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~~October 32, 2011

[ ]	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)

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 (~~508~~1) ~~435-6831~~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 [ ]

~~(Registrant’s~~Indicate ~~telephone~~by ~~number~~check mark whether the registrant has submitted electronically and posted on its corporate Web site, ~~including~~if ~~area~~any, ~~code~~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 [X] No [ ]

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]~~

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~~November 1210, 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

Valpey-Fisher Corporation

INDEX	PAGE

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Condensed Balance Sheets – October 2, 2011 (Unaudited) and December 31, 2010 (Audited)	4
Consolidated Statements of Operations – (Unaudited) Three and Nine Months Ended October 2, 2011 and October 3, 2010	5
Consolidated Statements of Cash Flows – (Unaudited) Nine Months Ended October 2, 2011 and October 3, 2010	6
Notes to Consolidated Condensed Financial Statements – (Unaudited)	7-11

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-15

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	15

ITEM 4. Controls and Procedures	15



PART II. OTHER INFORMATION

ITEM 1A. Risk Factors	16
ITEM 6. Exhibits	16

SIGNATURES	17

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,
	October 2,		December 31,
	2011		2010
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,~~115~~499	$	4,451
Receivables, net		2,~~961~~954		2,413
Inventories, net		12,~~860~~136		1,458
Deferred income taxes		~~822~~887		822
Other current assets		6490		44
Total current assets		89,~~822~~566		9,188
Property, plant and equipment, at cost		1213,~~960~~237		12,201
Less accumulated depreciation		10,~~804~~940		10,530
		2,156		1,671
		2,297		1,671
Other assets		~~227~~229		216
Total assets	$	1112,~~205~~092	$	11,075
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,~~208~~360	$	1,033
Accrued liabilities		1,~~059~~493		1,525
Total current liabilities		2,~~267~~853		2,558
Deferred income taxes		~~387~~492		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~~794		5,743
Retained earnings		2,~~546~~735		2,305
Total stockholders’ equity		8,~~551~~747		8,264
Total liabilities and stockholders’ equity	$	1112,~~205~~092	$	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~~Nine Months Ended

7/3/11

7/4/10

7/3/11

7/4/10

10/2/2011

10/3/2010

10/2/2011

10/3/2010

Net sales

34,~~885~~067

3,~~799~~803

711,~~404~~472

711,~~367~~170

Cost of sales

2,~~382~~544

2,~~383~~310

47,~~658~~202

46,~~570~~879

Gross profit

1,~~503~~523

1,~~416~~493

24,~~746~~270

24,~~797~~291

Operating expenses:

Selling and advertising

~~579~~552

~~545~~542

1,~~137~~689

1,~~058~~601

General and administrative

~~335~~363

~~366~~356

~~656~~1,019

~~723~~1,079

Research and development

~~309~~332

~~310~~325

~~603~~936

~~639~~964

1,223

1,221

2,396

2,420

1,247

1,223

3,644

Operating profit

~~280~~276

~~195~~270

~~350~~626

~~377~~647

Interest income

913

Earnings before income taxes

~~282~~278

~~199~~274

~~355~~633

~~386~~660

Income tax expense

9189

63100

~~114~~203

~~154~~255

Net earnings

~~191~~189

~~136~~174

~~241~~430

~~232~~405

Basic earnings per share

.04

.0304

.0610

.0509

Diluted earnings per share

.04

.0304

.0509

Basic weighted average shares

4,~~348~~350

4,~~301~~306

4,~~342~~344

4,~~300~~302

Diluted weighted average shares

4,~~613~~579

4,~~450~~496

4,~~628~~615

4,~~416~~450

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
	Nine Months Ended
	July 3, 2011			July 4, 2010
	10/2/2011			10/3/2010
Cash flows from operating activities:
Net earnings	$	~~241~~430		$	~~232~~405
Adjustments to reconcile net earnings to net cash
Adjustments to reconcile net earnings to net cash provided (used) by operating activities of continuing operations:
provided (used) by operating activities of continuing operations:
Depreciation		410			328
Depreciation		274			229
Provisions for inventory		135			50
Provisions for inventory		43			50
Deferred income taxes		174			31
Deferred income taxes		134			7
Stock-based compensation		24			34
Stock-based compensation		16			26
Changes in operating assets and liabilities:
Receivables, net		(~~548~~541	)		(~~487~~874	)
Inventories		(~~445~~813	)		(~~326~~306	)
Other current assets		(2046	)		9183
Accounts payable and accrued liabilities		~~(266~~118	)		~~604~~1,081
Net cash provided (used) by operating activities of continuing operations		(~~571~~109	)		~~426~~832
Cash flows from operating activities: - Discontinued Operations
Change in accrued liabilities		(2529	)		(1521	)
Net cash (used) by operating activities of discontinued operations		(2529	)		(1521	)
Net cash provided (used) by operating activities		(~~596~~138	)		~~411~~811
Cash flows from investing activities:
Capital expenditures		(~~758~~830	)		(~~198~~348	)
Other assets, net		(1113	)		(1011	)
Net cash (used) by investing activities		(~~769~~843	)		(~~208~~359	)
Cash flows from financing activities:
Stock options exercised		29			1011
Net cash provided by financing activities		29			10
Change in restricted cash		-			(201	)
Net increase (decrease) in cash and cash equivalents		(1,336	)		213
Net cash provided (used) by financing activities		29			(190	)
Net increase (decrease) in cash and cash equivalents		(952	)		262
Cash and cash equivalents:
Beginning of period		4,451			4,053
End of period	$	3,~~115~~499		$	4,~~266~~315
Supplemental Cash Flow Information
Cash paid during the period by continuing operations for income taxes	$	-		$	-177

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.

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~~October 32, 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						69 Months Ended
	7/3/11			7/4/10			7/3/11			7/4/10
	10/2/2011			10/3/2010			10/2/2011			10/3/2010
Cost of sales	$	2		$	32		$	46		$	68
Selling and advertising		1			1			34			34
General and administrative		3			53			69			1215
Research and development		21			2			34			57
Pre-tax stock-based compensation expense		87			118			1623			2634
Income tax (benefit)		(1-	)		-(1	)		(1	)		(12	)
Net stock-based compensation expense	$	7		$	117		$	1522		$	2532

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~~nine months ended ~~July~~October 43, 2010 listed in the table below. No options were granted during the ~~six~~nine months ended ~~July~~October 32, 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~~October 32, 2011 and the changes during the ~~six~~nine month period then ended are as follows:

	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life In Years		Aggregate Intrinsic Value
Outstanding at December 31, 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
Outstanding at October 2, 2011		469,872		$	1.29		3.0	$	499,049
Exercisable at July 3, 2011		370,774		$	1.26		3.2	$	544,220
Exercisable at October 2, 2011		391,538		$	1.27		2.9	$	421,140

A summary of the status of the Company’s nonvested stock options as of ~~July~~October 32, 2011 and the changes during the ~~six~~nine month period then ended are as follows:

	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at December 31, 2010		128,195		$	.68
Granted		-			-
Vested		(2949,~~097~~861	)		.8085
Forfeited		-			-
Nonvested at July 3, 2011		99,098		$	.64
Nonvested at October 2, 2011		78,334		$	.57

At ~~July~~October 32, 2011, there was approximately $3730,000 of total unrecognized compensation cost related to nonvested stock options granted. That cost is expected to be recognized as follows: $147,000 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~~nine months ended ~~July~~October 32, 2011 was $2342,~~200~~300.

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3. Comprehensive Income (Loss):

During the three and ~~six~~nine months ended ~~July~~October 32, 2011 and ~~July~~October 43, 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,
	October 2,		December 31,
	2011		2010
	(unaudited)
Accounts receivable, less allowance for doubtful accounts of
Accounts receivable, less allowance for doubtful accounts of $106 in 2011 and $100 in 2010	$	2,857	$	2,313
$106 in 2011 and $100 in 2010	$	2,827	$	2,313
Refundable income taxes		97		100
Refundable income taxes		134		100
	$	2,954	$	2,413
	$	2,961	$	2,413

5. Inventories, net:

Inventories, net of reserves of $1,~~237~~330,~~500~~000 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

(in thousands):

	October 2		December 31,
	2011		2010
	(unaudited)
Raw materials	$	1,211	$	866
Work in process		343		180
Finished goods		582		412
	$	2,136	$	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~~Nine Months Ended
	7/3/11		7/4/10		7/3/11		7/4/10
	10/2/2011		10/3/2010		10/2/2011		10/3/2010
Weighted average shares outstanding		4,~~348~~350		4,~~301~~306		4,~~342~~344		4,~~300~~302
Dilutive effect of stock options outstanding,
Dilutive effect of stock options outstanding, using the treasury stock method		229		190		271		148
using the treasury stock method		265		149		286		116
Diluted weighted average shares outstanding		4,579		4,496		4,615		4,450
Diluted weighted average shares outstanding		4,613		4,450		4,628		4,416

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During the three and ~~six~~nine months ended ~~July~~October 43, 2010, stock options to purchase 5336,~~415~~125 and ~~138~~53,415, 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~~October 32, 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~~various state ~~of Massachusetts~~ tax returns for ~~2007~~2008 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~~June 3130, ~~2011~~2012. 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~~October 32, 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~~October 32, 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 Financial Accounting Standards Board (“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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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 financial position or results of operation as it only requires a change in the format of the current presentation.

In September 2011, the FASB issued ASU 2011-8 which amends the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This guidance will be effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of this standard is not expected to have a material impact on its financial position or results of operations.

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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~~499,000 at ~~July~~October 32, 2011, a decrease of $1952,~~336,~~000 from the December 31, 2010 balance. During this period, our operations used cash of $~~596~~138,000, investing activities used cash of $~~769~~843,000, and financing activities generated $29,000 of cash.

The cash used in operations resulted from the net earnings of $~~241~~430,000 and the net positive adjustments of $~~467~~743,000 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~~311,000 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~~813,000 and $~~445~~541,000 in inventory and receivables, net, respectively. The ~~and~~increase in inventory, ~~respectively,~~is ~~and~~mainly adue ~~decrease~~to ofthe ~~$466,000~~increase in ~~accrued~~backlog ~~liabilities~~and ~~offset~~is inalso ~~part~~affected by athe ~~$175,000~~lead ~~increase~~times inof ~~accounts~~certain ~~payable~~items and customer delivery requirements. The increase of $~~548~~541,000 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 ana 87% increase in the days’ sales outstanding. The increase 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~~nine months ended ~~July~~October 32, 2011 amounted to $~~758~~830,000 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.

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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~~October 2, 2011, we had outstanding purchase commitments totaling approximately $1,~~354~~568,000, all of which are expected to be fulfilled in 2011. At ~~July~~October 32, 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~~Nine Months Ended ~~July~~October 32, 2011 Compared to the Three and ~~Six~~Nine Months Ended ~~July~~October 43, 2010

During the three months ended ~~July~~October 32, 2011, net sales increased $86264,000 (27%) 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 overall increase in the ~~overall~~weighted average selling prices~~. The~~ ~~sales~~of ~~decrease~~approximately in1%. While the ~~high~~actual ~~precision~~number ~~line~~of ~~was~~units ~~primarily~~sold ~~due~~increased toabout a6% ~~lower~~over ~~beginning backlog in~~ the ~~2011~~2010 period, ~~and~~the ~~resulted~~actual ~~primarily~~sales ~~from~~dollars anattributable ~~overall~~to ~~average~~these ~~price~~unit ~~reduction~~sales asdecreased ~~the~~by ~~number~~$129,000 ofdue ~~units~~to ~~sold~~changes ~~increased~~in ~~about~~product ~~29%~~mix. During the ~~six~~nine months ended ~~July~~October 32, 2011, net sales increased $38302,000 (13%) over the comparable 2010 period. Sales in all product lines increased over the 2010 period, except for the standard product line where sales decreased 84% from the 2010 period. The product line sales increases were mainly due to a 291% increase in the weighted average selling prices. While the actual number of units sold increased about 2% over the 2010 period, ~~partially~~the ~~offset~~actual bysales andollars ~~18%~~attributable ~~overall~~to ~~reduction~~these inunit ~~the~~sales ~~average~~decreased ~~selling~~by ~~prices~~$80,000 due to changes in product mix. The decrease in the standard product line was mainly due to a 24% reduction in unit sales mainly resulting from a lower beginning backlog in the 2011 period. The total 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~~ nine months ended ~~July~~October 32, 2011 were $~~384~~247,000 (107%) and $~~487~~734,000 (6%), respectively, higher than the comparable periods in 2010. Our backlog amounted to $2,~~403~~379,000 at ~~July~~October 32, 2011 versus $2,~~207~~201,000 at ~~July~~October 43, 2010.

During the three months ended ~~July~~October 32, 2011, gross profit as a percentage of sales was 3937% compared to 3739% in the comparable 2010 period. The ~~increase~~decrease in the 2011 margin resulted primarily from the ~~2011~~$93,000 ~~raw~~increased ~~material~~provision ~~costs~~for asslow amoving ~~percentage~~inventory. ofDuring ~~sales~~this ~~being~~period, ~~about~~all 4other ~~percentage~~costs ~~points~~as ~~lower~~a ~~than~~percentage inof ~~2010~~sales ~~partially~~remained ~~offset~~equal byto athe ~~14%~~2010 ~~increase in overhead expenses~~period. During the ~~six~~nine months ended ~~July~~October 32, 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 aan 1311% increase in overhead expenses partially offset by a 21 percentage point decrease in raw material costs. ~~During~~The ~~both~~main ~~periods~~factors ~~direct~~accounting ~~labor~~for ~~costs~~the asoverhead aexpense ~~percentage~~increase ofin ~~sales~~the ~~remained~~period ~~equal. Increases~~were increases in employee compensation and benefits, mainly due to an increase in headcount, depreciation expense resulting from the capital expenditure additions and ~~operating~~freight ~~supplies were the main factors accounting for the overhead expense increases~~ in ~~both periods~~. The ~~decreases~~decrease in raw material ~~costs~~cost as a percentage of sales ~~during~~was ~~both periods were~~ mainly due to changes in the product mix of sales partially offset by an increased provision for slow moving inventory. During the period direct labor costs as a percentage of sales remained equal

Selling and advertising expenses increased $3410,000 (62%) during the three months ended ~~July~~October 32, 2011 over the comparable period in 2010. An increase of $3923,000 in employee compensation and benefits, mainly due to an increase in headcount, and a $13,000 increase in advertising expenses partially offset by areductions ~~reduction~~ of $3018,000 in commission expense to outside sales representatives and $8,000 in travel expenses were the main reasons for the higher expense. Selling and advertising expenses increased $7988,000 (75%) during the ~~six~~nine months ended ~~July~~October 32, 2011 over the comparable period in 2010. An increase of $~~100~~123,000 in employee compensation and benefits, mainly due to an increase in headcount, and a $2538,000 increase in advertising expenses partially offset by a reduction of $6583,000 in commission expense to outside sales representatives were the main reasons for the higher expense.

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~~General~~During ~~and~~the ~~administrative~~three ~~expenses~~months ~~decreased~~ended ~~$31~~October 2,~~000~~ ~~(8%)~~2011, general and administrative expenses increased $677,000 ~~(9%)~~over ~~during~~ the ~~three~~comparable ~~and~~2010 ~~six~~period. During the nine months ended ~~July~~October 32, 2011,~~respectively~~ general and administrative expenses decreased $60,000 (6%) from the comparable 2010 ~~periods~~period 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~~October 32, 2011, research and development expenses ~~remained~~increased ~~level~~$7,000 ~~with~~over the comparable 2010 period. During the ~~six~~nine months ended ~~July~~October 32, 2011, research and development expenses decreased $3628,000 (63%) from the comparable 2010 period. This expense reduction was primarily the result of decreases of $3123,000 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 4039% in 2010. The ~~2011~~decrease ~~rate~~in ~~differs from~~ the ~~expected~~effective ~~combined~~tax ~~rate~~rates ofis ~~40% mainly~~ due to the effects of the research activities credit and state tax provisions.

For the three months ended ~~July~~October 32, 2011, we reported an operating profit of $~~280~~276,000 compared to an operating profit of $~~195~~270,000 in 2010. The $856,000 increase in operating profit results primarily from ~~the~~a $30,000 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 ana $24,000 increase in ~~overhead~~operating expenses. We reported pre-tax earnings of $~~282~~278,000 during the 2011 period compared to pre-tax earnings of $~~199~~274,000 in the comparable 2010 period. For the three months ended ~~July~~October 32, 2011, we reported net earnings of $~~191~~189,000 versus net earnings of $~~136~~174,000 in 2010.

For the ~~six~~nine months ended ~~July~~October 32, 2011, we reported an operating profit of $~~350~~626,000 compared to an operating profit of $~~377~~647,000 in 2010. The $2721,000 decrease in operating profit results ~~primarily~~ from a decrease in gross profit ~~partially~~resulting ~~offset~~from ~~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~~633,000 during the 2011 period compared to pre-tax earnings of $~~386~~660,000 in the comparable 2010 period. For the ~~six~~nine months ended ~~July~~October 32, 2011, we reported net earnings of $~~241~~430,000 versus net earnings of $~~232~~405,000 in 2010.

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Forward-Looking Statements

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

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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~~October 32, 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 $3135,~~200~~000 increase or decrease in interest income.

We purchase certain inventory from and sell product in foreign countries. As these activities are currently transacted in U.S. dollars, they are not subject to foreign currency exchange risk. However, significant fluctuation in the currencies where we purchase inventory or sell product could make the U.S. dollar equivalent of such transactions more or less favorable to us and the other involved parties.

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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~~October 32, 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~~October 32, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

~~Item 1A~~Item1A. Risk Factors

Information regarding risk factors are set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 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.~~	Letter dated August 31, 2011 extending the Middlesex Savings Bank Working Capital Line of Credit and Equipment Line of Credit until June 30, 2012. Filed herewith.
31.1	~~Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.~~	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.~~	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.~~	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

________________

	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 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.

*- ~~XBRL~~16 (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.-

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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: August 15, 2011	/s/ Michael J. Ferrantino, Jr.
Date: November 11, 2011	/s/ Michael J. Ferrantino, Jr.
	Michael J. Ferrantino, Jr.
	President and Chief Executive Officer
Date: August 15, 2011	/s/ Michael J. Kroll
Date: November 11, 2011	/s/ Michael J. Kroll
	Michael J. Kroll
	Vice President, Treasurer and Chief Financial Officer

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