10-Q

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-Q

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

For the quarterly period ended July 3, 2011

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-FisherCorporation

(Exact name of registrant as specified in its charter)

Maryland	06-0737363
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

75 South St., Hopkinton, Massachusetts	01748
(Address of principal executive offices)	(Zip Code)

(508) 435-6831

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  X    No

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

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act: (Check one):

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]	Smaller reporting company [X]

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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes [  ]   No [X]      

As of August 12, 2011, the number of shares outstanding of Registrant’s Common Stock, par value $.05 was 4,350,206.

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Valpey-Fisher Corporation

INDEX		PAGE
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
Consolidated Condensed Balance Sheets – July 3, 2011 (Unaudited) andDecember 31, 2010 (Audited)		4
Consolidated Statements of Operations – (Unaudited) Six Months Ended July 3, 2011 and July 4, 2010		5
Consolidated Statements of Cash Flows – (Unaudited)Three and Six Months Ended July 3, 2011 and July 4, 2010		6
Notes to Consolidated Condensed Financial Statements – (Unaudited)		7-10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-14
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	14
ITEM 4.	Controls and Procedures	15
PART II.	OTHER INFORMATION
ITEM 1A.	Risk Factors	15
ITEM 6.	Exhibits	15
SIGNATURES		16

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PART I – FINANCIAL INFORMATION

Item 1.   Financial Statements

Valpey-Fisher Corporation and Subsidiaries

Consolidated Condensed Balance Sheets

(In thousands, except share data)

	July 3,		December 31,
	2011		2010
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,115	$	4,451
Receivables, net		2,961		2,413
Inventories, net		1,860		1,458
Deferred income taxes		822		822
Other current assets		64		44
Total current assets		8,822		9,188
Property, plant and equipment, at cost		12,960		12,201
Less accumulated depreciation		10,804		10,530
		2,156		1,671
Other assets		227		216
Total assets	$	11,205	$	11,075
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,208	$	1,033
Accrued liabilities		1,059		1,525
Total current liabilities		2,267		2,558
Deferred income taxes		387		253
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: 4,350,206 and 4,328,527 shares		218		216
Capital surplus		5,787		5,743
Retained earnings		2,546		2,305
Total stockholders’ equity		8,551		8,264
Total liabilities and stockholders’ equity	$	11,205	$	11,075

See notes to consolidated condensed financial statements.

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Valpey-Fisher Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	7/3/11		7/4/10		7/3/11		7/4/10
Net sales	$	3,885	$	3,799	$	7,404	$	7,367
Cost of sales		2,382		2,383		4,658		4,570
Gross profit		1,503		1,416		2,746		2,797
Operating expenses:
Selling and advertising		579		545		1,137		1,058
General and administrative		335		366		656		723
Research and development		309		310		603		639
		1,223		1,221		2,396		2,420
Operating profit		280		195		350		377
Interest income		2		4		5		9
Earnings before income taxes		282		199		355		386
Income tax expense		91		63		114		154
Net earnings	$	191	$	136	$	241	$	232
Basic earnings per share	$	.04	$	.03	$	.06	$	.05
Diluted earnings per share	$	.04	$	.03	$	.05	$	.05
Basic weighted average shares		4,348		4,301		4,342		4,300
Diluted weighted average shares		4,613		4,450		4,628		4,416

See notes to consolidated condensed financial statements.

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Valpey-Fisher Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended
	July 3, 2011			July 4, 2010
Cash flows from operating activities:
Net earnings	$	241		$	232
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities of continuing operations:
Depreciation		274			229
Provisions for inventory		43			50
Deferred income taxes		134			7
Stock-based compensation		16			26
Changes in operating assets and liabilities:
Receivables, net		(548	)		(487	)
Inventories		(445	)		(326	)
Other current assets		(20	)		91
Accounts payable and accrued liabilities		(266	)		604
Net cash provided (used) by operating activities of continuing operations		(571	)		426
Cash flows from operating activities: - Discontinued Operations
Change in accrued liabilities		(25	)		(15	)
Net cash (used) by operating activities of discontinued operations		(25	)		(15	)
Net cash provided (used) by operating activities		(596	)		411
Cash flows from investing activities:
Capital expenditures		(758	)		(198	)
Other assets, net		(11	)		(10	)
Net cash (used) by investing activities		(769	)		(208	)
Cash flows from financing activities:
Stock options exercised		29			10
Net cash provided by financing activities		29			10
Net increase (decrease) in cash and cash equivalents		(1,336	)		213
Cash and cash equivalents:
Beginning of period		4,451			4,053
End of period	$	3,115		$	4,266
Supplemental Cash Flow Information
Cash paid during the period by continuing operations for income taxes	$	-		$	-

See notes to consolidated condensed financial statements.

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Valpey-Fisher Corporation and Subsidiaries

Notes to Consolidated Condensed Financial Statements

(Unaudited)

1.         Financial Presentation:

The unaudited interim financial statements, in the opinion of management, reflect all adjustments necessary for fair presentation of results for such periods.  The results of operations for any interim period are not necessarily indicative of results for the full year.

These unaudited interim financial statements should be read in conjunction with the financial

statements and related notes thereto included in the Company’s 2010 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

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.

2.         Stock Compensation Plans:

At July 3, 2011, options for 35,040 shares are available for future grants to officers, key employees, and other individuals under the Company’s Stock Option Plans.  The option price and terms are recommended by the Company’s Compensation Committee to the Company’s Board of Directors for approval.  The maximum contractual term of an option is ten years.  The options granted may qualify as incentive stock options (“ISO’s”).  Compensation expense related to stock options granted is recognized ratably over the vesting period of the option.  The Company issues new shares upon the exercise of stock options.

The Company recorded the following stock-based compensation expense in the Consolidated Statement of Operations (in thousands):

	3 Months Ended					6 Months Ended
	7/3/11			7/4/10		7/3/11			7/4/10
Cost of sales	$	2		$	3	$	4		$	6
Selling and advertising		1			1		3			3
General and administrative		3			5		6			12
Research and development		2			2		3			5
Pre-tax stock-based compensation expense		8			11		16			26
Income tax (benefit)		(1	)		-		(1	)		(1	)
Net stock-based compensation expense	$	7		$	11	$	15		$	25

The estimated fair value of each option grant is determined on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions for stock option grants during the six months ended July 4, 2010 listed in the table below.  No options were granted during the six months ended July 3, 2011.

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	2010
Stock options granted	60,000
Weighted-average exercise price	$ 1.32
Weighted-average grant date fair value	$   .55
Assumptions:
Risk-free interest rate	2.4	%
Expected volatility	46	%
Expected term in years	4.8
Expected dividend yield	0	%

The risk-free interest rate is based on the yield on zero-coupon U.S. treasury securities at the time of grant for a period commensurate with the expected term.  The expected volatility is calculated using the Black-Scholes model based on the historic prices for a period commensurate with the expected term.  The expected term of the option is determined by using historical data.

A summary of the activity under all the Company’s stock option plans as of July 3, 2011 and the changes during the six month period then ended are as follows:

	Number of  Shares			Weighted-  Average Exercise Price  Per Share		Weighted-  Average Remaining Contractual  Life  In Years		Aggregate  Intrinsic  Value
Outstanding at December 31, 2010		495,403		$	1.29
Options granted		0
Options exercised		(21,679	)		1.35
Options forfeited or expired		(3,852	)		1.10
Outstanding at July 3, 2011		469,872		$	1.29		3.2	$	677,600
Exercisable at July 3, 2011		370,774		$	1.26		3.2	$	544,220

A summary of the status of the Company’s nonvested stock options as of July 3, 2011 and the changes during the six month period then ended are as follows:

	Shares			Weighted-Average  Grant-Date  Fair Value
Nonvested at December 31, 2010		128,195		$	.68
Granted		-			-
Vested		(29,097	)		.80
Forfeited		-			-
Nonvested at July 3, 2011		99,098		$	.64

At July 3, 2011, there was approximately $37,000 of total unrecognized compensation cost related to nonvested stock options granted.  That cost is expected to be recognized as follows: $14,000 in 2011, $21,000 in 2012, and $2,000 in 2013.  The total grant-date fair value of stock options that vested during the six months ended July 3, 2011 was $23,200.

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3.         Comprehensive Income (Loss):

During the three and six months ended July 3, 2011 and July 4, 2010, there were no differences between comprehensive income (loss) and net income.

4.         Receivables, net:

Receivables, net of allowances, consist of the following (in thousands):

	July 3,		December 31,
	2011		2010
	(unaudited)
Accounts receivable, less allowance for doubtful accounts of
$106 in 2011 and $100 in 2010	$	2,827	$	2,313
Refundable income taxes		134		100
	$	2,961	$	2,413

5.         Inventories, net:

Inventories, net of reserves of $1,237,500 in 2011 and $1,195,000 in 2010, consist of the following (in thousands):

	July 3,		December 31,
	2011		2010
	(unaudited)
Raw materials	$	991	$	866
Work in process		314		180
Finished goods		555		412
	$	1,860	$	1,458

6.         Earnings Per Share:

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the net incremental shares that would be issued 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 earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period.

The following table shows a reconciliation of weighted average shares (in thousands):

	Three Months Ended				Six Months Ended
	7/3/11		7/4/10		7/3/11		7/4/10
Weighted average shares outstanding		4,348		4,301		4,342		4,300
Dilutive effect of stock options outstanding,
using the treasury stock method		265		149		286		116
Diluted weighted average shares outstanding		4,613		4,450		4,628		4,416

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During the three and six months ended July 4, 2010, stock options to purchase 53,415 and 138,415, respectively, common shares were not included in the computation of "Diluted Earnings per Share" because their inclusion would be anti-dilutive.

7.         Income Taxes:

At July 3, 2011 and December 31, 2010, the Company had no reserves for unrecognized tax benefits on the balance sheet.

There are currently no income tax examinations in progress.  The federal income tax returns for 2008 through 2010 and the state of Massachusetts tax returns for 2007 through 2010 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.

8.         Credit Agreement and Commitments:

The Company has a loan agreement and security agreement with a bank that provides for a $1,000,000 Revolving Loan and a $1,000,000 Revolving Equipment Loan that expire on August 31, 2011.  The Revolving Loan is due on demand and bears interest at the higher of the Bank’s base rate or 4%.  The Company had $799,000 available under this Revolving Loan at July 3, 2011, net of a $201,000 irrevocable standby letter of credit. This letter of credit has been issued as security for the Company’s performance under a remediation agreement with the New Jersey Department of Environmental Protection.  The Revolving Equipment Loan provides for a 3 year to 5 year term option at the election of the Company with an interest rate between 5.5% and 5.75% depending on the term.  There were no amounts outstanding under the Revolving Equipment Loan at July 3, 2011.  The Loans are secured by accounts receivable, inventory and equipment.  The loan agreement contains a quarterly financial covenant of a minimum debt service coverage of 1.20: 1 or a cash balance on deposit in specified accounts with the lending bank of $500,000.

9.         Recent Accounting Pronouncements:

In January 2010, the FASB issued ASU 2010-06, which is an update to Topic 820, “Fair Value Measurement and Disclosures”. This update establishes further disclosure requirements regarding transfers in and out of levels 1 and 2 (effective for all interim and annual reporting periods beginning after December 15, 2009) and activity in level 3 fair value measurements (effective for all interim and annual reporting periods beginning after December 15, 2010). The update also provides clarification as to the level of disaggregation for each class of assets and liabilities, requires disclosures about inputs and valuation techniques, and also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets.  The adoption of this standard has not and is not expected to have a material impact on the Company’s financial position or results of operation.

In June 2011, the FASB issued ASU 2011-05 which provides new guidance on the presentation of comprehensive income.  ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and instead requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements.   This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.  The adoption of this ASU will not have a significant impact on the Company’s consolidated financial statements as it only requires a change in the format of the current presentation. 

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of our financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities.  Actual results may differ from these estimates under different assumptions or conditions.

Management believes that judgments and estimates related to our critical accounting policies could materially affect its consolidated financial statements.  Our most critical accounting policies, which were discussed in our Annual Report on Form 10-K for the year ended December 31, 2010, pertain to accounts receivable, inventories and income taxes.  These policies continue to be our most critical accounting policies for the period covered by this report and there were no significant changes in the application of those policies during this reporting period.

Liquidity and Capital Resources

Cash and cash equivalents amounted to $3,115,000 at July 3, 2011, a decrease of $1,336,000 from the December 31, 2010 balance.  During this period, our operations used cash of $596,000, investing activities used cash of $769,000, and financing activities generated $29,000 of cash.

The cash used in operations resulted from the net earnings of $241,000 and the net positive adjustments of $467,000 for the non-cash effects of depreciation and provisions for inventory, deferred income taxes and stock compensation offset by the net cash outflow of $1,304,000 from changes in our operating assets and liabilities.  The net cash outflow from changes in our operating assets and liabilities was mainly due to increases of $548,000 and $445,000 in receivables, net and inventory, respectively, and a decrease of $466,000 in accrued liabilities offset in part by a $175,000 increase in accounts payable.  The increase of $548,000 in receivables, net over the 2010 amount was mainly due to an increase in the current year’s quarterly sales over the 2010 4th quarter sales and, to a lesser extent, to an 8% increase in the days sales outstanding.  Theincrease in inventory is mainly due to the increase in backlog and is also affected by the lead times of certain items and customer delivery requirements.   The main item accounting for the decrease in accrued liabilities was the $575,400 payment for the 2010 key employee bonus, 401k match, and profit sharing contribution.   The increase in accounts payable is primarily due to the timing of inventory and equipment purchases.

Capital expenditures during the six months ended July 3, 2011 amounted to $758,000 and related primarily to adding new production and test equipment capabilities in connection with the introduction of new products and enhancements to our existing products.

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We believe that based on our current working capital, the expected cash flow from operations, and our borrowing availability under our current credit arrangement, our resources are sufficient to meet our financial needs and to fund our capital expenditures for the projected levels of business during the next twelve months.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet financing arrangements.

Contractual Obligations

During the normal course of business, we incur certain commitments to make future payments for the purchase of inventory, equipment, and production supplies based on projected requirements.  At July 3, 2011, we had outstanding purchase commitments totaling approximately $1,354,000, all of which are expected to be fulfilled in 2011.   At July 3, 2011, we had no contractual obligations for capital leases, no material contractual obligation for operating leases and no long-term debt.

Results of Operations for the Three and Six Months Ended July 3, 2011 Compared to the Three and Six Months Ended July 4, 2010

During the three months ended July 3, 2011, net sales increased $86,000 (2%) over the comparable 2010 period.  Sales in all product lines increased over the 2010 period, except for our high precision product line where sales decreased 9% from the 2010 period.  The product line sales increases were primarily due to an increase in the overall average selling prices.  The sales decrease in the high precision line was primarily due to a lower beginning backlog in the 2011 period and resulted primarily from an overall average price reduction as the number of units sold increased about 29%.  During the six months ended July 3, 2011, net sales increased $38,000 (1%) over the comparable 2010 period.  Sales in all product lines increased over the 2010 period, except for the standard product line where sales decreased 8% from the 2010 period.   The product line sales increases were mainly due to a 29% increase in the units sold, partially offset by an 18% overall reduction in the average selling prices.  The decrease in the standard product line was mainly due to a 2% reduction in unit sales mainly resulting from a lower beginning backlog in the 2011 period.  The order backlog at the beginning of the 2011 was $1,762,000 or $261,000 lower than the backlog at the beginning of 2010.Bookings during the three and six months ended July 3, 2011 were $384,000 (10%) and $487,000 (6%), respectively, higher than the comparable periods in 2010.  Our backlog amounted to $2,403,000 at July 3, 2011 versus $2,207,000 at July 4, 2010.

During the three months ended July 3, 2011, gross profit as a percentage of sales was 39% compared to 37% in the comparable 2010 period.  The increase in margin resulted from the 2011 raw material costs as a percentage of sales being about 4 percentage points lower than in 2010 partially offset by a 14% increase in overhead expenses.  During the six months ended July 3, 2011, gross profit as a percentage of sales was 37% compared to 38% in the comparable 2010 period.  The decrease in margin was attributable to a 13% increase in overhead expenses partially offset by a 2 percentage point decrease in raw material costs.  During both periods direct labor costs as a percentage of sales remained equal.  Increases in employee compensation and benefits, mainly due to an increase in headcount, depreciation expense resulting from the capital expenditure additions and operating supplies were the main factors accounting for the overhead expense increases in both periods.  The decreases in raw material costs as a percentage of sales during both periods were mainly due to changes in the product mix of sales.

Selling and advertising expenses increased $34,000 (6%) during the three months ended July 3, 2011 over the comparable period in 2010.   An increase of $39,000 in employee compensation and benefits, mainly due to an increase in headcount, and a $13,000 increase in advertising expenses partially offset by a reduction of $30,000 in commission expense to outside sales representatives were the main reasons for the higher expense.  Selling and advertising expenses increased $79,000 (7%) during the six months ended July 3, 2011 over the comparable period in 2010.  An increase of $100,000 in employee compensation and benefits, mainly due to an increase in headcount, and a $25,000 increase in advertising expenses partially offset by a reduction of $65,000 in commission expense to outside sales representatives were the main reasons for the higher expense.

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General and administrative expenses decreased $31,000 (8%) and $67,000 (9%) during the three and six  months ended July 3, 2011,respectively, from the comparable 2010 periods mainly as a result of lower employee compensation and benefits primarily due to a reduction in the key employee bonus plan expense in 2011.

During the three months ended July 3, 2011, research and development expenses remained level with the comparable 2010 period.  During the six months ended July 3, 2011, research and development expenses decreased $36,000 (6%) from the comparable 2010 period.  This expense reduction was primarily the result of decreases of $31,000 in employee compensation and benefits resulting from a reduction in the key employee bonus plan expense and $6,000 in travel expenses.

The decreases in interest income during the 2011 periods compared to the 2010 corresponding periods results from the effect of interest rates being approximately 30 basis points lower during the 2011 periods.

The estimated annual combined federal and state income tax rate for 2011 is 32% compared to 40% in 2010.  The 2011 rate differs from the expected combined rate of 40% mainly due to the effects of the research activities credit and state tax provisions.

For the three months ended July 3, 2011, we reported an operating profit of $280,000 compared to an operating profit of $195,000 in 2010.  The $85,000 increase in operating profit results primarily from the increase in gross profit as operating expenses remained equal during the periods.  The higher gross profit was primarily due to lower raw material costs as a percentage of sales, partially offset by an increase in overhead expenses.  We reported pre-tax earnings of $282,000 during the 2011 period compared to pre-tax earnings of $199,000 in the comparable 2010 period.  For the three months ended July 3, 2011, we reported net earnings of $191,000 versus net earnings of $136,000 in 2010.

For the six months ended July 3, 2011, we reported an operating profit of $350,000 compared to an operating profit of $377,000 in 2010.  The $27,000 decrease in operating profit results primarily from a decrease in gross profit partially offset by a reduction in operating expenses.  The lower gross profit was primarily due to an increase in overhead expenses partially offset by lower raw material costs as a percentage of sales.  We reported pre-tax earnings of $355,000 during the 2011 period compared to pre-tax earnings of $386,000 in the comparable 2010 period.  For the six months ended July 3, 2011, we reported net earnings of $241,000 versus net earnings of $232,000 in 2010.

Forward-Looking Statements

Certain statements made herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Words such as “expects”, “believes”, “estimates”, “plans” or similar expressions are intended to identify such forward-looking statements. The forward-looking statements are based on our current views and assumptions and involve risks and uncertainties that include, but not limited to:

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● our results for 2011 may be negatively impacted by the current global economic conditions and uncertainties,

● a significant portion of our revenue is derived from sales to a few customers and  the loss of one or more of our significant customers could have an adverse impact on our operating results and financial condition,

● a significant portion of our revenue is derived from products manufactured by one supplier and a significant change in the supplier’s manufacturing capability or in our relationship with this supplier could have an adverse impact on our operating results and financial condition,

● our operating results and financial condition could be negatively affected if after receiving design wins from OEMs, which in turn outsource the manufacture of their products to electronics manufacturing services ("EMS") companies, we fail to negotiate terms and  successfully obtain orders from the EMS companies directly,

● 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 products may become more expensive, thus we are less competitive, than our competitors that have taken measures to protect against exchange rate fluctuations,

● our ability to develop, market and manufacture new innovative products competitively,

●  the fluctuations in product demand of the telecommunications industry, and our ability, including that of our suppliers to produce and deliver materials and products competitively

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Our cash balances in excess of operating requirements are currently invested in money market accounts. These money market accounts are subject to interest rate risk and interest income will fluctuate in relation to general money market rates. Based on the cash and cash equivalent balance at July 3, 2011, and assuming the balance was totally invested in money market instruments for the full year, a hypothetical 1% point increase or decrease in interest rates would result in an approximate $31,200 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.

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Item 4.   Controls and Procedures

Evaluation of disclosure controls and procedures.

We carried out an evaluation, under the supervision and with our  management, including our President and Chief Executive Officer and our Company’s Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934).  Based upon that evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of July 3, 2011.

Changes in internal control.

Our evaluation did not identify any change in our internal controls over financial reporting that occurred during the quarter ended July 3, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A.   Risk Factors

Information regarding risk factors areset forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2010.  There have been no material changes from the risk factors previously disclosed in the Company’s 2010 Annual Report on Form 10-K.

Item 6.   Exhibits

4.1	Letter dated June 24, 2011 extending the Middlesex Savings Bank Working Capital Line of Credit and Equipment Line of Credit until August 31, 2011.  Filed herewith.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  Filed herewith.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  Filed herewith.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Filed herewith.

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL  Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL  Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL  Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not part of of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. 

- 15 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Valpey-Fisher Corporation
Date:  August 15, 2011	/s/ Michael J. Ferrantino, Jr.
	Michael J. Ferrantino, Jr.
	President and Chief Executive Officer
Date:  August 15, 2011	/s/ Michael J. Kroll
	Michael J. Kroll
	Vice President, Treasurer and Chief Financial Officer

- 16 -

EX-4.1

Exhibit 4.1

Middlesex Savings Bank

June 24, 2011

Michael J. Kroll, CFO

Valpey Fisher Corporation

75 South Street

Hopkinton, MA 01748

Dear Mike:

I am pleased to inform you that Middlesex Savings Bank has approved a three month extension of Valpey Fisher Corporation's Working Capital Line of Credit in the amount of $1,000,000.00 and its Equipment Line of Credit in the amount of $1,000,000.00 for three months until August 31, 2011. All terms and conditions existing and originally set forth will remain in effect. Such an extension will allow Middlesex Savings Bank sufficient time to seek formal credit approval for a full year renewal of the aforementioned credit facilities.

Please indicate your acceptance of this Letter by signing below and faxing a copy back to my attention at (781) 890-3668 and then mailing this original back to me.

We appreciate your business.

Thank you,

/s/ Tony Zhang

Tony Zhang

Vice President

Accepted: Valpey Fisher Corporation

/s/ Michael J. Kroll	6/27/2011
Michael J. Kroll, CFO	Date

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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

1.  I have reviewed this quarterly report on Form 10-Q of Valpey-Fisher Corporation;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 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 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:  August 15, 2011	/s/ Michael J. Ferrantino, Jr.
	Michael J. Ferrantino, Jr.
	President and Chief Executive Officer

- 18 -

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Kroll, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Valpey-Fisher Corporation;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 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 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:  August 15, 2011	/s/ Michael J. Kroll
	Michael J. Kroll
	Vice President, Treasurer and Chief Financial Officer

- 19 -

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Valpey-Fisher Corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2011 (“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:  August 15, 2011	/s/ Michael J. Ferrantino, Jr.
	Michael J. Ferrantino, Jr.
	President and Chief Executive Officer

Date:  August 15, 2011	/s/ Michael J. Kroll
	Michael J. Kroll
	Vice President, Treasurer and Chief Financial Officer

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

A signed original of this written statement required by Section 906 has been provided to the Company and will be

retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

- 20 -

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Consolidated Condensed Balance Sheets (Parenthetical) (USD $)	Jul. 03, 2011	Dec. 31, 2010
Preferred stock, par value	$ 1.00	$ 1.00
Preferred stock, Authorized	1,000,000	1,000,000
Preferred stock, issued	0	0
Common stock, par value	$ 0.05	$ 0.05
Common stock, Authorized	10,000,000	10,000,000
Common stock, Issued	4,350,206	4,328,527
Common stock, outstanding	4,350,206	4,328,527

XML



Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jul. 03, 2011	Jul. 04, 2010	Jul. 03, 2011	Jul. 04, 2010
Net sales	$ 3,885	$ 3,799	$ 7,404	$ 7,367
Cost of sales	2,382	2,383	4,658	4,570
Gross profit	1,503	1,416	2,746	2,797
Operating expenses:
Selling and advertising	579	545	1,137	1,058
General and administrative	335	366	656	723
Research and development	309	310	603	639
Operating Expenses, Total	1,223	1,221	2,396	2,420
Operating profit	280	195	350	377
Interest income	2	4	5	9
Earnings before income taxes	282	199	355	386
Income tax expense	91	63	114	154
Net earnings	$ 191	$ 136	$ 241	$ 232
Basic earnings per share	$ 0.04	$ 0.03	$ 0.06	$ 0.05
Diluted earnings per share	$ 0.04	$ 0.03	$ 0.05	$ 0.05
Basic weighted average shares	4,348	4,301	4,342	4,300
Diluted weighted average shares	4,613	4,450	4,628	4,416

XML



Document and Entity Information	6 Months Ended
	Jul. 03, 2011	Aug. 12, 2011
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jul. 03, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Trading Symbol	VPF
Entity Registrant Name	VALPEY FISHER CORP
Entity Central Index Key	0000085608
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,350,206

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Income Taxes

6 Months Ended

Jul. 03, 2011

Income Taxes

7.         Income Taxes:

At July 3, 2011 and December 31, 2010, the Company had no reserves for unrecognized tax benefits on the balance sheet.

There are currently no income tax examinations in progress.  The federal income tax returns for 2008 through 2010 and the state of Massachusetts tax returns for 2007 through 2010 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.

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Comprehensive Income (Loss)

6 Months Ended

Jul. 03, 2011

Comprehensive Income (Loss)

3.         Comprehensive Income (Loss):

During the three and six months ended July 3, 2011 and July 4, 2010, there were no differences between comprehensive income (loss) and net income.

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Recent Accounting Pronouncements

6 Months Ended

Jul. 03, 2011

Recent Accounting Pronouncements

9.         Recent Accounting Pronouncements:

In January 2010, the FASB issued ASU 2010-06, which is an update to Topic 820, “Fair Value Measurement and Disclosures”. This update establishes further disclosure requirements regarding transfers in and out of levels 1 and 2 (effective for all interim and annual reporting periods beginning after December 15, 2009) and activity in level 3 fair value measurements (effective for all interim and annual reporting periods beginning after December 15, 2010). The update also provides clarification as to the level of disaggregation for each class of assets and liabilities, requires disclosures about inputs and valuation techniques, and also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets.  The adoption of this standard has not and is not expected to have a material impact on the Company’s financial position or results of operation.

In June 2011, the FASB issued ASU 2011-05 which provides new guidance on the presentation of comprehensive income.  ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and instead requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements.   This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.  The adoption of this ASU will not have a significant impact on the Company’s consolidated financial statements as it only requires a change in the format of the current presentation.

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Credit Agreement and Commitments

6 Months Ended

Jul. 03, 2011

Credit Agreement and Commitments

8.         Credit Agreement and Commitments:

The Company has a loan agreement and security agreement with a bank that provides for a $1,000,000 Revolving Loan and a $1,000,000 Revolving Equipment Loan that expire on August 31, 2011.  The Revolving Loan is due on demand and bears interest at the higher of the Bank’s base rate or 4%.  The Company had $799,000 available under this Revolving Loan at July 3, 2011, net of a $201,000 irrevocable standby letter of credit. This letter of credit has been issued as security for the Company’s performance under a remediation agreement with the New Jersey Department of Environmental Protection.  The Revolving Equipment Loan provides for a 3 year to 5 year term option at the election of the Company with an interest rate between 5.5% and 5.75% depending on the term.  There were no amounts outstanding under the Revolving Equipment Loan at July 3, 2011.  The Loans are secured by accounts receivable, inventory and equipment.  The loan agreement contains a quarterly financial covenant of a minimum debt service coverage of 1.20: 1 or a cash balance on deposit in specified accounts with the lending bank of $500,000.

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Financial Presentation

6 Months Ended

Jul. 03, 2011

Financial Presentation

1.         Financial Presentation:

The unaudited interim financial statements, in the opinion of management, reflect all adjustments necessary for fair presentation of results for such periods.  The results of operations for any interim period are not necessarily indicative of results for the full year.

These unaudited interim financial statements should be read in conjunction with the financial

statements and related notes thereto included in the Company’s 2010 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

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.

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Receivables, net

6 Months Ended

Jul. 03, 2011

Receivables, net

4.         Receivables, net:

Receivables, net of allowances, consist of the following (in thousands):

	July 3,		December 31,
	2011		2010
	(unaudited)
Accounts receivable, less allowance for doubtful accounts of
$106 in 2011 and $100 in 2010	$	2,827	$	2,313
Refundable income taxes		134		100
	$	2,961	$	2,413

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Inventories, net

6 Months Ended

Jul. 03, 2011

Inventories, net

5.         Inventories, net:

Inventories, net of reserves of $1,237,500 in 2011 and $1,195,000 in 2010, consist of the following (in thousands):

	July 3,		December 31,
	2011		2010
	(unaudited)
Raw materials	$	991	$	866
Work in process		314		180
Finished goods		555		412
	$	1,860	$	1,458

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Earnings Per Share

6 Months Ended

Jul. 03, 2011

Earnings Per Share

6.         Earnings Per Share:

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the net incremental shares that would be issued 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 earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period.

The following table shows a reconciliation of weighted average shares (in thousands):

	Three Months Ended				Six Months Ended
	7/3/11		7/4/10		7/3/11		7/4/10
Weighted average shares outstanding		4,348		4,301		4,342		4,300
Dilutive effect of stock options outstanding,
using the treasury stock method		265		149		286		116
Diluted weighted average shares outstanding		4,613		4,450		4,628		4,416

During the three and six months ended July 4, 2010, stock options to purchase 53,415 and 138,415, respectively, common shares were not included in the computation of "Diluted Earnings per Share" because their inclusion would be anti-dilutive.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	6 Months Ended
	Jul. 03, 2011	Jul. 04, 2010
Cash flows from operating activities:
Net earnings	$ 241	$ 232
Adjustments to reconcile net earnings to net cash provided (used) by operating activities of continuing operations:
Depreciation	274	229
Provisions for inventory	43	50
Deferred income taxes	134	7
Stock-based compensation	16	26
Changes in operating assets and liabilities:
Receivables, net	(548)	(487)
Inventories	(445)	(326)
Other current assets	(20)	91
Accounts payable and accrued liabilities	(266)	604
Net cash provided (used) by operating activities of continuing operations	(571)	426
Cash flows from operating activities: - Discontinued Operations
Change in accrued liabilities	(25)	(15)
Net cash (used) by operating activities of discontinued operations	(25)	(15)
Net cash provided (used) by operating activities	(596)	411
Cash flows from investing activities:
Capital expenditures	(758)	(198)
Other assets, net	(11)	(10)
Net cash (used) by investing activities	(769)	(208)
Cash flows from financing activities:
Stock options exercised	29	10
Net cash provided by financing activities	29	10
Net increase (decrease) in cash and cash equivalents	(1,336)	213
Cash and cash equivalents:
Beginning of period	4,451	4,053
End of period	3,115	4,266
Supplemental Cash Flow Information
Cash paid during the period by continuing operations for income taxes

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Stock Compensation Plans

6 Months Ended

Jul. 03, 2011

Stock Compensation Plans

2.         Stock Compensation Plans:

At July 3, 2011, options for 35,040 shares are available for future grants to officers, key employees, and other individuals under the Company’s Stock Option Plans.  The option price and terms are recommended by the Company’s Compensation Committee to the Company’s Board of Directors for approval.  The maximum contractual term of an option is ten years.  The options granted may qualify as incentive stock options (“ISO’s”).  Compensation expense related to stock options granted is recognized ratably over the vesting period of the option.  The Company issues new shares upon the exercise of stock options.

The Company recorded the following stock-based compensation expense in the Consolidated Statement of Operations (in thousands):

	3 Months Ended					6 Months Ended
	7/3/11			7/4/10		7/3/11			7/4/10
Cost of sales	$	2		$	3	$	4		$	6
Selling and advertising		1			1		3			3
General and administrative		3			5		6			12
Research and development		2			2		3			5
Pre-tax stock-based compensation expense		8			11		16			26
Income tax (benefit)		(1	)		-		(1	)		(1	)
Net stock-based compensation expense	$	7		$	11	$	15		$	25

The estimated fair value of each option grant is determined on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions for stock option grants during the six months ended July 4, 2010 listed in the table below.  No options were granted during the six months ended July 3, 2011.

	2010
Stock options granted	60,000
Weighted-average exercise price	$ 1.32
Weighted-average grant date fair value	$   ..55
Assumptions:
Risk-free interest rate	2.4	%
Expected volatility	46	%
Expected term in years	4.8
Expected dividend yield	0	%

The risk-free interest rate is based on the yield on zero-coupon U.S. treasury securities at the time of grant for a period commensurate with the expected term.  The expected volatility is calculated using the Black-Scholes model based on the historic prices for a period commensurate with the expected term.  The expected term of the option is determined by using historical data.

A summary of the activity under all the Company’s stock option plans as of July 3, 2011 and the changes during the six month period then ended are as follows:

	Number of  Shares			Weighted-  Average Exercise Price  Per Share		Weighted-  Average Remaining Contractual  Life  In Years		Aggregate  Intrinsic  Value
Outstanding at December 31, 2010		495,403		$	1.29
Options granted		0
Options exercised		(21,679	)		1.35
Options forfeited or expired		(3,852	)		1.10
Outstanding at July 3, 2011		469,872		$	1.29		3.2	$	677,600
Exercisable at July 3, 2011		370,774		$	1.26		3.2	$	544,220

A summary of the status of the Company’s nonvested stock options as of July 3, 2011 and the changes during the six month period then ended are as follows:

	Shares			Weighted-Average  Grant-Date  Fair Value
Nonvested at December 31, 2010		128,195		$	.68
Granted		-			-
Vested		(29,097	)		.80
Forfeited		-			-
Nonvested at July 3, 2011		99,098		$	.64

At July 3, 2011, there was approximately $37,000 of total unrecognized compensation cost related to nonvested stock options granted.  That cost is expected to be recognized as follows: $14,000 in 2011, $21,000 in 2012, and $2,000 in 2013.  The total grant-date fair value of stock options that vested during the six months ended July 3, 2011 was $23,200.

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Consolidated Condensed Balance Sheets (USD $) In Thousands	Jul. 03, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 3,115	$ 4,451
Receivables, net	2,961	2,413
Inventories, net	1,860	1,458
Deferred income taxes	822	822
Other current assets	64	44
Total current assets	8,822	9,188
Property, plant and equipment, at cost	12,960	12,201
Less accumulated depreciation	10,804	10,530
Property, Plant and Equipment, Net, Total	2,156	1,671
Other assets	227	216
Total assets	11,205	11,075
Current liabilities:
Accounts payable	1,208	1,033
Accrued liabilities	1,059	1,525
Total current liabilities	2,267	2,558
Deferred income taxes	387	253
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: 4,350,206 and 4,328,527 shares	218	216
Capital surplus	5,787	5,743
Retained earnings	2,546	2,305
Total stockholders' equity	8,551	8,264
Total liabilities and stockholders' equity	$ 11,205	$ 11,075