10-Q 1 a6394042.htm VALPEY-FISHER CORPORATION 10-Q a6394042.htm
UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
   
For the quarterly period ended July 4, 2010
   
OR
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from to
                                                                                                  
 
Commission File Number 1-4184
 
Valpey-Fisher Corporation
(Exact name of registrant as specified in its charter)

Maryland
06-0737363
(State or other jurisdiction of
(I.R.S. Employer
 incorporation or organization)
Identification Number)
   
   
75 South St., Hopkinton, Massachusetts
  01748
(Address of principal executive offices)
(Zip Code)

(508) 435-6831
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes   x   No  o

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 o   No o

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 o
Accelerated filer o
 
Non-accelerated filer o
Smaller reporting company x
                             
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o   No x      

As of August 13, 2010, the number of shares outstanding of Registrant’s Common Stock, par value $.05 was 4,306,638.

 
- 1 -
 
 

Valpey-Fisher Corporation

INDEX
PAGE
   
 
   
 
   
3
4
5
6-9
   
9-12
   
13
   
14
   
   
   
 
   
14
14
   
15
   
 
 
- 2 -
 
 

Consolidated Condensed Balance Sheets
(In thousands, except share data)
 
   
7/4/10
    
12/31/09
  
    (Unaudited)     (Audited)  
 
  
 
  
 
            
ASSETS
            
Current assets:
            
Cash and cash equivalents
   $ 4,266     $ 4,053  
Receivables, net
     2,231       1,744  
Inventories, net
     1,381       1,105  
Deferred income taxes
     833       848  
Other current assets
     20       111  
Total current assets
     8,731       7,861  
 
                
Property, plant and equipment, at cost
     11,811       11,613  
Less accumulated depreciation
     10,357       10,128  
 
     1,454       1,485  
 
                
Other assets                      
     213       203  
Total assets
   $ 10,398     $ 9,549  
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
   $ 1,038     $ 949  
Accrued liabilities                                
     1,361       861  
Total current liabilities                                                      
     2,399       1,810  
 
                
Deferred income taxes                                           
     167       175  
                 
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: 4,306,638 and 4,297,898 shares
     215       215  
Capital surplus                                
     5,703       5,667  
Retained earnings                                
     1,914       1,682  
Total stockholders’ equity                                           
     7,832       7,564  
Total liabilities and stockholders’ equity
   $ 10,398     $ 9,549  
                 

See notes to consolidated condensed financial statements.
 
- 3 -
 

Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

 
 
   
Three Months Ended
    
Six Months Ended
  
   
7/4/10
    
6/28/09
    
7/4/10
    
6/28/09
  
                         
Net sales
   $ 3,799     $ 2,496     $ 7,367     $ 5,078  
Cost of sales
     2,383       1,681       4,570       3,415  
   Gross profit
     1,416       815       2,797       1,663  
                                 
Operating expenses:
                                
  Selling and advertising
     545       416       1,058       828  
  General and administrative
     366       328       723       673  
  Research and development
     310       138       639       284  
      1,221       882       2,420       1,785  
                                 
Operating profit (loss)
     195       (67 )     377       (122 )
                                 
Interest income
     4       10       9       20  
Earnings (loss) before income taxes
     199       (57 )     386       (102 )
Income tax (expense) benefit
     (63 )     (25 )     (154 )     3  
Net earnings (loss)
   $ 136     $ (82 )   $ 232     $ (99 )
                                 
Basic earnings (loss) per share
   $ .03     $ (.02 )   $ .05     $ ( .02 )
Diluted earnings (loss) per share
   $ .03     $ (.02 )   $ .05     $ ( .02 )
                                 
                                 
Basic weighted average shares
     4,301       4,298       4,300       4,298  
Diluted weighted average shares
     4,450       4,298       4,416       4,298  

See notes to consolidated condensed financial statements.

 
- 4 -
 

Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
   
Six Months Ended
  
 
  
7/4/10
    
6/28/09
  
Cash flows from operating activities:
            
 Net earnings (loss)
   $ 232     $ (99 )
 Adjustments to reconcile net earnings (loss) to net cash
   provided (used) by operating activities of continuing operations:
                
    Depreciation
     229       197  
    Provisions for inventory
     50       75  
    Deferred income taxes
     7       67  
    Stock-based compensation
     26       30  
    Changes in operating assets and liabilities:
                
         Receivables, net
     (487 )     19  
         Inventories
     (326 )     200  
         Other current assets
     91       9  
         Accounts payable and accrued liabilities
     604       (534 )
       Net cash provided (used) by operating activities of continuing operations
     426       (36 )
Cash flows from operating activities: - Discontinued Operations
                
    Change in accrued expenses
     (15 )     (45 )
       Net cash (used) by operating activities of discontinued operations
     (15 )     (45 )
       Net cash provided (used) by operating activities
     411       (81 )
Cash flows from investing activities:
                
 Capital expenditures
     (198 )     (190 )
 Other, net
     (10 )     (10 )
       Net cash (used) by investing activities
     (208 )     (200 )
Cash flows from financing activities:
                
 Stock options exercised
     10       -  
      Net cash provided by financing activities
     10       -  
Net increase (decrease) in cash and cash equivalents
     213       (281 )
Cash and cash equivalents:
                
 Beginning of period
     4,053       4,515  
 End of period
   $ 4,266     $ 4,234  
                 
                 
Supplemental Cash Flow Information                
 Cash paid during the period by continuing operations for income taxes    $ -     $ 87  
                        

See notes to consolidated condensed financial statements.
 
 
- 5 -
 

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 2009 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

     In the Consolidated Statements of Cash Flows, certain amounts for 2009 have been reclassified to conform to the current year presentation.

           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 4, 2010, options for 77,090 shares are available for future grants to officers, key employees, and other individuals under the Company’s four Stock Option Plans.  The option price and terms are recommended by the Company’s Compensation Committee to the Company’s Board of Directors for approval.  The maximum contractual term of an option is ten years.  The options granted may qualify as incentive stock options (“ISO’s”).  Compensation expense related to stock options granted is recognized ratably over the vesting period of the option.  The Company issues new shares upon the exercise of stock options.
 
            The Company recorded the following stock-based compensation expense in the Consolidated Statement of Operations (in thousands):
 
   
3 Months Ended
    
6 Months Ended
  
   
7/4/10
    
6/28/09
    
7/4/10
    
6/28/09
  
 
                        
         Cost of sales
   $ 3     $ 4     $ 6     $ 8  
         Selling and advertising
     1       4       3       8  
         General and administrative
     5       4       12       9  
         Research and development
     2       2       5       5  
         Pre-tax stock-based compensation expense
     11       14       26       30  
         Income tax (benefit)
     -       (1 )     (1 )     (2 )
         Net stock-based compensation expense
   $ 11     $ 13     $ 25     $ 28  
 
 
- 6 -
 

            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 June 28, 2009.
 
   
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 4, 2010 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, 2009
     887,891     $ 1.45              
Options granted
     60,000       1.32              
Options exercised
     (8,740 )     1.21              
Options forfeited or expired
     (385,734 )     1.36              
Outstanding at July 4, 2010
     553,417     $ 1.50       3.8     $ 283,434  
                                 
Exercisable at July 4, 2010
     397,208     $ 1.54       3.6     $ 215,013  
                                 

            A summary of the status of the Company’s nonvested stock options as of July 4, 2010 and the changes during the six month period then ended are as follows:
 
   
 
 Shares
    
Weighted-Average
 Grant-Date
 Fair Value
Nonvested at December 31, 2009
     130,742     $ 1.05  
Granted
     60,000       .55  
Vested
     (33,755 )     (1.85 )
Forfeited
     (778 )     1.80  
Nonvested at July 4, 2010
     156,209     $ .68  
 
 
- 7 -
 
 
            At July 4, 2010, there was approximately $69,000 of total unrecognized compensation cost related to nonvested stock options granted.  That cost is expected to be recognized as follows: $16,000 in 2010, $29,900 in 2011, $21,100 in 2012, and $2,000 in 2013.  The total grant-date fair value of stock options that vested during the six months ended July 4, 2010 was $62,300.
 
3.      Comprehensive Income (Loss):
 
            During the three and six months ended July 4, 1010 and June 28, 2009, there were no differences between comprehensive income (loss) and net income (loss).

4.      Receivables, net:
 
   Receivables, net of allowances, consist of the following:
       (in thousands)                                           
  
7/4/10
    
12/31/09
  
   
(unaudited)
        
Accounts receivables, less allowance for doubtful accounts of
 $103,500 in 2010 and $100,000 in 2009
   $ 2,180     $ 1,673  
Refundable income taxes
     51       71  
    $ 2,231     $ 1,744  
 
5.      Inventories, net:
 
           Inventories, net of reserves of $1,250,000 in 2010 and $1,200,000 in 2009, consist of the following:
       (in thousands)                                           
  
7/4/10
    
12/31/09
  
    (unaudited)        
Raw materials
   $ 727     $ 634  
Work in process
     285       182  
Finished goods
     369       289  
    $ 1,381     $ 1,105  
 
6.     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 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
  
   
7/4/10
    
6/28/09
    
7/4/10
    
6/28/09
  
                         
Weighted average shares outstanding
     4,301       4,298       4,300       4,298  
 Dilutive effect of stock options outstanding,
   using the treasury stock method
      149        -        116        -  
Diluted weighted average shares outstanding
     4,450       4,298       4,416       4,298  
 
                                
 
 
- 8 -
 
 
          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 (Loss) per Share" because their inclusion would be anti-dilutive.  During the three and six months ended June 28, 2009, stock options to purchase 823,265 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 loss from operations in these periods.

 
7.  
Income Taxes:

           At July 4, 2010 and December 31, 2009, the Company had no reserves for unrecognized tax benefits on the balance sheet.

          There are currently no income tax examinations in progress.  During 2009, the Company’s federal income tax return for 2007 was examined by the IRS and resulted in no changes to the tax return.  The federal income tax return for 2008 and the state of 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.
 
 
8.    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 February 2010, the FASB issued ASU 2010-09, which is an update to Topic 855, “Subsequent Events”. This update clarifies the date through which the Company is required to evaluate subsequent events. SEC filers will be required to evaluate subsequent events though the date that the financial statements are issued. ASU 2010-09 was effective upon issuance, and did not have a material impact on the Company’s financial position or results of operation.
 

 

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.

 
- 9 -
 
 
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, 2009, pertain to accounts receivable, inventories and income taxes.  These policies continue to be our most critical accounting policies for the period covered by this report and there were no significant changes in the application of those policies during this reporting period.
    

Liquidity and Capital Resources

Cash and cash equivalents amounted to $4,266,000 at July 4, 2010, an increase of $213,000 from the December 31, 2009 balance.  During this period, our operations and financing activities provided cash of $411,000 and $10,000, respectively, and investing activities used cash of $208,000.

Cash provided from operations of $411,000 resulted from the net earnings of $232,000 and the net positive adjustments of $312,000 for the non-cash effects of depreciation and provisions for inventory, deferred income taxes and stock compensation offset by the net cash outflow of $133,000 from changes in our operating assets and liabilities.  The major items accounting for the net cash outflow from changes in our operating assets and liabilities were increases of $487,000 in receivables and $326,000 in inventory offset in part by a $589,000 increase in accounts payable and accrued liabilities.  The increases in accounts receivable and inventory are mainly due to the 36% increase in the 2nd quarter of 2010 sales over the 4th quarter of 2009.  During this period, the accounts receivable collection period improved slightly.  The inventory increase is also affected by the lead times of certain items to support the current level of shipments and backlog to meet customer delivery requirements.  The main items accounting for the net increase in accrued liabilities were increases in employee compensation and benefits and income taxes.  The increase in accounts payable is primarily due to the timing of inventory and equipment purchases.

Capital expenditures during the six months ended July 4, 2010 amounted to $198,000.

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

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 4, 2010, we had outstanding purchase commitments totaling approximately $1,622,000, all of which are expected to be fulfilled in 2010.   At July 4, 2010, we had no contractual obligations for capital leases, no material contractual obligation for operating leases and no long-term debt.
 
 
- 10 -
 

Results of Operations for the Three and Six Months Ended July 4, 2010 Compared to the Three and Six Months Ended June 28, 2009

During the three and six months ended July 4, 2010, net sales increased $1,303,000 (52%) and $2,289,000 (45%) over the comparable periods in 2009.  During these periods all product lines experienced sales growth resulting primarily from an increase in the overall number of units sold.  The higher sales levels resulted from an increase in demand for our products as our bookings began to improve in the 4th quarter of 2009 and have continued to improve into 2010. The order backlog at the beginning of the 2010 was $2,023,000 or $357,000 higher than the backlog at the beginning of 2009. Bookings during the three and six months ended July 4, 2010 were $1,342,000 (55%) and $2,633,000 (53%), respectively, higher than the comparable periods in 2009.  Our backlog amounted to $2,207,000 at July 4, 2010 versus $1,532,000 at June 28, 2009.  During most of 2009 the global economic factors adversely impacted our bookings, revenue and operating performance.

During the three months ended July 4, 2010, gross profit as a percentage of sales was 37% compared to 33% in the comparable 2009 period.  Our year-to-date gross profit percentage was 38% compared to 33% in 2009.  The favorable effect of spreading the fixed overhead costs over the higher sales volume offset in part by an increase in the raw material percentage was the main reason for the increase in the gross profit percentages.  During the periods, raw material costs as a percentage of sales were about 4 percentage points higher than in the 2009 periods mainly due to changes in the product mix of sales.

Selling and advertising expenses increased $129,000 (31%) and $230,000 (28%) during the three and six months ended July 4, 2010, respectively, over the comparable periods in 2009.  During the three months ended July 4, 2010 increases of $65,000 in commission expense to outside sales representatives, $44,000 in employee compensation and benefits, and $17,000 in advertising expenses were the main reasons for the higher expense.  On a year-to-date basis, increases of $107,000 in commission expense to outside sales representatives, $86,000 in employee compensation and benefits, and $30,000 in advertising expenses were the main reasons for the higher expense.  During both periods the increases in employee compensation and benefits were primarily due to an increase in the number of employees.  Expenses related to the microwave product line accounted for about $58,000 and $122,000 of the increase during the three and six months ended July 4, 2010, respectively.   During the 4th quarter of 2009, the Company decided to expand its product offering with the formation of a Microwave Product line that will focus on microwave components and modules.

General and administrative expenses increased $38,000 (12%) and $50,000 (7%) during the three and six months ended July 4, 2010 over the comparable 2009 periods mainly as a result of higher employee compensation and benefits.

During the three months ended July 4, 2010, research and development expenses increased $172,000 over the $138,000 recorded in the comparable 2009 period.  Increases of $110,000 in employee compensation and benefits and $32,000 in operating supplies were the main reasons for the higher expense. On a year-to-date basis, research and development expenses increased $355,000 over the $284,000 recorded in the comparable 2009 period.  Increases of $213,000 in employee compensation and benefits and $80,000 in operating supplies were the main reasons for the higher expense. During both periods the increases in employee compensation and benefits were primarily due to an increase in the number of employees. Expenses related to the microwave product line accounted for about $119,000 and $260,000 of the increase during the three and six months ended July 4, 2010, respectively.

 
- 11 -
 
 
Interest income decreased during the three and six months ended July 4, 2010 from the corresponding 2009 periods as a result of the effect of interest rates being approximately 1 percentage point lower during the 2010 periods.

The estimated annual combined federal and state income tax rate for 2010 is 40% compared to 3% in 2009.  The 2009 rate differs from the expected combined rate of 40% mainly due to the estimated taxable income level, the graduated tax rates and the effects of nondeductible stock option and meals and entertainment expenses.

For the three months ended July 4, 2010, we reported an operating profit of $195,000 compared to an operating loss of $67,000 in 2009.  The $262,000 improvement in operating profit results from a $601,000 increase in gross profit partially offset by a $339,000 increase in operating expenses.  The higher gross profit was primarily due to the 52% increase in sales.  $177,000 of the increase in operating expenses relates to costs incurred in the developing and marketing of the Company’s new microwave product line.  We reported pre-tax earnings of $199,000 during the 2010 period compared to a pre-tax loss of $57,000 in the comparable 2009 period.  For the three months ended July 4, 20010, we reported net earnings of $136,000 versus a net loss of $82,000 in 2009.

For the six months ended July 4, 2010, we reported an operating profit of $377,000 compared to an operating loss of $122,000 in 2009.  The $499,000 improvement in operating profit results from a $1,134,000 increase in gross profit partially offset by a $635,000 increase in operating expenses.  The higher gross profit was primarily due to the 45% increase in sales.  $382,000 of the increase in operating expenses relates to costs incurred in the developing and marketing of the Company’s new microwave product line.  We reported pre-tax earnings of $386,000 during the 2010 period compared to a pre-tax loss of $102,000 in the comparable 2009 period.  For the six months ended July 4, 20010, we reported net earnings of $232,000 versus a net loss of $99,000 in 2009.


Forward-Looking Statements

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

·  
our results for 2010 may be negatively impacted by the current global economic conditions and uncertainties,
·  
our ability to develop, market and manufacture new innovative products competitively,
·  
 the fluctuations in product demand of the telecommunications industry,
·  
our ability, including that of our suppliers to produce and deliver materials and products competitively,
·  
a significant portion of our revenues is derived from sales to a few customers and  the loss of one or more of our significant customers could have an adverse impact on our operating results and financial condition,
·  
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, and
·  
compliance with changing corporate governance and public disclosure regulations may result in additional expenses.
 
 
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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 4, 2010, 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 $42,700 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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          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 4, 2010.
 

          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 4, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



 
Information regarding risk factors are set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2009.  There have been no material changes from the risk factors previously disclosed in the Company’s 2009 Annual Report on Form 10-K.

 
 
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
     
 
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
     
 
32.1
Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Filed herewith.

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

   
 
Valpey-Fisher Corporation
   
   
   
Date:  August 16, 2010
/s/ Michael J. Ferrantino, Jr.
 
 
 
Michael J. Ferrantino, Jr.
 
President and Chief Executive Officer
   
   
Date:  August 16, 2010
/s/ Michael J. Kroll
 
 
 
Michael J. Kroll
 
Vice President, Treasurer and Chief Financial Officer
 
 
 
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