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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4184
Valpey-Fisher Corporation
(Exact name of registrant as specified in its charter)
Maryland 06-0737363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
75 South St., Hopkinton, Massachusetts 01748
(Address of principal executive offices) (Zip Code)
(508) 435-6831
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes [ ] No [X]
As of November 7, 2003, the number of shares outstanding of Registrant's Common
Stock, par value $.05 was 4,184,815.
- 1 -
Valpey-Fisher Corporation
INDEX PAGE
----- ----
PART I. FINANCIAL INFORMATION
ITEM 1. - Financial Statements
Consolidated Condensed Balance Sheets - September 28, 2003 and December 31, 2002 3
Consolidated Statements of Operations - Three Months and Nine Months Ended
September 28, 2003 and September 29, 2002 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 28, 2003 and September 29, 2002 5
Notes to Consolidated Condensed Financial Statements 6-10
ITEM 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-13
ITEM 3. - Quantitative and Qualitative Disclosures About Market Risk 14
ITEM 4. - Controls and Procedures 14
PART II. OTHER INFORMATION
ITEM 6. - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
- 2 -
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Valpey-Fisher Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except share data)
9/28/03 12/31/02
------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $4,570 $5,758
Receivables, net 1,948 2,175
Inventories, net 1,523 2,028
Deferred income taxes and other current assets 944 1,110
- ------------------------------------------------------------------------------ ------------------ ---------------
Total current assets 8,985 11,071
Property, plant and equipment, at cost 10,734 10,165
Less accumulated depreciation 6,856 6,231
- ------------------------------------------------------------------------------ ------------------ ---------------
3,878 3,934
Other assets 136 146
- ------------------------------------------------------------------------------ ------------------ ---------------
$12,999 $15,151
- ------------------------------------------------------------------------------ ------------------ ---------------
- ------------------------------------------------------------------------------ ------------------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $1,277
Accounts payable 599 270
Accrued liabilities 902 701
Income taxes 113 117
- ------------------------------------------------------------------------------ ------------------ ---------------
Total current liabilities 1,614 2,365
Deferred income taxes 619 704
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: 4,184,815 and 4,207,115 shares 209 210
Capital surplus 5,004 5,080
Retained earnings 5,785 7,067
Less unearned compensation (232) (275)
- ------------------------------------------------------------------------------ ------------------ ---------------
- ------------------------------------------------------------------------------ ------------------ ---------------
Total stockholders' equity 10,766 12,082
- ------------------------------------------------------------------------------ ------------------ ---------------
- ------------------------------------------------------------------------------ ------------------ ---------------
$12,999 $15,151
- ------------------------------------------------------------------------------ ------------------ ---------------
- ------------------------------------------------------------------------------ ------------------ ---------------
See notes to consolidated condensed financial statements.
- 3 -
Valpey-Fisher Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended
9/28/03 9/29/02 9/28/03 9/29/02
---------------- ----------------- ------------- --------------
Net sales $ 2,190 $ 1,617 $ 6,081 $ 5,692
Cost of sales 1,933 2,688 5,532 6,624
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
Gross profit (loss) 257 (1,071) 549 (932)
Operating expenses:
Selling and advertising 287 389 1,033 1,129
General and administrative 565 281 1,460 874
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
852 670 2,493 2,003
Operating (loss) (595) (1,741) (1,944) (2,935)
Other income (loss):
Interest income 8 28 40 83
Interest (expense) - (17) (12) (66)
Gain on sale of investment - - - 155
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
8 11 28 172
(Loss) from continuing operations
before income taxes (587) (1,730) (1,916) (2,763)
Income tax benefit 191 638 634 1,050
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
(Loss) from continuing operations (396) (1,092) (1,282) (1,713)
(Loss) from discontinued operations, net of taxes - - - (45)
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
Net (loss) $ (396) $ (1,092) $(1,282) $ (1,758)
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
Basic and diluted (loss) per share:
Continuing operations $ (.09) $ (.26) $ (.31) $ (.41)
Discontinued operations - - - (.01)
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
$ (.09) $ (.26) $ (.31) $ (.42)
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
- -------------------------------------------------- ---------------- ----------------- ------------- --------------
Weighted average shares:
Basic and diluted 4,185 4,140 4,189 4,144
See notes to consolidated condensed financial statements.
- 4 -
Valpey-Fisher Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
----------------------------
9/28/03 9/29/02
-------------- -------------
Cash flows from operating activities:
Net (loss) from continuing operations $ (1,282) $ (1,713)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation and amortization 625 650
Deferred income taxes 63 (217)
Net non-cash stock compensation 27 -
Gain on sale of investment - (155)
Changes in operating assets and liabilities, excluding the effects of the
purchase of MF Electronics 1,557 1,863
- ------------------------------------------------------------------------------- -------------- -------------
Net cash provided by operating activities 990 428
- ------------------------------------------------------------------------------- -------------- -------------
Cash flows from investing activities:
Purchase of certain MF Electronics' assets (799) -
Capital expenditures (117) (136)
Collection of note receivables 18 137
Proceeds from sale of assets 65 155
Other, net (8) (8)
- ------------------------------------------------------------------------------- -------------- -------------
Net cash provided (used) by investing activities (841) 148
- ------------------------------------------------------------------------------- -------------- -------------
Cash flows from financing activities:
Payments on long-term debt (1,277) (303)
Purchases of common stock (60) (57)
- ------------------------------------------------------------------------------- -------------- -------------
Net cash (used) by financing activities (1,337) (360)
- ------------------------------------------------------------------------------- -------------- -------------
Net cash (used) by discontinued operations - (45)
- ------------------------------------------------------------------------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents (1,188) 171
Cash and cash equivalents:
Beginning of period 5,758 5,960
-------------- -------------
End of period $ 4,570 $ 6,131
-------------- -------------
-------------- -------------
See notes to consolidated condensed financial statements.
- 5 -
Valpey-Fisher Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
1. Financial Presentation:
The interim financial statements are unaudited but, 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 interim financial statements should be read in conjunction with the
financial statements and related notes thereto included in the Company's 2002
Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
2. Stock Compensation Plans:
The Company applies the intrinsic value method, Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock option plans. The Company provides
the disclosure requirements of Statement of Financial Accounting Standards Nos.
123 and 148, "Accounting for Stock-Based Compensation," and related
interpretations and amendments.
The Company adopted the disclosure-only option under SFAS No.123
"Accounting for Stock-Based Compensation." The following table illustrates the
effect on net (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No.123 to stock-based compensation.
Three Months Ended
(in thousands, except per share amounts) 9/28/03 9/29/02
- ------------------------------------------------------------------------------- --------------- --------------
(unaudited)
Net (loss), as reported $ (396) $ (1,092)
Deduct: Total stock-based employee compensation expense determined under
the fair value based method for all awards, net of related tax benefit (32) (24)
--------------- --------------
Pro forma net (loss) $ (428) $ (1,116)
=============== ==============
Basic and diluted (loss) per share, as reported $ (.09) $ (.26)
=============== ==============
Basic and diluted (loss) per share, pro forma $ (.10) $ (.27)
=============== ==============
- 6 -
Nine Months Ended
(in thousands, except per share amounts) 9/28/03 9/29/02
- -------------------------------------------------------------------------------- --------------- --------------
(unaudited)
Net (loss), as reported $ (1,282) $ (1,758)
Deduct: Total stock-based employee compensation expense determined under
the fair value based method for all awards, net of related tax benefit (95) (71)
--------------- --------------
Pro forma net (loss) $ (1,377) $ (1,829)
=============== ==============
Basic and diluted (loss) per share, as reported $ (.31) $ (.42)
=============== ==============
Basic and diluted (loss) per share, pro forma $ (.33) $ (.44)
=============== ==============
3. Acquisition:
On May 28, 2003, pursuant to an Asset Purchase Agreement dated April 30,
2003, the Company purchased certain assets consisting primarily of inventories,
machinery and equipment and the customer order backlog from MF Electronics Corp.
("MF"), a privately held company located in New Rochelle, NY. MF designs and
manufactures a wide range of frequency control products. In addition, the
Company acquired for cash the net of the May 28, 2003 MF's accounts receivable
less trade accounts payable. The purchase price was $798,718 in cash. The
results of MF's operations have been included in the consolidated financial
statements since the date of acquisition.
During the week of June 30, 2003, the purchased assets and operations of MF
were moved to the Company's facility located in Hopkinton, MA.
The following table presents the allocation of the purchase price, including
transaction costs of $50,000, to the assets acquired and liabilities assumed,
based on their fair values:
(in thousands)
Accounts receivable $ 343
Inventory 125
Machinery and equipment 516
Trade accounts payable and accrued expenses (135)
------------------
$ 849
==================
The following unaudited pro forma financial information presents the
results of the Company as if the acquisition of MF was completed January 1,
2002. This pro forma financial information is presented for informational
purposes and is not necessarily indicative of the Company's operating results if
the acquisition had been in effect for the periods presented. In addition, they
are not intended to be a projection of future results and do not reflect any
anticipated cost savings or operating efficiencies that the Company believes are
achievable.
- 7 -
(in thousands, except for per share amounts) Three Months Ended Nine Months Ended
9/28/03 9/29/02 9/28/03 9/29/02
---------------- -------------- ------------------ --------------
Net sales $ 2,190 $ 3,161 $ 7,972 $10,725
Net (loss) (396) (1,241) (1,694) (1,780)
Basic and diluted (loss) per share $ (.09) $ (.30) $ (.40) $ (.43)
4. Comprehensive Income (Loss):
During the three months and nine months ended September 28, 2003 and
September 29, 2002, there were no differences between comprehensive (loss) and
net (loss).
5. Receivables, net:
Receivables, net of allowances, consist of the following:
(in thousands) 9/28/03 12/31/02
------------------------------------------------------------------------- ------------- -----------
(unaudited)
Accounts receivable, less allowance for doubtful accounts of $74 and $200 $ 1,244 $ 776
Refundable income taxes 680 1,375
Other 24 24
------------- -----------
$ 1,948 $ 2,175
============= ===========
6. Inventories, net:
Inventories, net of reserves, consist of the following:
(in thousands) 9/28/03 12/31/02
------------------------------------------------------------ ------------- ------------
(unaudited)
Raw materials $ 941 $ 1,560
Work in process 388 153
Finished goods 194 315
------------- -----------
------------- -----------
$ 1,523 $ 2,028
============= ===========
7. Discontinued Operations:
During 1998, the Company sold the assets of its Bergen Cable Technologies,
Inc. subsidiary. As a result of the sale, the Company is performing
environmental cleanup at the site. During the first quarter of 2002, the Company
expensed $75,000 to increase the environmental expense accrual to reflect the
revised estimate to complete the remediation. This after-tax expense of $45,000
is presented in the Consolidated Statements of Operations under the caption
"(Loss) from discontinued operations". For the three months and nine months
ended September 28, 2003, $3,000 and $19,000, respectively has been paid for the
cleanup expenses. At September 28, 2003 accrued liabilities include $104,000 for
future payments. These costs represent the Company's best estimate, but the
ultimate costs will not be known until the remediation is complete.
- 8 -
8. Gain on Sale of Investment:
In the first quarter of 2002, the Company received $155,000 in cash and
reported this amount as a gain on sale of investment. This cash represented the
Company's share of the net escrow balance from the sale of its common stock
investment in Bergen Cable Technology, Inc. The Company sold this common stock
investment in 2000 and the gain recognized on the sale in 2000 did not include
its share of the sale escrow balance, less any claims for indemnity thereon, if
any.
9. (Loss) Per Share:
The computation of basic and diluted (loss) per share from continuing
operations is computed using the weighted average number of common shares
outstanding during the three months and nine months ended September 28, 2003 and
September 29, 2002. During the three months and nine months ended September 28,
2003, 578,438 of common shares issuable under stock options have not been
included in the computation of "Diluted (Loss) per Share". During the three
months and nine months ended September 29, 2002, 314,438 of common shares
issuable under stock options have not been included in the computation of
"Diluted (Loss) per Share". These shares were not included because of the
antidilutive effect of the options since the Company reported a loss from
continuing operations in these periods.
10. Recent accounting pronouncements
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations", effective for years beginning after June 15,
2002. SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Company adopted this SFAS effective January 1, 2003.
The adoption of this standard had no material effect on the Company's financial
position, results of operations and cash flows.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated With Exit or Disposal Activities," which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, is effective for exit activities initiated after December 31, 2002,
and requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair
value. Previous accounting guidance recognized a liability for an exit at the
date of a commitment to an exit plan. The Company adopted this SFAS effective
January 1, 2003. The adoption of this standard had no material effect on the
Company's financial position, results of operations and cash flows.
In November 2002, the FASB issued Interpretation No. (FIN) 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". The interpretation expands on the
accounting guidance of SFAS Nos. 5, 57, and 107 and incorporates without change
the provisions of FASB FIN 34, which is being superseded. FIN 45 elaborates on
the existing disclosure requirements for most guarantees, including loan
guarantees, such as standby letter of credit. It also clarifies that at the time
a company issues a guarantee, the company must recognize an initial liability
for the fair value, or market value, of the obligations it assumes under that
guarantee and must disclose that information in its interim and annual financial
statements. FIN 45 is effective on a prospective basis to guarantees issued or
modified after December 31, 2002, regardless of the guarantor's fiscal year-end.
The disclosure requirements are effective for interim or annual periods ending
after December 15, 2002. The Company adopted this FIN effective January 1, 2003.
The adoption of this standard had no material effect on the Company's financial
position, results of operations and cash flows.
- 9 -
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities". Many variable interest entities have commonly been referred
to as special-purpose entities or off-balance sheet structures. Under the
interpretation, certain entities known as "Variable Interest Entities" (VIE)
must be consolidated by the primary beneficiary of an entity. The primary
beneficiary is generally defined as having the majority of the risks and rewards
arising from the VIE. For VIE's in which a significant (but not majority)
variable interest is held, certain disclosures are required. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003. The Company adopted this FIN effective January 31, 2003.
The adoption of this standard had no material effect on the Company's financial
position, results of operations and cash flows.
- 10 -
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 these financial statements requires us to make
estimates, judgments, and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the related disclosure of
contingent assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes that judgments and estimates related to the following
critical accounting policies could materially affect its consolidated financial
statements.
Accounts receivable - The Company performs on-going credit evaluations of
its customers and assesses the collectibility of its accounts receivable based
on a number of factors including the customer's financial condition and
collection history, and current economic trends when evaluating the adequacy of
the allowance for doubtful accounts.
Inventory - The Company estimates the carrying value of its inventory based
upon historic usage and management's assumptions relating to projected customer
purchases, product design changes and product obsolescence. The changing
technology markets that we supply also affect these estimates. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Income Taxes - The Company has recorded deferred tax assets and liabilities
resulting from differing treatment of items for tax and financial statement
reporting purposes. The Company must estimate its income tax valuation allowance
by assessing which deferred tax assets are more likely than not to be recovered
in the future. Based on our assessment of the realization of these assets, the
Company has recorded a valuation allowance of $833,000 at September 28, 2003. In
reaching our conclusion, we evaluated the existence of deferred tax liabilities
that can be used to absorb deferred tax assets, the deductibility of the
disposal of scrap and worthless inventory, taxable income in prior carryback
years and taxable income by jurisdiction in which we operate and the period over
which the deferred tax assets would be recoverable. In the event that actual
results differ from these estimates in future periods, the Company may need to
establish an additional valuation allowance or reduce the valuation allowance,
which could materially impact our financial position and results of operations.
Liquidity and Capital Resources
Cash and cash equivalents decreased $1,188,000 during the nine
months ended September 28, 2003. During this period, the Company's continuing
operations provided cash of $990,000, investing activities used cash of $841,000
and financing activities used cash of $1,337,000.
Cash provided from operations of $990,000 resulted mainly from the net
loss of $1,282,000 adjusted for the non-cash effect of depreciation of $625,000
and the $1,557,000 reduction in working capital. The net reduction in working
capital, excluding the effects of the acquisition of MF Electronics, was mainly
due to a $629,000 decrease in inventory, a $615,000 net decrease in receivables
and a $344,000 increase in accounts payable and accrued expenses. The 31%
decrease in inventory was mainly due to orders being filled from existing
inventory and a continuing control of inventory levels. The net reduction in
receivables was mainly attributable to the cash receipt of a $1.4 million income
tax refund.
- 11 -
The Company acquired certain assets and assumed certain trade payables
of MF Electronics Corp. for $799,000 in cash during the nine months ended
September 28, 2003.
During the nine months ended September 28, 2003 the Company used
$1,277,000 of cash to pay-off the remaining balance on its term note and $60,000
to purchase and retire 22,300 shares of its common stock.
While the Company is projecting a loss in 2003 based on the current
conditions in the telecom market, management believes that based on its current
working capital and the expected cash flows from operations, the Company's
resources are sufficient to meet its financial needs in 2003 including a
remaining capital expenditures budget of approximately $125,000.
Results of Operations
For the quarter ended September 28, 2003, net sales from continuing
operations increased $573,000 or 35% over the comparable quarter in 2002. The
2003 quarter includes $448,000 in sales from the MF Electronics product line
acquired at the end of May. Excluding the effect of these sales, revenue
increased approximately 8% over the 2002 quarter. For the nine months ended
September 28, 2003, net sales increased $389,000 or 7% from the comparable
period in 2002. The 2002 net sales amount includes sales cancellation charges of
approximately $723,000 from two customers. Excluding the effect on net sales
from these sales cancellation charges and the 2003 sales generated from the MF
Electronics product line, year-to-date sales increased 8% over the 2002 period.
The book-to-bill ratio during the nine months ended September 28, 2003 was
slightly better than 1 versus 1.1 during the comparable period in 2002. The
Company's backlog amounted to $1.7 million at September 28, 2003 compared to
$1.1 million at December 31, 2002 and $1.9 million at September 29, 2002.
Management believes that the market conditions for the Company's products, in
particular those for the telecom market, are slowly starting to stabilize and in
fact show modest growth. However, our near-term visibility continues to be poor
and we continue to see customer orders for small quantities with near-term
delivery dates. Management is not sure of the potential impact on its future
operations from the current continuing telecom market uncertainties.
The Company reported a $257,000 gross profit (12% of net sales) in
the current quarter versus a $1,071,000 gross loss in the 2002 quarter. For the
nine months September 28, 2003, the gross profit was $549,000 (9% of net sales)
compared to a gross loss of $932,000 for the comparable period in 2002. Without
the effect of the gross profit resulting from the sales cancellation charge in
2002, the Company would have reported a $1,149,000 gross loss on sales for the
nine months ended September 29, 2002. During the quarter and nine months ended
September 29, 2002, the Company recorded a $900,000 inventory provision for
excess inventory and a $50,000 provision for employee severance expense. The MF
Electronics product line generated approximately $190,000 and $278,000 in gross
profit during the quarter and nine months ended September 28, 2003,
respectively. During these periods, direct labor and raw material costs, as a
percentage of sales, have decreased slightly from the 2002 periods manly due to
changes in product mix and yield improvements. Overhead expenses have increased
slightly over the 2002 periods mainly as a result of the expenses associated
with the MF Electronics product line.
During the quarter and nine months ended September 28, 2003, selling
and advertising expenses decreased $102,000 and $96,000, respectively, from the
comparable periods in 2002. The quarter and nine months ended September 29, 2002
included a $50,000 provision for employee severance expense. In addition, lower
advertising and bad debt expenses amounting to $77,000 during the quarter ended
and $118,000 during the nine months ended, partially offset by increased sales
commission expense to outside manufacturers' representatives of $19,000 during
the quarter ended and $47,000 during the nine months ended, contributed to the
2003 expense reductions.
- 12 -
During the quarter and nine months ended September 28, 2003, general
and administrative expenses increased $284,000 and $586,000, respectively, over
the comparable 2002 periods. Increased personnel expenses, including the
increased personnel costs associated with the MF Electronics product line
acquired in late May 2003, were the main reason for the expense increases.
During both the quarter and nine months ended September 28, 2003, the
decreases in interest income were mainly due to lower average cash balances and
lower interest rates during the current year. The decreases in interest expense
from the 2002 amounts are mainly due to the Company paying-off the balance of
its outstanding term-debt in the first quarter of 2003. During the nine months
ended September 29, 2002, the Company received $155,000 in cash and reported
this amount as a gain on sale of investment. This cash represented the Company's
estimated share of the net escrow balance relating to the sale of the Company's
common stock investment in Bergen Cable Technology, Inc. in 2000.
The estimated effective federal and state income tax rate for 2003 is
33% compared to 40% in 2002. The difference in the rates is mainly due to the
Company providing a valuation allowance for the full amount of the state income
tax benefit in 2003 due to the uncertainty of realization.
For the quarter ended September 28, 2003, the Company reported an
operating loss of $595,000 compared to an operating loss of $1,741,000 in
comparable quarter of 2002. The reduction in the 2003 operating loss from the
2002 operating loss was mainly due to the increases in sales and gross margin in
2003, offset in part by higher operating expenses. As a result, the Company
reported a net loss from continuing operations of $396,000 during the quarter
ended September 28, 2003 compared to a net loss of $1,092,000 in comparable 2002
period. For the nine months ended September 28, 2003, the Company reported an
operating loss of $1,944,000 compared to an operating loss of $2,935,000 in
comparable period of 2002. The reduction in the 2003 operating loss from the
2002 operating loss was mainly due to the increases in sales and gross margin in
2003, offset in part by higher operating expenses. Nonoperating income amounted
to $28,000 during the nine months ended September 28, 2003 versus $172,000 in
the comparable 2002 period. As a result, the Company reported a net loss from
continuing operations of $1,282,000 during the nine months ended September 28,
2003 compared to a net loss of $1,713,000 in comparable 2002 period. Loss from
discontinued operations during the nine months ended September 29, 2002 amounted
to $45,000. In total, the Company reported a consolidated net loss of $1,282,000
during the nine months ended September 28, 2003 versus a consolidated net loss
of $1,758,000 in the comparable period of 2002.
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 the Company's current views and assumptions and involve risks and
uncertainties that include, but not limited to: the ability to develop, market
and manufacture new innovative products competitively, the fluctuations in
product demand of the telecommunications industry, the ability of the Company
and its suppliers to produce and deliver materials and products competitively,
and the ability to limit the amount of the negative effect on operating results
caused by pricing pressure.
- 13 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's cash balances in excess of operating requirements are
currently invested in money market accounts. These money market accounts are
subject to interest rate risk and interest income will fluctuate in relation to
general money market rates. Based on the cash and cash equivalent balance at
September 28, 2003, and assuming the balance was totally invested in money
market instruments for the full year, a hypothetical 1% point decline in
interest rates would result in an approximate $45,700 decrease in interest
income.
The Company purchases certain inventory from and sells 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 the Company purchases inventory or sells
product could make the U.S. dollar equivalent of such transactions more or less
favorable to the Company and the other involved parties.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
At the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective.
Changes in internal control.
During the third quarter of 2003, there were no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
- 14 -
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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.
(b) Reports on Form 8-K
On August 8, 2003, the Registrant filed a report on Form 8-K dated
August 8, 2003 reporting under Item 7.(c) Exhibits and Item 12.
Results of Operations and Financial Condition.
On August 11, 2003, the Registrant filed a Report on Form 8-K/A-1
dated May 28, 2003 reporting under Item 7.(a) Financial Statements of
Business Acquired, Item 7 (b) Pro Forma Financial Information and Item
7 (c) Exhibits.
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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: November 7, 2003 By /s/ Michael J. Ferrantino
----------------------------
Michael J. Ferrantino,
President and Chief Executive Officer
Date: November 7, 2003 By /s/ Michael J. Kroll
-----------------------
Michael J. Kroll
Vice President, Treasurer and Chief
Financial Officer
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