetical 1% point increase or decline in interest rates would result in an approximate $40,500 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.

 
19
 
Item 8. Financial Statements and Supplementary Data

Valpey-Fisher Corporation
Consolidated Balance Sheets

December 31,
  
2009
    
2008
  
Assets
            
Current assets:
            
Cash and cash equivalents
   $ 4,052,721     $ 4,514,985  
Receivables, net
     1,743,494       1,631,041  
Inventories, net
     1,105,417       1,376,350  
Deferred income taxes
     848,021       825,523  
    Other current assets
     110,932       40,038  
Total current assets
     7,860,585       8,387,937  
                 
Property, plant and equipment, at cost:
                
Land and improvements
     226,505       226,505  
Buildings and improvements
     2,058,873       2,058,873  
Machinery and equipment
     9,328,008       8,971,689  
      11,613,386       11,257,067  
Less accumulated depreciation
     10,127,624       9,748,875  
      1,485,762       1,508,192  
                 
Other assets
     202,502       190,132  
    $ 9,548,849     $ 10,086,261  
Liabilities and Stockholders’ Equity
                
Current liabilities:
                
Accounts payable
   $ 948,799     $ 605,851  
Accrued liabilities
     861,145       1,610,802  
Total current liabilities
     1,809,944       2,216,653  
                 
Deferred income taxes
     175,171       149,722  
                 
Commitments and contingencies
     -       -  
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, respectively
     214,895       214,895  
Capital surplus
     5,666,925       5,609,608  
Retained earnings
     1,681,914       1,895,383  
Total stockholders’ equity
     7,563,734       7,719,886  
    $ 9,548,849     $ 10,086,261  

 
See notes to consolidated financial statements.

 
20
 
Valpey-Fisher Corporation
Consolidated Statements of Operations

For the Years Ended December 31,
  
2009
    
2008
  
Net sales
   $ 10,378,206     $ 13,020,834  
Cost of sales
     6,925,823       7,960,198  
Gross profit
     3,452,383       5,060,636  
                 
Selling and advertising expenses
     1,612,622       1,653,977  
General and administrative expenses
     1,279,301       1,659,760  
Retirement agreement
     265,225       -  
Research and development expenses
     627,100       611,321  
      3,784,248       3,925,058  
                 
Operating profit (loss)
     (331,865 )     1,135,578  
 
                
Interest income
     31,796       192,226  
                 
Earnings (loss) before income taxes
     (300,069 )     1,327,804  
Income tax (expense) benefit
     86,600       (592,000 )
Net earnings (loss)
   $ (213,469 )   $ 735,804  
                 
Basic and diluted earnings (loss)  per share
   $ ( .05 )   $ .17  
 
                
Cash dividend per share
   $ -     $ 1.50  

 
See notes to consolidated financial statements.

 
21
 
Valpey-Fisher Corporation
Consolidated Statements of Cash Flows

For the Years Ended December 31,
  
2009
    
2008
  
Cash Flows from Operating Activities:
            
   Net earnings (loss)
   $ (213,469 )   $ 735,804  
   Adjustments to reconcile net earnings (loss) to net
      cash provided (used) by operating activities:
                
      Depreciation
     378,749       422,339  
      Provisions for inventory
     188,775       178,715  
      Deferred income taxes
     (103,100 )     (38,891 )
      Stock based compensation
     57,317       71,456  
   Changes in operating assets and liabilities:
                
      Receivables, net
     (112,453 )     306,910  
      Inventories, net
     82,158       (280,852 )
      Other current assets
     (70,894 )     21,532  
      Accounts payable and accrued liabilities
     (212,181 )     (46,942 )
   Net cash provided (used) by operating activities of continuing operations
      (5,098 )      1,191,356  
   Deferred income taxes
     59,600       27,190  
   Change in accrued liabilities
     (148,077 )     (67,519 )
   Net cash (used) by operating activities of discontinued operations
     (88,477 )     (40,329 )
   Net cash provided (used) by operating activities
     (93,575 )     1,151,027  
                 
Cash Flows from Investing Activities:
                
   Capital expenditures
     (356,319 )     (214,929 )
   Other
     (12,370 )     (11,673 )
   Net cash (used) by investing activities
     (368,689 )     (226,602 )
Cash Flows from Financing Activities:
                
   Dividend paid
     -       (6,446,847 )
   Stock options exercised
     -       68,678  
   Purchases of common stock
     -       (32,293 )
   Net cash (used) by financing activities
     -       (6,410,462 )
                 
Net (Decrease) in Cash and Cash Equivalents
     (462,264 )     (5,486,037 )
Cash and Cash Equivalents at beginning of year
     4,514,985       10,001,022  
Cash and Cash Equivalents at end of year
   $ 4,052,721     $ 4,514,985  

Supplemental Disclosures of Cash Flow Information                
  Cash paid during the year by continuing operations for income taxes
   $ 87,500     $ 525,000  

 
See notes to consolidated financial statements.
 
 
22
 
Valpey-Fisher Corporation
Consolidated Statements of Stockholders’ Equity
 
   
Common Stock
    
Capital
    
Retained
  
   
Shares
    
Amount
    
Surplus
    
Earnings
  
                         
Balance, January 1, 2008
     4,282,503     $ 214,125     $ 5,502,538     $ 7,606,426  
Net earnings
     -       -       -       735,804  
Exercise of stock options
     23,200       1,160       67,517       -  
Stock based compensation
     -       -       71,456       -  
Dividend paid ($1.50 per share)
     -       -       -       (6,446,847 )
Purchases and retirement of common stock
     (7,805 )     (390 )     (31,903 )     -  
Balance, December 31, 2008
     4,297,898       214,895       5,609,608       1,895,383  
Net (loss)
     -       -       -       (213,469 )
Stock based compensation
     -       -       57,317       -  
Balance, December 31, 2009
     4,297,898     $ 214,895     $ 5,666,925     $ 1,681,914  
                                 
                                 
See notes to consolidated financial statements.

 
23
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements

(1)   Description of Business – Valpey-Fisher Corporation (the Company), a Maryland corporation, is involved in the design, production, import, and sale of quartz crystals and oscillators marketed primarily to customers operating in the telecommunications industry and the design, production and sale of ultrasonic transducer devices.

(2)  Summary of Significant Accounting Policies:
 
Principles of consolidation – The accompanying consolidated financial statements include the accounts of Valpey-Fisher Corporation and its wholly owned subsidiary, Matec International, Inc.   Significant intercompany balances and transactions have been eliminated in consolidation
 
Use of estimates – The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates.  Estimates include reserves for accounts receivable and inventory, useful lives of property, plant and equipment, accrued liabilities, deferred income taxes and assumptions used to calculate stock compensation expense.  Actual results could differ from those estimates.
 
Fair value of financial instruments – The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of their short-term nature.
 
Cash equivalents – The Company considers all highly liquid money market investments with a maturity of three months or less when purchased to be cash equivalents.  Cash equivalents are stated at cost plus accrued interest, which approximates market value.
 
Accounts receivable – Trade accounts receivable are recorded at the invoiced amount and do not bear interest.  An allowance for doubtful accounts is maintained for potential credit losses based upon the Company’s expected collectability of all accounts receivable.  The Company determines the allowance based on numerous factors including the customer’s financial condition and collection history, and current economic trends.  Acc ount balances are charged-off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
 
Concentration of credit risk – Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.  The Company places its cash and cash equivalents primarily in money market accounts and reduces its exposure to credit risk by maintaining such accounts with high quality financial institutions.  At December 31, 2009, approximately $1,460,000 of the Company’s cash and cash equivalents balance were in excess of the applicable insurance limits.  Concentrations of credit risk with respect to accounts receivable are primarily due to customers with large outstanding balances.  At December 31, 2009, one customer represented about 17% of the Company̵ 7;s accounts receivable.  At December 31, 2008, two customers represented about 17% and 11%, respectively, of the Company’s accounts receivable.   To reduce credit risk, the Company performs ongoing credit evaluations of its customers, but generally does not require advance payments or collateral.  The Company maintains an allowance for doubtful accounts based upon the expected collectability of such receivables.
 
Inventories – Inventories are stated at the lower of cost or market and are determined by the first-in, first out method (FIFO).
 
Property, plant and equipment – The Company uses the straight-line method of providing for depreciation of property, plant and equipment for financial reporting purposes and accelerated methods for tax purposes. The estimated lives used to compute depreciation are as follows: land improvements – 10 years, building and improvements - 15 to 40 years and machinery and equipment – 3 to 10 years.

 
24
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)

Expenditures for additions, renewals and betterments of property and equipment are capitalized.  Expenditures for repairs and maintenance are charged to expense as incurred.  As assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations.
 
Revenue recognition – Revenue is recognized when an agreement of sale exists, product delivery has occurred, title has passed, pricing is fixed or determinable, and collection is reasonably assured.
 
Research and development – Research and development costs are expensed as incurred.
 
Advertising - Advertising costs are expensed as incurred.  Advertising expenses were $83,200 in 2009 and $106,400 in 2008.
 
Income taxes – The Company computes deferred income taxes based on the differences between the financial statement and tax basis of assets and liabilities using enacted rates in effect in the years in which the differences are expected to reverse.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  The tax effect of the differences between stock compensation expense for financial statement and income tax purposes is charged or credited to capital surplus.
 
Earnings (loss) per share – Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period.  Diluted earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period, plus the net incremental shares that would be issued using the treasury stock method assuming  dilutive outstanding stock options were exercised, except when anti-dilutive.  The computation of diluted earnings per share excludes stock options with an exercise price in excess of the average market price as they are anti-dilutive.  In calculating diluted earni ngs per share, the dilutive effect of stock options is computed using the average market price for the respective period.
 
Stock-based compensation – The Company measures stock based compensation cost at the grant date based on the fair value of the award.  The cost is recognized as an expense, net of estimated forfeitures, on a straight line basis, over the vesting period.  The Company calculates the grant-date fair value using the Black-Scholes valuation model.  The valuation model requires the Company to make estimates of assumptions for expected volatility, expected term, risk-free interest rate, and expected dividend.
 
The Company recorded the following stock-based compensation expense in the Consolidated Statement of Operations (in thousands):

   
2009
    
2008
  
Cost of sales
   $ 14     $ 20  
Selling and advertising
     15       16  
General and administrative
     18       24  
Research and development
     10       11  
Pre-tax stock-based compensation expense
     57       71  
Income tax (benefit)
     (4 )     (5 )
Net stock-based compensation expense
   $ 53     $ 66  

See Note 9 for additional information relating to stock-based compensation.

 
25
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)

Comprehensive income (loss) – Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. For the years ended December 31, 2009 and 2008 the Company had no items of other comprehensive income (loss).

Reclassifications – In the Consolidated Statements of Cash Flows, certain amounts for 2008 have been reclassified to conform to the current year presentation.
 
Recent accounting pronouncements –
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105-10, “Generally Accepted Accounting Principles – Overall” (“ASC 105-10”).  ASC 105-10 establishes the FASB Accounting Standards 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. The Company adopted this standard effective June 29, 2009 and such adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.
 
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 e ffective January 1, 2009, and such adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.
 
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.
 
(3) Receivables, net: Receivables, net of allowances, consist of the following:
 
 
  
2009
    
2008
  
Accounts receivables, less allowance for doubtful accounts of
    $100,000 in 2009 and $105,000 in 2008
   $ 1,672,894     $ 1,631,041  
Refundable income taxes
     70,600       -  
    $ 1,743,494     $ 1,631,041  

 
26
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)
 
(4) Inventories, net: Inventories, net of reserves, consist of the following:
 
 
  
2009
    
2008
  
Raw materials
   $ 634,334     $ 903,051  
Work in process
     182,020       149,760  
Finished goods
     289,063       323,539  
    $ 1,105,417     $ 1,376,350  

At December 31, 2009 and 2008, inventories are presented net of inventory reserves of $1,200,000 and $1,050,000, respectively.

(5) Income Taxes: The provision (benefit) for income taxes for continuing operations consisted of the following:

   
2009
    
2008
  
Current:
            
Federal
   $ 2,500     $ 603,700  
State
     14,000       -  
 
     16,500       603,700  
Deferred:
                
Federal
     (66,525 )     (136,200 )
State
     (36,575 )     132,500  
      (103,100 )     (3,700 )
Valuation allowance
     -       (8,000 )
Total
   $ (86,600 )   $ 592,000  
 
The total income tax provision for continuing operations differs from that computed by applying the federal income tax rate to income before income taxes. The reasons for the difference are as follows:

   
2009
    
2008
  
Income taxes at statutory rates
   $ (102,000 )   $ 451,500  
State income taxes, net of federal tax effect
     (14,900 )     (27,400 )
Stock based compensation
     16,200       20,100  
Federal tax effect of state tax operating losses utilized
     -       115,200  
Change in valuation allowance
     -       (8,000 )
Other, net
     14,100       40,600  
    $ (86,600 )   $ 592,000  
 
 
27
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)
 
The tax effects of significant items comprising the Company’s deferred tax assets and liabilities as of December 31, 2009 and 2008 are as follows:
 
   
2009
    
2008
  
Deferred tax assets:
            
Inventory valuation
   $ 676,700     $ 575,600  
Accruals and allowances
     152,200       235,100  
Stock compensation
     16,700       14,800  
State tax loss carryforward
     2,400       -  
Net deferred tax assets
     848,000       825,500  
                 
Deferred tax liabilities:
                
Depreciation
     175,200       149,700  
Total deferred tax liabilities
     175,200       149,700  
Net deferred tax assets
   $ 672,800     $ 675,800  

At December 31, 2009 and 2008, the Company had no reserves for unrecognized tax benefits on the balance sheet.    During 2009 the Company’s tax return for 2007 was examined by the Internal Revenue Service which resulted in no changes to the tax return.  The federal income tax return for 2008 and the Massachusetts tax returns for 2006 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.

(6) Profit Sharing and Savings Plan: The Company has a profit sharing 401(k) plan that covers all qualified employees. Under the profit sharing section of the plan, the Company may make contributions to the plan at the discretion of the Board of Directors. Profit sharing expense amounted to $ 0 in 2009 and $29,900 in 2008.  Under the 401(k) section of the plan, the Company matched 50% of employee contributions up to 6% of compensation. Total Company contributions charged to operations were approximately $80,200 in 2009 and $84,000 in 2008.
 
(7) Accrued Liabilities: Accrued liabilities consist of the following items:

 
  
2009
    
2008
  
Employee compensation
   $ 250,900     $ 688,000  
Environmental costs
     166,300       314,400  
Profit sharing 401(k)
     99,900       84,200  
Professional fees
     90,000       110,000  
Commissions
     51,200       93,600  
Other
     202,845       320,602  
    $ 861,145     $ 1,610,802  

In 1998, the Company sold all the assets of a subsidiary located in New Jersey which is reported as a Discontinued Operation in the financial statements.  As a result of this sale, the Company was required to perform environmental cleanup at this site.  As of December 31, 2009, a total of $1,560,000 has been expensed for the cleanup and $166,300 is accrued for expenses relating to the cleanup.

 
28
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)

(8) Debt:  At December 31, 2009, the Company had no outstanding credit arrangements with banks or any other financial institution.
 
(9) Stockholders’ Equity: The Company has 4,297,898 shares of its $.05 par value Common Stock outstanding at December 31, 2009 and 2008, respectively.
 
At December 31, 2009, under prior authorizations from the Board of Directors, the Company is authorized to purchase up to an additional 219,700 shares of stock through the open market or negotiated transactions.
 
The Company has four Stock Option Plans that originally allowed 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.  On September 30, 2008, shareholders approved amendments to the four stock option plans to adjust the number of options allowed by these plans by an aggregate of 387,215 to offset the expected decline in market value of the Company’s common stock as a result of a special cash dividend of $1.50 per share approved by the Board of Directors on August 7, 2008 and payable on October 17, 2008.  Stock-based compensation expense was not affected by this adjustment.

The option price and terms are recommended by the Company’s Compensation Committee to the Company’s Board of Directors for approval.  The options granted may qualify as incentive stock options (“ISO’s”).  Options granted prior to December 31, 2005 generally vested 20% on each of the first, second, third, fourth, and fifth anniversaries of the date of grant with a contractual life of ten years.  Options granted after December 31, 2005 have vested 33% on each of the first, second and third anniversaries of the date of grant and have a contractual life of five years.  The Company issues new shares upon the exercise of stock options. At December 31, 2009, options for 95,040 shares remain available for future grants under the Plans and 887,891 common shares are reserved for issuance upon exercise of the outstanding stock options.

The estimated fair value of each option granted in 2009 and 2008 was determined on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions for stock option grants:

   
2009
    
2008
  
Expected dividend yield
     0 %     0 %
Risk-free interest rate
     2.3 %     1.9 %
Expected life of options in years
     4.7       4.8  
Assumed volatility
     46 %     46 %
 
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 weighted-average historic prices for a period commensurate with the expected term.  The expected term of the option is determined by using historical data.

 
29
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)
 
A summary of the status of the Company’s stock option plans as of December 31, 2009 and 2008, and changes during the years then ended is presented below:

   
2009
    
2008
  
   
Number of
shares
    
Weighted-
Average
Exercise 
Price
    
 
Number of
shares
    
Weighted-
Average
Exercise 
Price
  
Outstanding, January 1
     823,265     $ 1.45       460,250     $ 3.43  
Granted
     75,000       1.39       20,000       2.83  
Exercised
     -       -       (23,200 )     2.96  
Forfeited
     (10,374 )     1.26       (21,000 )     3.59  
Special dividend adjustment
     -       -       387,215       1.45  
Outstanding, December 31
     887,891     $ 1.45       823,265     $ 1.45  
Exercisable, December 31
     757,149     $ 1.46       699,952     $ 1.47  

The weighted average grant date fair value of options granted in 2009 and 2008 was $0.58 and $1.20, respectively.  As of December 31, 2009, the intrinsic value (the difference between the exercise price and the market price) for all outstanding options was $154,956 and the intrinsic value for all options exercisable was $138,693.  The total intrinsic value of all options exercised during the year ended December 31, 2008 was $27,776.

The following table summarizes information about fixed stock options outstanding and exercisable at December 31, 2009:

     
Options Outstanding
    
Options Exercisable
  
 
Range of
exercise
prices
    
 
 
 
Number
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Remaining
Life in Years
    
 
 
 
Number
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Remaining
Life in Years
  
                                       
$ 1.09 -1.34       367,002     $ 1.22       4.6       319,453     $ 1.21       4.5  
$ 1.36 -1.72       484,764       1.38       0.9       401,571       1.37       0.2  
$ 4.62       36,125       4.62       0.8       36,125       4.62       0.8  
          887,891     $ 1.45       2.4       757,149     $ 1.46       2.0  

 
30
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)
 
A summary of the status of the Company’s nonvested stock options as of December 31, 2009 and the changes during the year then ended is as follows:

   
 
 Shares
    
Weighted-
Average
Grant-Date
Fair Value
  
Nonvested at December 31, 2008
     123,313     $ 1.70  
Granted
     75,000       .58  
Vested
     (66,533 )     1.71  
Forfeited
     (1,038 )     1.82  
Nonvested at December 31, 2009
     130,742     $ 1.05  

At December 31, 2009, there was approximately $63,900 of total unrecognized compensation cost related to nonvested stock options granted.  That cost is expected to be recognized as follows: $33,800 in 2010, $19,400 in 2011 and $10,700 in 2012.

(10) Earnings (Loss) Per Share: The computation of basic and diluted earnings (loss) per share is as follows:
 
   
2009
    
2008
  
Basic:
            
Net earnings (loss)
   $ (213,469 )   $ 735,804  
Weighted average shares outstanding
     4,297,898       4,285,096  
Basic earnings (loss) per share
   $ (.05 )   $ .17  
Diluted:
                
Net earnings (loss)
   $ (213,469 )   $ 735,804  
Weighted average shares outstanding
     4,297,898       4,285,096  
Diluted effect of stock options outstanding, using the treasury stock method
      -        102,625  
Diluted weighted average shares outstanding
     4,297,898       4,387,721  
Diluted earnings (loss) per share
   $ (.05 )   $ .17  

In 2009 stock options to purchase 887,891 common shares were not included in the computation of "Diluted Earnings (Loss) per Share" because of the anti-dilutive effect of the options since the Company reported a net loss.  In 2008 stock options to purchase 53,415 common shares were not included in the computation of "Diluted Earnings (Loss) per Share" because the exercise price was greater than the average market price.

 
31
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)

(11) Industry Segment: The Company operates in one segment: the design, production, import, and sale of quartz crystals and oscillators and ultrasonic transducer devices.

Export sales to foreign markets, based on the location of the customer, are as follows:
 
   
2009
    
2008
  
Asia Pacific
   $ 2,209,500     $ 2,419,700  
Mexico
     394,900       865,900  
Europe and Middle East
     581,200       691,700  
Canada
     278,800       363,900  
Other
     34,300       29,800  
    $ 3,498,700     $ 4,371,000  

(12) Concentration Risks:  One customer accounted for approximately 12% and 17% of net sales in 2009 and 2008, respectively.

Products manufactured by one supplier accounted for approximately 14% and 10% of our revenue in 2009 and 2008, respectively.

(13) Quarterly Financial Data (unaudited): Selected unaudited quarterly financial data for 2009 and 2008 is set forth below:
 
   
First
    
Second
    
Third
    
Fourth
  
   
(in thousands, except per share data)
  
2009
      
Net sales
   $ 2,582     $ 2,496     $ 2,502     $ 2,798  
Gross profit
     849       815       881       908  
Earnings (loss) before income taxes
     (44 )     (57 )     (257 )     59  
Net earnings (loss)
   $ (16 )   $ (82 )   $ (138 )   $ 23  
Basic and diluted earnings per share
   $ -     $ (.02 )   $ (.03 )   $ .01  

 
 
   
First
    
Second
    
Third
    
Fourth
  
   
(in thousands, except per share data)
  
2008
                        
Net sales
   $ 3,455     $ 3,262     $ 3,346     $ 2,958  
Gross profit
     1,413       1,316       1,348       984  
Earnings before income taxes
     373       380       394       181  
Net earnings
   $ 209     $ 207     $ 197     $ 123  
Basic and diluted earnings per share
   $ .05     $ .05     $ .05     $ .03  

The third quarter of 2009 includes $265,255 of expense relating to a retirement agreement and general release with the former Chief Executive Officer of the Company.

 
32
 
Valpey-Fisher Corporation
Notes to Consolidated Financial Statements (continued)
 
Earnings (loss) per share calculations for each of the quarters is based on the weighted average number of shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year’s earnings (loss) per share amounts.
 
(14) Commitments and Contingencies:  During the normal course of business, the Company incurs certain commitments to make future payments for the purchase of inventory, machinery and equipment and production supplies based on its projected requirements.  At December 31, 2009, the Company has outstanding purchase commitments approximating $1,574,000, all of which are expected to be fulfilled in 2010.

In connection with the sale of its Bergen Cable Technologies, Inc. subsidiary in 1998, the Company was required to perform environmental cleanup at this site (see Note 7).

(15) Subsequent Events:  The Company has evaluated all subsequent events through the date these financial statements are being filed with the Securities & Exchange Commission, and has determined there were no events or transactions deemed to be reportable.

 
33
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
To the Stockholders and Board of Directors of Valpey-Fisher Corporation

We have audited the accompanying consolidated balance sheets of Valpey-Fisher Corporation (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2009. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15(a) (2) (not presented separately herein).  These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and fi nancial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company 217;s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Valpey-Fisher Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.


/s/ Stowe & Degon, LLC

Westborough, Massachusetts
February 22, 2010

 
34
 
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A(T).  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 December 31, 2009.

Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934.  Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Company’s Chief Financial Officer we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”).  Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in internal control.

Our evaluation did not identify any change in our internal controls over financial reporting that occurred during the quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None

 
35
 
PART III

We have adopted a Code of Business Conduct and Ethics that applies to our board of directors, officers, employees and consultants.  In addition, we have adopted a Code of Ethics for our chief executive officer and our chief financial and accounting officer.  These codes are posted in the Corporate Governance section of our website (www.valpeyfisher.com).  If we make any substantive changes or grant any waivers to these codes, we will disclose the nature of such change or waiver on our website and in a report on Form 8-K.

The remaining information called for by Part III is hereby incorporated by reference from the information set forth and under the headings “Common Stock Ownership of Certain Beneficial Owners and Management”, “Election of Directors”,  “Corporate Governance”, “Executive Compensation” and “Principal Accountant Fees and Services” in Registrant’s definitive proxy statement for the 2010 Annual Meeting of Stockholders, which meeting involves the election of directors, such definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)        The following are filed as part of this Annual Report on Form 10-K:

1.  The following Consolidated Financial Statements are included in Item 8:
 
     Consolidated Balance Sheets, December 31, 2009 and 2008
     Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008
     Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008
     Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 and 2008
     Notes to Consolidated Financial Statements
     Report of Independent Registered Public Accounting Firm

2.  The following schedule to the Consolidated Financial Statements is filed as part of this report.
 
Schedule II – Valuation Reserves 

All other schedules are omitted because they are not applicable, not required or because the required information is included in the Consolidated Financial Statements or notes thereto.

 
36
 
3.  The exhibits filed in this report or incorporated by reference, listed on the Exhibit Index are as follows:
 
Exhibit No.
  
                                                Description
  2.  
Agreement of Merger and Recapitalization
  3.1  
Restated and Amended Articles of Incorporation
  3.2  
By-Laws effective July 23, 2009
  10.1 *
1992 Stock Option Plan, as amended
  10.2 *
1999 Stock Option Plan, as amended
  10.3 *
2001 Stock Option Plan, as amended
  10.4 *
Restricted Stock Agreement
  10.5 *
2003 Stock Option Plan, as amended
  10.6 *
Key Employee Bonus Plan for 2009
  10.7 *
Change in Control Severance Agreement, dated April 4, 2007, between the Company and Michael J. Kroll
  10.8 *
Amendment effective August 7, 2008 to Change in Control Severance Agreement, dated April 4, 2007, between the Company and Michael J. Kroll.
  10.9 *
Change in Control Severance Agreement, dated October 21, 2009, between the Company and Michael J. Ferrantino, Jr.
  10.10 *
Change in Control Retention Agreement, dated April 4, 2007, between the Company and Walt Oliwa
  10.11 *
Amendment effective August 7, 2008 to Change in Control Retention Agreement, dated April 4, 2007, between the Company and Walt Oliwa.
  10.12 *
Retirement Agreement and General Release dated September 3, 2009 between the Company and Michael J. Ferrantino, Sr.
  14  
Code of Ethics of the Chief Executive Officer and the Chief Financial and Accounting Officer
  14.1  
Code of Business Conduct and Ethics
  21  
Subsidiaries of the Registrant
  23  
Independent Registered Public Accounting Firm’s Consent
  31.1  
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2  
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  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

*   Management contract or compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 15(c) of this report.
 
 
37
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  Valpey-Fisher Corporation  
       
Date:  March 24, 2010 
By:
/s/ Michael J. Ferrantino, Jr.  
    Michael J. Ferrantino, Jr.  
    President and Chief Executive Officer  
    (Principal Executive Officer)  
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature
Title
Date
 
    
/s/ Ted Valpey, Jr.
Chairman of the Board
March 24, 2010
Ted Valpey, Jr.
and Director
  
     
/s/ Michael J. Ferrantino, Jr.
President, Chief Executive Officer
March 24, 2010
Michael J. Ferrantino, Jr.
and Director (Principal Executive Officer)
  
     
/s/ Michael J. Kroll
Vice President, Treasurer and
March 24, 2010
Michael J. Kroll
Chief Financial Officer
  
 
(Principal Financial Officer
  
 
and Principal Accounting
  
 
Officer)
  
     
/s/ Mario Alosco
Director                                                       
 March 24, 2010
Mario Alosco
    
     
/s/Gary Ambrosino
Director                                                       
 March 24, 2010
Gary Ambrosino
    
     
/s/Richard W. Anderson
Director
March 24, 2010
 Richard W. Anderson
    
     
/s/Eli Fleisher
Director
March 24, 2010
Eli Fleisher
    
     
/s/Lawrence Holsborg
Director
March 24, 2010
Lawrence Holsborg
    
     
/s/Steven Schaefer
Director
March 24, 2010
Steven Schaefer
    
 

 
38
 
Valpey-Fisher Corporation and Subsidiaries

Schedule II – Valuation and Qualifying Accounts
 
 
         
Additions
    
Additions
              
Description
  
Balance at
Beginning
of Period
    
Charged to
Costs and
Expenses
    
Charged to
Other
Accounts
    
 
Deductions
    
Balance at
End
of Period
  
                               
Allowance for
Doubtful Accounts:
                              
Year Ended:
                              
                               
December 31, 2009
   $ 105,000     $ 5,086     $ -     $ (10,086 ) (1)   $ 100,000  
                                         
December 31, 2008
   $ 105,000     $ 3,108     $ -     $ (3,108 ) (1)   $ 105,000  
                                         
                                         
Inventory Reserve:
                                        
                                         
Year Ended:
                                        
                                         
December 31, 2009
   $ 1,050,000     $ 188,775     $ -     $ (38,775 )(2)   $ 1,200,000  
                                         
December 31, 2008
   $ 925,000     $ 178,715     $ -     $ (53,715 )(2)   $ 1,050,000  
                                         
                                         
(1)  Amounts written-off, less recoveries.
(2)  Inventory disposed of.

 
39
 
EXHIBIT INDEX
Exhibit No.
  
(inapplicable items are omitted)
     
2.
  
Agreement of Merger and Recapitalization between MATEC Corporation a Delaware corporation and MATEC Corporation a Maryland corporation.  (incorporated by reference to Exhibit 2 on Registrant’s Form 10-K for the year ended December 31, 2004).
3.1
  
Restated and Amended Articles of Incorporation as of June 3, 2002.  (incorporated by reference to Exhibit 3.1 on Registrant’s Form 10-K for the year ended December 31, 2007).
3.2
  
By-Laws effective July 23, 2009.  (incorporated by reference to Exhibit 3.3 on Registrant’s Form 8-K dated July 23, 2009).
10.1
  
1992 Stock Option Plan, as amended.  (incorporated by reference to Exhibit 10.1 on Registrant’s Form 10-K for the year ended December 31, 2008).
10.2
  
1999 Stock Option Plan, as amended.  (incorporated by reference to Exhibit 10.2 on Registrant’s Form 10-K for the year ended December 31, 2008).
10.3
  
2001 Stock Option Plan, as amended.  (incorporated by reference to Exhibit 10.3 on Registrant’s Form 10-K for the year ended December 31, 2008).
10.4
  
Restricted Stock Agreement.  (incorporated by reference to Exhibit 10.4 on Registrant’s Form 10-K for the year ended December 31, 2008).
10.5
  
2003 Stock Option Plan, as amended. (incorporated by reference to Exhibit 10.5 on Registrant’s Form 10-K for the year ended December 31, 2008).
10.6
  
Key Employee Bonus Plan for 2009. (incorporated by reference to Exhibit 10.1 on Registrant’s Form 10-Q for the quarterly period ended March 29, 2009).
10.7
  
Change in Control Severance Agreement, dated April 4, 2007, between the Company and Michael J. Kroll. (incorporated by reference to Exhibit 10.3 on Registrant’s Form 10-Q for the quarterly period ended April 1, 2007).
10.8
  
Amendment effective August 7, 2008 to Change in Control Severance Agreement, dated April 4, 2007, between the Company and Michael J. Kroll. (incorporated by reference to Exhibit 10.11 on Registrant’s Form 10-K for the year ended December 31, 2008).
10.9
  
Change in Control Severance Agreement, dated October 21, 2009, between the Company and Michael J. Ferrantino, Jr.  (incorporated by reference to Exhibit 10.1 on Registrant’s Form 8-K dated October 27, 2009).
10.10
  
Change in Control Retention Agreement, dated April 4, 2007, between the Company and Walt Oliwa.  (incorporated by reference to Exhibit 10.5 on Registrant’s Form 10-Q for the quarterly period ended April 1, 2007).

 
40
 
10.11
  
Amendment effective August 7, 2008 to Change in Control Retention Agreement, dated April 4, 2007, between the Company and Walt Oliwa.  (incorporated by reference to Exhibit 10.15 on Registrant’s Form 10-K for the year ended December 31, 2008).
10.12
  
Retirement Agreement and General Release dated September 3, 2009 between the Company and Michael J. Ferrantino, Sr. (incorporated by reference to Exhibit 10.1 on Registrant’s Form 8-K dated September 10, 2009).
14
  
Code of Ethics of the Chief Executive Officer and the Chief Financial and Accounting Officer.  Filed herewith.
14.1
  
Code of Business Conduct and Ethics. (incorporated by reference to Exhibit 14.1 on Registrant’s Form 10-K for the year ended December 31, 2004).
21
  
Subsidiaries of the Registrant. Filed herewith.
23
  
Consent of Independent Registered Public Accounting Firm.  Filed herewith.
31.1
  
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  Filed herewith.
31.2
  
Certification of the 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.

 
41
 EX-14 2 a6221496ex14.htm EXHIBIT 14 a6221496ex14.htm
Exhibit 14

VALPEY-FISHER CORPORATION

CODE OF ETHICS
FOR SENIOR EXECUTIVE AND FINANCIAL OFFICERS

I.
Purpose of this Code of Ethics

The purpose of this Code of Ethics is to promote the honest and ethical conduct by the Company’s senior executives, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; to promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with or submits to the SEC and in other public communication made by the Company; and to promote compliance with all applicable rules and regulations that apply to the Company and its officers.

II.
General

Application
This Code of Ethics is applicable to the Company’s chief executive officer and chief financial officer, (together the “Senior Executive and Financial Officers”).  References in this Code of Ethics to the Company means Valpey-Fisher Corporation and any of its subsidiaries.

Compliance
We expect each of our Senior Executive and Financial Officers to act in accordance with the highest standard of honest and ethical conduct at all times in all aspects of his or her activities, to comply with all applicable laws, rules and regulations, and to abide by this Code of Ethics and other policies and procedures adopted by the Company to govern the conduct of its employees.

You understand that you will be held accountable for your adherence to this Code of Ethics. Violations of this Code of Ethics may result in civil and criminal penalties for you or the Company.  Compliance with this Code is a condition to your employment and any violations of the Code may result in disciplinary action, up to and including termination of your employment.

Waivers
There shall be no waiver of any provision of this Code of Ethics, except by a unanimous vote of the Audit Committee, which will determine whether a waiver is appropriate and ensure that the waiver is accompanied by appropriate controls designed to protect the Company.

In the event that any waiver is granted, the waiver will be disclosed in accordance with applicable law.

 
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III.
Conflicts of Interest

A conflict of interest occurs when your private interests interfere in any way, or appear to interfere, with the interests of the Company as a whole.  A conflict of interest can arise when you take action or you or a member of your family have interests that may make it difficult for you to perform your duties to the Company objectively and effectively. Set forth below are certain obvious situations that can result in a conflict of interest and should obviously be avoided but is not exhaustive of situations that can result in a conflict of interest.  We rely on you to use sound judgment, to seek advice when appropriate and to adhere to the highest ethical standards. You should always be aware that the activities and financial interests of your spouse, significant other, children, parents or in-laws may give rise to pot ential conflicts of interest or the appearance of a conflict of interest.  If you have any doubts as to whether or not a relationship or conduct would be considered a conflict of interest, please consult the Chairman of the Audit Committee.

Improper Personal Benefit
Conflicts of interest arise when you or a member of your family receives improper personal benefits as a result of your position in the Company.  You may not accept any benefits from the Company that have not been duly authorized and approved pursuant to Company policy and procedure, including any Company loans or guarantees of your personal obligations.

Ownership or Financial Interests in Other Businesses
You owe the Company your undivided loyalty.  You should avoid having an ownership interest in any other enterprise if that interest compromises or appears to interfere with your ability to exercise independent judgment in the Company’s best interest.  For example, neither you nor any member of your family may have a financial interest in a company that competes with the Company or that does business with the Company (such as a supplier or customer).  This provision does not apply to investments of under 1% of the outstanding equity securities of a public company as long as the amount of the investment is not so significant that it would affect your business judgment on behalf of the Company.

Corporate Opportunities
You owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.  You may not take for yourself a corporate opportunity that is discovered in the course of your employment or through the use of corporate property, information, or position.

Employment with a Competitor
Serving as a director of or being employed in any way by a competitor of the Company is strictly prohibited, as is any activity that is intended to or that you should reasonably expect to advance a competitor’s interests at the expense of the Company’s interests.

 
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Employment With a Supplier or Others
You may not be a supplier to or be employed by, or serve as a director of or represent a supplier to or customer of the Company and you may not accept money or benefits of any kind from a third party as compensation or payment for any advice or service that you may provide to a customer, supplier or anyone else in connection with its business with the Company.

IV.           Other

Confidentiality
You should maintain the confidentiality of information entrusted to you by the Company or its suppliers or customers, except when disclosure is authorized or legally mandated.  Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers or suppliers, if disclosed.

Fair Dealing
You should endeavor to deal fairly with the Company’s customers, suppliers, competitors and employees.  You should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentations of material facts, or any other unfair-dealing practice.

Protection and proper use of Company assets
You should protect the Company’s assets and ensure their efficient use. Misappropriation of corporate assets is a breach of your duty to the Company and may be an act of fraud.  Carelessness and waste of corporate assets is a breach of your duty to the Company.  All Company assets should be used for legitimate business purposes.

“Inside” Information and Securities Trading
Insider trading is both unethical and illegal. You shall comply in all respects with the terms of the Company’s policy with respect to Insider Trading.

V.           Accurate Periodic Reports and Other Public Communications

As you are aware, full, fair, accurate, timely and understandable disclosure in our periodic reports filed with the SEC and in our public communications is required by SEC rules. We expect you to exercise the highest standard of care in preparing such reports and communication.  All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must conform both to applicable legal requirements and to the Company’s system of internal controls.

We have established the following guidelines in order to ensure the quality of our periodic reports.

·  
All Company accounting records, as well as reports produced from those records, must be kept and presented in accordance with applicable laws.

 
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·  
All records must fairly and accurately reflect the transactions or occurrences to which they relate.

·  
All records must fairly and accurately reflect in reasonable detail the Company’s assets, liabilities, revenues and expenses.

·  
The Company’s accounting records must not contain any false or intentionally misleading entries.

·  
No transaction may be intentionally misclassified as to accounts, departments or accounting periods or in any other manner.

·  
All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper account and in the proper accounting period.

·  
No information may be concealed from the [internal auditors or the] independent auditors.

·  
Compliance with Generally Accepted Accounting Principles and the Company’s system of internal accounting controls is required at all times.

VI.
Compliance with Laws and the Code of Ethics; Reporting Illegal or Unethical Acts

You are expected to comply with both the letter and spirit of all applicable governmental rules and regulations and this Code of Ethics, and to report any suspected violations of applicable governmental rules and regulations or this Code of Ethics to the Chairman of the Audit Committee.  No one will be subject to retaliation because of a good faith report of a suspected violation.
 

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 EX-21 3 a6221496ex21.htm EXHIBIT 21 a6221496ex21.htm
Exhibit 21

Subsidiaries of the Registrant
 
 

The following is a 100% owned subsidiary of the Registrant:

Matec International, Inc. (incorporated in Massachusetts)

 
 
46 
 EX-23 4 a6221496ex23.htm EXHIBIT 23 a6221496ex23.htm
Exhibit 23

Consent of Independent Registered Public Accounting Firm


We consent to the incorporation by reference in the Registration Statements of Valpey-Fisher Corporation on Form S-8 (File No. 333-116001, effective May 28, 2004, File No. 333-67726, effective August 16, 2001, File No. 333-94491, effective January 12, 2000 and File No. 033-77554, post-effective amendments November 1, 1999) of our report dated February 22, 2010, with respect to the consolidated financial statements of Valpey-Fisher Corporation included in this annual report on form 10-K for the years ended December 31, 2009 and 2008.

/s/ Stowe & Degon, LLC

Westborough, Massachusetts
March 25, 2010

 
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 EX-31.1 5 a6221496ex31-1.htm EXHIBIT 31.1 a6221496ex31-1.htm
Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Ferrantino, Jr. , certify that:

1.  I have reviewed this annual report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptable accounting principles;

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 annual 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:  March 24, 2010
By:
/s/ Michael J. Ferrantino, Jr.  
    Michael J. Ferrantino, Jr.  
    President and Chief Executive Officer  
       
 
 
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EX-31.2 6 a6221496ex31-2.htm EXHIBIT 31.2 a6221496ex31-2.htm
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 annual report on Form 10-K 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))  and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptable accounting principles;

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 annual 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:  March 24, 2010
By:
/s/ Michael J. Kroll  
    Michael J. Kroll  
    Vice President, Treasurer and Chief Financial Officer  
       

 
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EX-32.1 7 a6221496ex32-1.htm EXHIBIT 32.1 a6221496ex32-1.htm
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 Annual Report on Form 10-K for the year ended December 31, 2009 (“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:  March 24, 2010
By:
/s/ Michael J. Ferrantino, Jr.  
    Michael J. Ferrantino, Jr.  
    President and Chief Executive Officer  
       

 
     
       
Date:  March 24, 2010
By:
/s/ Michael J. Kroll  
    Michael J. Kroll  
    Vice President, Treasurer and Chief Financial Officer  
       

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K 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.

 
 
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