**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      DC 20549





**FORM
      10-K**





**(Mark
      One)**


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





**For
      the fiscal year ended** **December
      31, 2005**


****  ****


**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.
                Employerincorporation
                or organization)
            
            Identification
                number)





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





Registrant’s
      telephone number, including area code: **(508)
      435-6831**




Securities
      registered pursuant to Section 12 (b) of the Act:





**Title
                of each class:******
            ******Name
                of each exchange on which registered:**Common
                Stock $.05 par value
            American
                Stock Exchange





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





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





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





-1-






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





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





Indicate
      by check mark whether the registrant is large accelerated filer, an accelerated
      filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act): (Check
      one):


Large
                accelerated filer [  ]
            Accelerated
                filer [  ]
            Non-accelerated
                filer [X]




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








The
      aggregate market value of voting stock held by non-affiliates: $9,095,298
      (computed by reference to the last sales price of such common stock on June
      30,
      2005, the last business day of the Registrant’s most recently completed second
      fiscal quarter, as reported in the American Stock Exchange consolidated trading
      index).





Number
      of
      shares of common stock outstanding at March 23, 2006: 4,246,503





Documents
      incorporated by reference:




Portions
      of the Registrant’s Proxy Statement for the 2006 Annual Meeting of Stockholders
      are incorporated by reference into Part III of this report.








-2-







**PART
      I**





**Item
      1. Business**





**General**





Valpey-Fisher
      Corporation (“Valpey” or “Registrant”) is incorporated
      under thelaws of Maryland. As used herein the term “Company” refers to
      Valpey-Fisher and its subsidiaries.





**Financial
      Information about Industry Segments**





The
      Company operates in one business segment. Information about export sales is
      set
      forth in Note 12 of the Notes to Consolidated Financial Statements in Item
      8 of
      this Report, which Note is incorporated by reference.





**Description
      of Business**





Products





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





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





Valpey
      provides a wide-frequency range of frequency control devices including standard
      and custom-designed product. Capabilities include:


-
            high-reliability,
                precision crystals and oscillators used in sophisticated industrial,
                military and aerospace applications.-
            ultra-high
                frequency crystals used in crystal filters and oscillators for original
                equipment manufacturers (“OEMs”) telecommunications and microwave
                applications.-
            high-volume,
                low cost crystals and oscillators for consumer and commercial
                applications.




Valpey’s
      frequency control products are used by the telecommunications, computer and
      computer peripheral equipment, scientific, instrumentation, industrial, and
      aerospace markets. The majority of the Company’s revenue is generated by the
      telecommunications markets including the wireless, networking and optical
      networking segments. The Company’s frequency control products are used in
      telecommunications infrastructure equipment such as bandwidth multipliers,
      networking switches and routers, cellular base stations, transceivers and
      multiplexers.






-3-







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





Raw
      Materials





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





Valpey
      imports sub-assemblies and completed products from various Far East (including
      China, Japan, South Korea, Philippines, and Taiwan) and Russian suppliers for
      use in its domestically manufactured product and for resale to its
      customers.





In
      order
      to eliminate the effects of currency fluctuations, Valpey currently purchases
      the product from its foreign suppliers in U.S. dollars. As exchange rates
      fluctuate, Valpey’s cost for these materials may become more expensive than its
      competitors that have taken measures to protect against exchange rate
      fluctuations. In addition, Valpey is subject to the inherent risks involved
      in
      international trade such as political instability and restrictive trade
      policies.








Marketing
      and Customers





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





Valpey
      sells its frequency control products primarily to OEMs, contract manufacturing
      (CM) companies, and distributors. Valpey’s distributors also sell to both the
      OEMs and CM companies. Ultrasonic transducer devices are sold primarily to
      OEMs,
      colleges and universities and research facilities.





In
      recent
      years, OEMs have outsourced a significant amount of their manufacturing
      capability to CM companies. As a result, this has tended to increase the
      concentration of sales to the CM companies. Sales to Solectron Corporation,
      a CM
      company, accounted for approximately 12%, 11%, and 14% of Valpey’s net sales in
      2005, 2004, and 2003, respectively. Sales to Celestica Corporation, a CM
      company, accounted for approximately 10% of Valpey’s sales in 2004. Sales to
      Valpey’s five largest customers accounted for approximately 33% of its sales in
      2005, compared to 33% in 2004 and 35% in 2003. Sales to CM companies accounted
      for approximately 36% of Valpey’s sales in 2005, compared to 37% in 2004, and
      39% in 2003.





Export
      sales amounted to approximately 34% of Valpey’s sales in 2005, 33% in 2004 and
      34% in 2003. Information about export sales is set forth in Note 12 of the
      Notes
      to Consolidated Financial Statements included in Item 8 of this Report, which
      Note is incorporated by reference. Valpey’s international sales are transacted
      in U. S. dollars .




-4-







Seasonal
      Fluctuations





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





Research
      and Development





Research
      and development expenses amounted to $352,000 in 2005, $218,000 in 2004 and
      $107,000 in 2003. During 2006, Valpey intends to increase its efforts to develop
      new products that provide additional functions such as filtering and
      amplification which would leverage off the Company’s expertise in the timing
      area.




Backlog





Valpey’s
      backlog of firm orders was approximately $1,602,000 at December 31, 2005
      compared to $1,800,000 at December 31, 2004. Valpey expects to ship the entire
      December 31, 2005 backlog during 2006.





Competition





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




Manufacturing





Valpey’s
      manufacturing
      facility is locatedin Hopkinton, Massachusetts. Valpey has been ISO-9001
      certified for the design and manufacture of crystals and crystal oscillators
      since 1997.





Valpey
      imports certain raw material and finished product from a supplier in Omsk,
      Russia. At December 31, 2005, Valpey had approximately $159,000 of its equipment
      being used by this supplier located in Russia.




Valpey
      imports completed products from various Far East (including China, Japan, South
      Korea, Philippines, and Taiwan) suppliers for resale to its
      customers.







-5-








Environmental
      Regulations





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





As
      a
      result of the sale of its Bergen Cable subsidiary in 1998, the Company is
      performing environmental clean up at that site. See Note 4 of the Notes to
      Consolidated Financial Statements included in Item 8 of this Report, which
      Note
      is incorporated by reference.




Employees





At
      December 31, 2005, the Company employed 59 full-time employees. No employees
      of
      the Company are represented by a collective bargaining unit. The Company
      considers its relations with its employees to be satisfactory.





Available
      Information





Valpey
      files annual, quarterly and current reports, proxy statements and other
      information with the Securities and Exchange Commission (the “SEC”). You may
      read and copy any document we file at the SEC’s public reference room at Room
      1024, 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at
      1-800-SEC-0330 for information on the public reference room. The SEC maintains
      a
      website (www.sec.gov )
      that
      contains annual, quarterly and current reports, proxy statements and other
      information that issuers (including Valpey) file electronically with the SEC.





Our
      Internet website address is www.valpeyfisher.com .
      Our
      Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
      on
      Form 8-K, and amendments to reports filed or furnished pursuant to Sections
      13(a) and 15 (d) of the Securities Exchange Act of 1934, as amended, are
      available free of charge on our website as soon as reasonably practicable after
      we electronically file such material with, or furnish it to, the SEC. The
      information on the Company’s website is not incorporated by reference into this
      report.




**Foreign
      and Domestic Operations and Export Sales**




Financial
      information about export sales is set forth in Note 12 of the Notes to
      Consolidated Financial Statements included in Item 8 of this Report, which
      Note
      is incorporated by reference.







-6-







**Item
      1A. Risk Factors**





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




**While
      we reported an operating profit of $350,500 in 2005, we have incurred operating
      losses in the four years preceding 2005 and our results are likely to fluctuate
      in the future.**





While
      we
      reported an operating profit of $350,500 in 2005, we have incurred operating
      losses in the four years preceding 2005 and our results are likely to fluctuate
      in the future **.** A
      wide
      variety of factors affect our operating results. Factors that could affect
      our
      future operating results include:


·
            changes
                in sales volume and mix,·
            price
                compression,·
            declines
                in gross margin,·
            increased
                research and development expenses associated with new product development,
                and·
            costs
                to comply with changing laws and regulations and standards, including
                the
                Sarbanes-Oxley Act of 2002, new SEC regulations and American Stock
                Exchange rules.





**If
      we are unable to introduce new products, including more-value added products,
      our future operating results may decrease.**





Our
      future
      operating results are dependent on the timely development, production,
      introduction and marketing of new products, including more-value added products.
      We have continuing sales of older/mature products that tend to decline in
      average selling prices over the product life cycle. By developing these new
      products, we can replace and/or offset the impact of the lower average selling
      prices of the older/mature products.





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





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





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




-7-







In
      2005,
      sales to the top five customers accounted for approximately 33% of the Company’s
      sales. The loss of one or more of our significant customers or a reduction
      in
      sales to any one of them could have an adverse impact on the Company’s operating
      results and financial condition.





**A
      significant portion of our revenues are to Contract Manufacturers (CMs). If
      we
      fail to successfully obtain orders from the CMs, our operating results and
      financial condition could be negatively affected.**





Approximately
      35% of the Company’s sales in 2005 were to Contract Manufacturers (CMs). There
      is a continuing trend among original equipment manufacturers (OEMs) to outsource
      the manufacture of their product to CMs. We first work with and receive design
      wins from OEMs. We then have to negotiate pricing, quantities and delivery
      with
      the CMs. If we fail to successfully obtain orders from the CMs, our operating
      results and financial condition could be negatively affected.





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




There
      is a
      limited public market and limited trading activity for our common shares.
      Directors and executive officers currently on a fully diluted basis beneficially
      own 48% of the outstanding shares. Institutional and other 5% holders own
      approximately 12% of the outstanding shares. During 2005, the average trading
      volume of our common stock was 1,300 shares per day. As a result of the low
      trading volume and the limited outstanding float, the purchase or sale of a
      relatively small number of shares could result in significant share price
      fluctuations.





**We
      may make an acquisition that is not successful.**


As
      part of
      our business strategy, we continue to evaluate acquisition opportunities that
      could complement, enhance or expand our current business or provide additional
      product offerings or technologies. We may have difficulty finding these
      opportunities or, if we do find an opportunity, we may not be able to complete
      the transaction for reasons including a failure to secure financing, if
      necessary. Any transaction we are able to complete may involve a number of
      risks
      including, but not limited to:


·
            the
                diversion of our management’s attention from our existing business to
                integrate the operations and personnel of the acquired
                business,·
            the
                possible adverse effects on the Company’s operating results during the
                integration period,·
            the
                loss of key employees, customers and vendors as a result of the change
                in
                management, and·
            our
                possible inability to achieve the intended objectives of the transaction.





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




-8-







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





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





**We
      face global business, political and economic risks which may adversely affect
      the Company.**





We
      sell
      our products to customers and purchase inventory from vendors located outside
      of
      the United States. As a result, we face global business, political and economic
      risks which may adversely affect the Company. These risks include, but are
      not
      limited to:


·
            political
                and economic instability in countries where our products are sold
                or
                manufactured,·
            expropriation
                or the imposition of government controls,·
            export
                license requirements,·
            trade
                restrictions,·
            high
                levels of inflation or deflation,·
            greater
                difficulty in collecting our accounts receivable and longer payment
                terms,·
            less
                favorable intellectual property laws, and·
            increases
                in duties.





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





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





**Our
      markets are highly competitive, and we may lose business to larger and better
      financed competitors.**




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






-9-






**Certain
      Directors and Members of Management Beneficially Own a Substantial Portion** **of
      the Company’s Common Stock and May Be in a Position to Determine the Outcome of
      Corporate Elections**





Members
      of
      the Board of Directors and Management, on a fully diluted basis beneficially
      own
      48% of the currently outstanding shares of Common Stock. By virtue of such
      ownership, such members of the Board and Management including Ted Valpy, Jr.
      may
      have the practical ability to determine the election of all directors and
      control the outcome of substantially all matters submitted to the Company's
      stockholders. Such concentration of ownership could have the effect of making
      it
      more difficult for a third party to acquire, or discourage a third party from
      seeking to acquire, control of the Company.










**Item
      1B. Unresolved Staff Comments**





Not
      applicable.







-10-








**Item
      2. Properties**





Valpey
      owns its 32,000 square foot facility located in Hopkinton, Massachusetts that
      contains office and manufacturing space and serves as the Company’s corporate
      headquarters.





The
      Company believes its facility is suitable for its current use and is adequate
      to
      satisfy its current production capacity needs.








**Item
      3. Legal Proceedings**





Not
      applicable.








**Item
      4. Submission of Matters to a Vote of Security Holders**





No
      matters
      were submitted to a vote of the Registrant’s security holders during the last
      quarter of the fiscal year covered by this report.







-11-








**Executive
      Officers of the Registrant**




The
      names,
      ages and offices of the executive officers of the Company are as
      follows:





Name
            Age
            OfficeTed
                Valpey, Jr.
            73
            ChairmanMichael
                J. Ferrantino
            63
            President
                and Chief Executive OfficerMichael
                J. Kroll
            57
            Vice
                President, Treasurer and Chief FinancialOfficer





The
      term
      of office for each officer of the Registrant is until the first meeting of
      the
      Board of Directors following the Annual Meeting of Stockholders and until a
      successor is chosen and qualified.





Mr.
      Valpey
      has been Chairman of the Company since 1982 and was President and Chief
      Executive Officer of the Registrant from April 28, 1997 until September 29,
      2002.





Mr.
      Ferrantino was named President and Chief Executive Officer of the Company on
      September 30, 2002 and was elected to the Board of Directors of the Company
      on
      October 23, 2002. From January 2002 to September 2002, he was President of
      Micro
      Networks Division (manufacturer of high frequency and filter components and
      subsystems) of Integrated Circuit Systems, Inc. Mr. Ferrantino was President
      and
      Chief Executive Officer of Micro Networks Corporation (MNC) from December 1998
      until January 2002 and was Chairman of the Board of MNC from April 2000 to
      January 2002.





Mr.
      Kroll
      has been Vice President and Treasurer of the Registrant since 1982 and was
      named
      Chief Financial Officer in May 2002.







-12-








**PART
      II**





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




Valpey-Fisher
      common stock is listed and traded on the American Stock Exchange under the
      symbol VPF. The range of high and low prices each quarter for the past two
      years
      is shown below:







For
                the years ended December 31,
            
            
            
            
            2005
            
            
            
            2004High
            
            Low
            
            High
            
            Low4thquarter
            
            
            $4.10
            
            
            $2.96
            
            
            $4.30
            
            
            $3.063rdquarter
            
            
            4.21
            
            
            3.59
            
            
            4.39
            
            
            3.002ndquarter
            
            
            4.01
            
            
            2.79
            
            
            3.85
            
            
            2.861stquarter
            
            
            4.19
            
            
            3.00
            
            
            4.15
            
            
            2.90




No
      dividend was paid in 2005 or 2004.





The
      number
      of stockholders of record on March 9, 2006 was 740. This number does not include
      stockholders for whom shares are held in a “nominee” or “street”
name.






**Equity
      Compensation Plan Information**





The
      following table presents information as of December 31, 2005 regarding the
      number of shares of the Registrant’s common stock that may be issued under the
      Registrant’s equity compensation plans.




Plan
                Category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in the first
                column)Equity
                compensation plans approved by security holders (1)
            
            
            488,750
            
            $
            2.98
            
            
            180,666Equity
                compensation plans not approved by security holders (2)
            
            
            -0-
            
            
            -0-
            
            
            -0-




(1)
      Includes the 2003, 2001, 1999 and 1992 Stock Option Plans.


(2)
      Does
      not include 100,000 shares of Restricted Stock awarded pursuant to the
      Restricted Stock Agreement dated December 19, 2002 between Mr. Ferrantino and
      the Company.




-13-






**Material
      Feature of Restricted Stock Agreement between the Company and Mr. Ferrantino
      Not
      Approved by Shareholders**





As
      an
      inducement to becoming an employee of the Company, pursuant to a Restricted
      Stock Agreement dated December 19, 2002 between the Company and Michael J.
      Ferrantino, a director and President and Chief Executive Officer of the Company,
      on December 24, 2002, the Company issued Mr. Ferrantino 100,000 shares of Common
      Stock for a purchase price of $.05 per share or an aggregate purchase price
      of
      $5,000. Pursuant to the Agreement, the Stock may not be sold or transferred,
      encumbered or otherwise disposed of for a period of five years from October
      23,
      2002 except that said restrictions will terminate as to 20% of the Restricted
      Stock upon each of October 23, 2003, 2004, 2005, 2006 and 2007. In addition,
      the
      Restriction shall terminate as to an additional 20% of the Restricted Stock
      upon
      the death of the employee after October 23, 2003 or entirely upon a change
      in
      control of ownership of 70% or more of the outstanding Common Stock of the
      Company by anyone other than Ted Valpey, Jr. or certain mergers or
      reorganization of the Company. The Restricted Stock Agreement was not submitted
      to shareholders for approval.





**Sale
      of Unregistered Securities**





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





**Stock
      Repurchases**





At
      December 31, 2005, under prior authorizations from the Board of Directors,
      the
      Company is authorized to purchase up to 227,500 shares of common stock through
      the open market or negotiated transactions.





The
      Company made no repurchases of its common stock in the fourth quarter of 2005.




-14-





**Item
      6. Selected Financial Data**




Years
                    Ended December 31,
                
                2005
                
                2004
                
                2003
                
                2002
                
                2001(in
                    thousands, except per sharedata)Continuing
                    operations:Net
                    sales
                
                $
                11,427
                
                $
                11,545
                
                $
                8,496
                
                $
                7,294
                
                $
                16,897Gross
                    profit (loss)
                
                
                3,814
                
                
                3,260
                
                
                989
                
                
                (1,211
                )
                
                2,287Earnings
                    (loss) before income taxes
                
                
                499
                
                
                (55
                )
                
                (2,423
                )
                
                (3,988
                )
                
                4,294Income
                    tax (expense) benefit
                
                
                (195
                )
                
                -
                
                
                1,023
                
                
                1,198
                
                
                (1,543
                )Earnings
                    (loss)
                
                
                304
                
                
                (55
                )
                
                (1,400
                )
                
                (2,790
                )
                
                2,751Discontinued
                    operations- net of income tax benefit
                
                
                (60
                )
                
                (110
                )
                
                -
                
                
                (99
                )
                
                -Net
                    earnings (loss)
                
                $
                244
                
                $
                (165
                )
                $
                (1,400
                )
                $
                (2,889
                )
                $
                2,751Basic
                    earnings (loss) per share:Continuing
                    operations
                
                $
                .07
                
                $
                (.01
                )
                $
                (.33
                )
                $
                (.67
                )
                $
                .66Discontinued
                    operations
                
                
                (.01
                )
                
                (.03
                )
                
                -
                
                
                (.02
                )
                
                -$
                .06
                
                $
                (.04
                )
                $
                (.33
                )
                $
                (.69
                )
                $
                .66Diluted
                    earnings (loss) per share:Continuing
                    operations
                
                $
                .07
                
                $
                (.01
                )
                $
                (.33
                )
                $
                (.67
                )
                $
                .64Discontinued
                    operations
                
                
                (.01
                )
                
                (.03
                )
                
                -
                
                
                (.02
                )
                
                -$
                .06
                
                $
                (.04
                )
                $
                (.33
                )
                $
                (.69
                )
                $
                .64Cash
                    dividends per share
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Total
                    assets, end of year
                
                $
                13,617
                
                $
                12,864
                
                $
                12,744
                
                $
                15,151
                
                $
                18,841Long-term
                    debt, end of year
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                1,277






-15-





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




**Critical
      Accounting Policies**





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





Management
      believes that judgments and estimates related to the following critical
      accounting policies could materially affect its consolidated financial
      statements.




Accounts
      receivable - 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 $728,500 at December 31, 2005.
      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.




-16-





**Financial
      Condition and Liquidity**





Cash
      and
      cash equivalents amounted to $7,920,000 at December 31, 2005, an increase of
      $1,465,000 over the December 31, 2004 level. During 2005, the Company’s
      continuing operations provided cash of $1,574,000, investing activities used
      cash of $131,000, financing activities provided cash of $44,000, and
      discontinued operations used cash of $22,000.





Cash
      provided from continuing operations of $1,574,000 resulted mainly from net
      earnings of $304,000, adjusted for the non-cash effect of depreciation of
      $752,000 and the $546,000 reduction in working capital. The net decrease in
      working capital was mainly due to a $473,000 reduction in inventory and a
      $430,000 increase in current liabilities, offset in part by a $357,000 increase
      in accounts receivable, net. The decrease in inventory was mainly due to orders
      being filled from existing inventory and the continuing control over inventory
      purchases and levels. The increase in current liabilities is primarily due
      to an
      increase in income taxes payable resulting from higher pre-tax earnings and
      an
      increase in accounts payable resulting from the timing of inventory and capital
      equipment purchases. The increase in accounts receivable was mainly due to
      the
      increase in the days-sales-outstanding from 44 days in 2004 to 56 days in 2005.




Capital
      expenditures amounted to $121,000 in 2005. The Company’s budget for 2006 capital
      expenditures is approximately $550,000.





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 and to fund the capital expenditures for the projected levels of business
      in 2006.








**Results
      of Operations - 2005 versus 2004**





Net
      sales
      decreased $118,000 or 1% from 2004 mainly due to lower sales of manufactured
      products. Sales in the buy and resell product line increased slightly over
      the
      2004 level. During 2005, the actual number of units sold has decreased about
      21%
      from the prior year, as the Company continues to move to more value-added,
      high
      reliability (“high-rel”) products with higher overall average selling prices and
      higher margins. The book-to-bill ratio during 2005 was .99, versus 1.01 in
      2004.
      The Company’s backlog amounted to $1.6 million at December 31, 2005 compared to
      $1.8 million at December 31, 2004. While the Company experienced some modest
      growth in its principal market (telecommunication infrastructure) in 2005,
      it
      was offset by overall price compression and the Company’s conscious effort to
      discontinue low margin product. Management believes that the Company will
      continue to be challenged by price compression and the industry-wide excess
      capacity issues in 2006 and beyond. In addition, our near-term visibility
      continues to be poor and we continue to see customer orders for small quantities
      with near-term delivery dates.





The
      Company reported a $3,814,000 gross profit (33% of net sales) in 2005 versus
      a
      $3,260,000 gross profit (28% of net sales) in 2004. The higher margin was mainly
      attributable to decreases in raw material costs due to changes in product mix
      toward the more value-added, high-rel products with higher selling prices as
      well as some yield improvements. Direct labor and overhead costs as a percentage
      of sales in the 2005 remained fairly consistent with that in 2004.





Selling
      and advertising expenses were comparable to that in 2004. Decreases in personnel
      and benefit expenses of $64,000 and travel and entertainment expenses of $15,000
      were offset by a $73,000 increase in bad debt expense. The increase in bad
      debt
      expense over the 2004 amount was mainly due to the 2004 expense provision
      benefiting from the $59,000 recovery of accounts receivable written-off in
      prior
      years.






-17-






General
      and administrative expenses decreased $53,000 (3%) from 2004 mainly as a result
      of a reduction in personnel and benefit expenses.





Research
      and development expenses increased $134,000 over 2004 primarily as a result
      of
      increased personnel and benefit expenses. This expense increase was consistent
      with the Company’s plan to make significant engineering investments in new
      product development in 2005.





The
      increase in interest income for 2005 over 2004 was due to a combination of
      higher average cash balances and higher interest rates during the current year.
      During 2004, the Company sold equipment and realized a $13,000 gain.




The
      combined federal and state effective income tax rate for 2005 is 39%. As the
      Company has state income tax NOL carryforwards available, there is no estimated
      state income tax provision. The Company reduced the valuation allowance by
      $45,500 in 2005 based on its assessment of the realization of certain deferred
      tax assets. For 2004, no provision for income taxes has been recorded. While
      for
      financial reporting purposes the Company recorded a loss, no income tax benefit
      was provided as the Company recorded a valuation allowance of $70,000. During
      both years, the Company is providing a valuation allowance for the full amount
      of the state income tax benefit relating to net operating loss carryforwards
      due
      to the uncertainty of realization.





During
      2005, the Company reported an operating profit of $351,000 compared to an
      operating loss of $104,000 in 2004. The $454,000 improvement in operating
      performance over 2004 was due to the $554,000 increase in gross margin in 2005
      offset in part by a $100,000 increase in operating expenses. Other income
      amounted to $148,000 in 2005 compared to $48,000 in 2004. As a result, the
      Company reported pre-tax profits of $499,000 from continuing operations during
      2005 compared to a pre-tax loss of $55,000 in 2004. The Company reported
      after-tax losses of $59,700 in 2005 and $110,000 in 2004 from discontinued
      operations. In total, the Company reported net earnings of $245,000 in 2005
      versus a net loss of $165,000 in 2004.






**Results
      of Operations - 2004 versus 2003**





Net
      sales
      increased $3,049,000 or 36% over 2003. Sales from the MF Electronics product
      line acquired at the end of May 2003 accounted for approximately 50% of the
      sales increase. The remaining sales increase resulted from both overall higher
      average selling prices and an increase in the number of units sold. The
      book-to-bill ratio for 2004 was 1.01 compared to 1.05 in 2003. The Company’s
      backlog amounted to $1.8 million at both December 31, 2004 and 2003. While
      the
      Company saw increased activity in the IT markets (servers, switches and storage)
      and some slight increase in the telecom market during the 1 st half of
      2004, the Company did see some softness in new orders during the 2 nd half of
      2004. Based on input from our customers and outside sales representatives,
      we
      feel we will continue to see this market softness in the short-term. Management
      continues to be unsure of the potential impact on its future operations from
      the
      current continuing telecom market uncertainties and our industries over capacity
      issues.





-18-






The
      Company reported a $3,260,000 gross profit (28% of net sales) in 2004 versus
      a
      $989,000 gross profit (12% of net sales) in 2003. About 50% of the dollar
      increase was due to the gross profit provided by the MF Electronics product
      line
      sales. The remaining increase was mainly attributable to the favorable effect
      of
      spreading the fixed overhead costs over the higher sales level. As a percentage
      of sales, direct labor cost remained fairly constant during the years, while
      raw
      material costs in 2004 decreased slightly from that in 2003 mainly due to
      product mix changes.





Selling
      and advertising expenses were comparable to that in 2003, but decreased as
      a
      percentage of sales from 16.5% in 2003 to 12.2% in 2004. Increases in sales
      commission expense to outside manufacturers’ representatives and advertising
      expense were offset by reductions in personnel and bad debt expenses.





General
      and administrative expenses decreased $199,600 from 2003 and as a percentage
      of
      sales amounted to 15.0% in 2004 compared to 22.8% in 2003. A reduction in
      personnel expenses due to the integration of the MF Electronics acquisition
      was
      the main reason for the expense decrease.





Research
      and development expenses increased $111,400 over 2003 primarily due to increased
      personnel expenses.





The
      decrease in interest income during 2004 from 2003 was mainly due to the lower
      average cash balances in 2004 and, to a lesser extent, lower interest rates
      during the current year. The decrease in interest expense from the 2003 amount
      is due to the Company paying-off the balance of its outstanding term-debt in
      the
      first quarter of 2003. During 2004, the Company sold equipment and realized
      a
      $14,000 gain.





For
      2004,
      no provision for income taxes has been recorded. While for financial reporting
      purposes the Company recorded a loss, no income tax benefit was provided as
      the
      Company recorded a valuation allowance of $70,000. Due to the uncertainty
      surrounding the realization of future tax benefits a full valuation allowance
      has been provided for the net deferred tax assets. The estimated effective
      federal and state income tax rate for 2003 is 42%. During both years, the
      Company is providing a valuation allowance for the full amount of the state
      income tax benefit due to the uncertainty of realization.





Based
      on
      the increase in sales and gross profit over 2003 and the reduction in operating
      expenses in 2004, the Company reported an operating loss of $104,000 in 2004
      compared to an operating loss of $2,460,000 in 2003. Nonoperating income
      amounted to $48,000 in 2004 versus $37,000 in 2003. As a result, the Company
      reported a pre-tax loss from continuing operations of $55,000 in 2004 compared
      to a pre-tax loss of $2,423,000 in 2003. Discontinued operations, net of income
      taxes, reported a loss of $110,000 in 2004. In total, the Company reported
      a
      consolidated net loss of $165,000 in 2004 versus a consolidated net loss of
      $1,400,000 in 2003.








**Off-Balance
      Sheet Arrangements**





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







-19-








**Contractual
      Obligations**





During
      the
      normal course of business, the Company incurs certain commitments to make future
      payments for the purchase of inventory, machinery and equipment and production
      supplies based on its projected requirements. At December 31, 2005, the Company
      has outstanding purchase commitments approximating $448,000, all of which are
      expected to be fulfilled in 2006. At December 31, 2005, the Company did not
      have
      any contractual obligations for capital leases, operating leases or long-term
      debt.








**Forward-Looking
      Statements**





This
      Annual Report on Form 10-K contains 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 Company’s ability to achieve profitability, the
      current production over-capacity within the suppliers of frequency control
      devices, 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, and the
      Company’s ability to comply with Section 404 of the Sarbanes-Oxley
      Act.





**Recent
      accounting pronouncements**





In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No. 151, “Inventory Costs — an amendment of ARB No. 43”
(“SFAS 151”), which is the result of its efforts to converge U.S.
      accounting standards for inventories with International Accounting Standards.
      SFAS No. 151 requires idle facility expenses, freight, handling costs,
      and wasted material (spoilage) costs to be recognized as current-period charges.
      It also requires that allocation of fixed production overheads to the costs
      of
      conversion be based on the normal capacity of the production facilities.
      SFAS No. 151 will be effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. The Company does not expect the
      adoption of SFAS 151 will have material impact on its financial position,
      results of operations, and cash flows.




In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 123R, “Share-Based Payment,” which replaces SFAS No. 123,
“Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees.” SFAS No. 123R requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the financial statements based on their fair values. The
      pro
      forma disclosures previously permitted under SFAS No. 123 will no longer be
      an
      alternative to financial statement recognition. On April 14, 2005, the U.S.
      Securities and Exchange Commission adopted a new rule amending compliance dates
      for SFAS No. 123R. In accordance with the new rule, the Company will be required
      to adopt the accounting provisions of SFAS No. 123R in its first quarter of
      2006, beginning January 1, 2006. The Company currently estimates based on the
      stock options outstanding at December 31, 2005 that stock option expense for
      the
      year ended December 31, 2006 will be approximately $162,000.




-20-








FASB
      Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations
      (“FIN 47”), was issued in March 2005. This interpretation became effective for
      the Company in the fourth quarter of 2005 and clarifies that an entity is
      required to recognize a liability for the fair value of a conditional asset
      retirement obligation when incurred if the liability’s fair value can be
      reasonably estimated. The impact of this interpretation was not material to
      the
      Company’s consolidated financial statements *.*





In
      May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
      Corrections, which replaces APB Opinion No. 20, Accounting Changes, and
      SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements.
      Opinion No. 20 had required that changes in accounting principles be
      recognized by including the cumulative effect of the change in the period in
      which the new accounting principle was adopted. SFAS No. 154 requires
      retrospective  application
      of the change to prior periods’ financial statements, unless it is impracticable
      to determine the period-specific effects of the change. The Statement is
      effective for fiscal years beginning after December 15, 2005. The Company
      does not believe the adoption of this statement will have a material impact
      on
      its consolidated financial statements.








**Item
      7A. 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 December
      31, 2005, and assuming the balance was totally invested in money market
      instruments for the full year, a hypothetical 1% point increase or decline
      in
      interest rates would result in an approximate $79,200 increase or 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.







-21-







**Item
      8. Financial Statements and Supplementary Data**





**Valpey-Fisher
      Corporation**


**Consolidated
      Balance Sheets**





December
                31,
            
            2005
            
            2004**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            7,920,235
            
            $
            6,455,273Accounts
                receivable, less allowance for doubtful accounts of
              $115,000
                in 2005 and $100,000 in 2004
            
            
            1,494,910
            
            
            1,137,437Inventories,
                net
            
            
            1,028,103
            
            
            1,500,695Deferred
                income taxes and other current assets
            
            
            653,081
            
            
            629,099Total
                current assets
            
            
            11,096,329
            
            
            9,722,504Property,
                plant and equipment, at cost:Land
                and improvements
            
            
            226,505
            
            
            226,505Buildings
                and improvements
            
            
            2,042,975
            
            
            2,037,058Machinery
                and equipment
            
            
            8,657,943
            
            
            8,543,01710,927,423
            
            
            10,806,580Less
                accumulated depreciation
            
            
            8,559,693
            
            
            7,807,7272,367,730
            
            
            2,998,853Other
                assets
            
            
            152,837
            
            
            142,630$
            13,616,896
            
            $
            12,863,987**Liabilities
                and Stockholders’ Equity**Current
                liabilities:Accounts
                payable
            
            $
            496,954
            
            $
            409,413Accrued
                liabilities
            
            
            1,707,568
            
            
            1,245,779Total
                current liabilities
            
            
            2,204,522
            
            
            1,655,192Deferred
                income taxes
            
            
            448,330
            
            
            578,117Commitments
                and contingencies
            
            
            -
            
            
            -Stockholders’
                equity:Preferred
                stock, $1.00 par value-Authorized 1,000,000 shares; issued,
                none
            
            
            -
            
            
            -Common
                stock, $.05 par value-Authorized 10,000,000 shares;
              issued
                and outstanding: 4,246,503 and 4,222,519 shares
            
            
            212,325
            
            
            211,126Capital
                surplus
            
            
            5,105,201
            
            
            5,076,082Retained
                earnings
            
            
            5,746,518
            
            
            5,501,970Less
                unearned compensation
            
            
            (100,000
            )
            
            (158,500
            )Total
                stockholders’ equity
            
            
            10,964,044
            
            
            10,630,678$
            13,616,896
            
            $
            12,863,987





See
      notes
      to consolidated financial statements.








-22-







**Valpey-Fisher
      Corporation**


**Consolidated
      Statements of Operations**




For
                  the Years Ended December 31,
              
              
              2005
              
              
              2004
              
              
              2003Net
                  sales
              
              $
              11,426,673
              
              $
              11,545,159
              
              $
              8,495,770Cost
                  of sales
              
              
              7,612,645
              
              
              8,284,788
              
              
              7,506,406Gross
                  profit
              
              
              3,814,028
              
              
              3,260,371
              
              
              989,364Selling
                  and advertising expenses
              
              
              1,427,612
              
              
              1,409,361
              
              
              1,406,007General
                  and administrative expenses
              
              
              1,684,203
              
              
              1,736,619
              
              
              1,936,248Research
                  and development expenses
              
              
              351,687
              
              
              218,164
              
              
              106,7913,463,502
              
              
              3,364,144
              
              
              3,449,046Operating
                  profit (loss)
              
              
              350,526
              
              
              (103,773
              )
              
              (2,459,682
              )Other
                  income (expense):Interest
                  income
              
              
              148,322
              
              
              34,720
              
              
              48,537Gains
                  on sales of assets
              
              
              -
              
              
              13,667
              
              
              -Interest
                  expense
              
              
              -
              
              
              -
              
              
              (11,941
              )148,322
              
              
              48,387
              
              
              36,596Earnings
                  (loss) from continuing operations before income taxes
              
              
              498,848
              
              
              (55,386
              )
              
              (2,423,086
              )Income
                  tax (expense) benefit
              
              
              (194,600
              )
              
              -
              
              
              1,023,000Earnings
                  (loss) from continuing operations
              
              
              304,248
              
              
              (55,386
              )
              
              (1,400,086
              )(Loss)
                  from discontinued operations, net of income tax benefit
              
              
              (59,700
              )
              
              (110,000
              )
              
              -Net
                  earnings (loss)
              
              $
              244,548
              
              $
              (165,386
              )
              $
              (1,400,086
              )Basic
                  and diluted earnings (loss) per share:Continuing
                  operations
              
              $
              .07
              
              $
              (.01
              )
              $
              (.33
              )Discontinued
                  operations
              
              
              (.01
              )
              
              (.03
              )
              
              .00$
              .06
              
              $
              (.04
              )
              $
              (.33
              )


See
      notes
      to consolidated financial statements.




-23-








**Valpey-Fisher
      Corporation**


**Consolidated
      Statements of Cash Flows**





FoFor
                the Years Ended December 31,
            
            2005
            
            2004
            
            2003Cash
                Flows from Operating Activities:Earnings
                (loss) from continuing operations
            
            $
            304,248
            
            $
            (55,386
            )
            $
            (1,400,086
            )Adjustments
                to reconcile earnings (loss) from continuing
              operations
                to net cash provided by operating activities:Depreciation
                and amortization
            
            
            751,966
            
            
            818,838
            
            
            833,201Changes
                in deferred income taxes
            
            
            (82,682
            )
            
            32,000
            
            
            287,000Non-cash
                restricted stock compensation, net of taxes
            
            
            35,000
            
            
            35,500
            
            
            35,500Stock
                option income tax benefit
            
            
            10,000
            
            
            -
            
            
            -Gains
                on sales of assets
            
            
            -
            
            
            (13,667
            )
            
            -Changes
                in assets and liabilities, excluding the effects of
              the
                purchase of MF Electronics:Accounts
                receivable
            
            
            (357,473
            )
            
            1,277,984
            
            
            (41,373
            )Inventories,
                net
            
            
            472,592
            
            
            70,278
            
            
            581,913Other
                current assets
            
            
            331
            
            
            (22,338
            )
            
            36,460Accounts
                payable and accrued liabilities
            
            
            440,497
            
            
            221,631
            
            
            360,227Net
                cash provided by operating activities of continuing
                operations
            
            
            1,574,479
            
            
            2,364,840
            
            
            692,842Cash
                Flows from Operating Activities-Discontinued Operations:
                (Revised)(Loss)
                from discontinued operations
            
            
            (59,700
            )
            
            (110,000
            )
            
            -Change
                in deferred income taxes
            
            
            (30,000
            )
            
            -
            
            
            -Change
                in accrued expenses
            
            
            67,415
            
            
            68,900
            
            
            (51,000
            )Net
                cash (used) in operating activities of discontinued
                operations
            
            
            (22,285
            )
            
            (31,100
            )
            
            (51,000
            )Net
                cash provided by operating activities
            
            
            1,552,194
            
            
            2,333,740
            
            
            641,842Cash
                Flows from Investing Activities:Capital
                expenditures
            
            
            (120,843
            )
            
            (140,672
            )
            
            (153,863
            )Purchase
                of MF Electronics
            
            
            -
            
            
            -
            
            
            (798,762
            )Collection
                of notes receivable
            
            
            -
            
            
            19,351
            
            
            24,178Proceeds
                from sales of assets
            
            
            -
            
            
            24,600
            
            
            82,450Other
            
            
            (10,207
            )
            
            (8,065
            )
            
            (8,065
            )Net
                cash (used) in investing activities
            
            
            (131,050
            )
            
            (104,786
            )
            
            (854,062
            )Cash
                Flows from Financing Activities:Stock
                options exercised
            
            
            61,750
            
            
            16,964
            
            
            -Purchases
                of common stock
            
            
            (17,932
            )
            
            -
            
            
            (59,078
            )Payments
                on long-term debt
            
            
            -
            
            
            -
            
            
            (1,277,402
            )Net
                cash provided (used) by financing activities
            
            
            43,818
            
            
            16,964
            
            
            (1,336,480
            )Net
                Increase (Decrease) in Cash and Cash Equivalents
            
            
            1,464,962
            
            
            2,245,918
            
            
            (1,548,700
            )Cash
                and Cash Equivalents at beginning of year
            
            
            6,455,273
            
            
            4,209,355
            
            
            5,758,055Cash
                and Cash Equivalents at end of year
            
            $
            7,920,235
            
            $
            6,455,273
            
            $
            4,209,355






-24-




Note:
      The
      Company has revised its reporting of discontinued operations to note that all
      cash flows represent operating activitites.




See
      notes
      to consolidated financial statements.










-25-






**Valpey-Fisher
      Corporation**


**Consolidated
      Statements of Stockholders’ Equity**




**Common**
              
              **Stock**
              
              **Capital**
              
              **Retained**
              
              **Unearned****Shares**
              
              **Amount**
              
              **Surplus**
              
              **Earnings**
              
              **Compensation**Balance,
                  January 1, 2003
              
              
              4,207,115
              
              $
              210,356
              
              $
              5,079,416
              
              $
              7,067,442
              
              $
              (275,500
              )Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,400,086
              )
              
              -Purchases
                  and retirement of
                common
                  stock
              
              
              (22,300
              )
              
              (1,115
              )
              
              (57,963
              )
              
              -
              
              
              -Amortization
                  of restricted stock
                  grant
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              58,500Tax
                  effect of restricted stock grant
              
              
              -
              
              
              -
              
              
              (23,000
              )
              
              -
              
              
              -Balance,
                  December 31, 2003
              
              
              4,184,815
              
              
              209,241
              
              
              4,998,453
              
              
              5,667,356
              
              
              (217,000
              )Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              (165,386
              )
              
              -Amortization
                  of restricted stock grant
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              58,500Tax
                  effect of restricted stock grant
              
              
              -
              
              
              -
              
              
              (23,000
              )
              
              -
              
              
              -Exercise
                  of stock options
              
              
              37,704
              
              
              1,885
              
              
              100,629
              
              
              -
              
              
              -Balance,
                  December 31, 2004
              
              
              4,222,519
              
              
              211,126
              
              
              5,076,082
              
              
              5,501,970
              
              
              (158,500
              )Net
                  earnings
              
              
              -
              
              
              -
              
              
              
              
              
              244,548
              
              
              -Amortization
                  of restricted stock grant
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              58,500Tax
                  effect of restricted stock grant
              
              
              -
              
              
              -
              
              
              (23,500
              )
              
              -
              
              
              -Exercise
                  of stock options
              
              
              29,984
              
              
              1,499
              
              
              60,251
              
              
              -
              
              
              -Purchases
                  and retirement of
                common
                  stock
              
              
              (6,000
              )
              
              (300
              )
              
              (17,632
              )
              
              -
              
              
              -Stock
                  option income tax benefit
              
              
              -
              
              
              -
              
              
              10,000
              
              
              -
              
              
              -Balance,
                  December 31, 2005
              
              
              4,246,503
              
              $
              212,325
              
              $
              5,105,201
              
              $
              5,746,518
              
              $
              (100,000
              )





See
      notes
      to consolidated financial statements.







-26-





**Valpey-Fisher
      Corporation**


**Notes
      to Consolidated Financial Statements**





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





**(2)   Summary
      of Significant Accounting Policies:**


**Principles
      of consolidation -** The
      accompanying consolidated financial statements include the accounts of
      Valpey-Fisher Corporation and its wholly owned subsidiaries. In 2005, the
      Company dissolved all the consolidating subsidiaries, except for Matec
      International, Inc. Significant intercompany balances and transactions have
      been
      eliminated in consolidation. In 2005, the Company has separately disclosed
      the
      operating, investing, and financing portions of the cash flows attributable
      to
      discontinued operations, which in prior years were reported on a combined basis
      as a single amount.


**Use
      of estimates -** The
      preparation of the Company’s consolidated financial statements in conformity
      with generally accepted accounting principles necessarily requires management
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the balance
      sheet dates. Estimates include reserves for accounts receivable and inventory,
      useful lives of property, plant and equipment, accrued liabilities, and deferred
      income taxes. Actual results could differ from those estimates.


**Fair
      value of financial instruments -** The
      carrying amounts of cash, cash equivalents, accounts receivable, accounts
      payable and accrued expenses approximate fair value because of their short-term
      nature.


**Cash
      equivalents -** The
      Company considers all highly liquid investments with a maturity of three months
      or less when purchased to be cash equivalents. Cash equivalents are stated
      at
      cost plus accrued interest, which approximates market value. The Company reduces
      its exposure to credit risk by maintaining such deposits with high quality
      financial institutions. At December 31, 2005, approximately $1,670,000 of the
      Company’s cash and cash equivalents balance were in excess of the applicable
      insurance limits.


**Accounts
      receivable** ****** **-** Trade
      accounts receivable **** are
      recorded at the invoiced amount and do not bear interest. An allowance for
      doubtful accounts is maintained for potential credit losses based upon the
      Company’s expected collectibility of all accounts receivable **.** The
      Company determines the allowance based on numerous **** factors
      including the customer’s financial condition and collection history, and current
      economic trends. Account balances are charged-off against the allowance after
      all means of collection have been exhausted and the potential for recovery
      is
      considered remote. **


**Inventories
      -** Inventories are stated at the lower of cost or market and are determined by
      the
      first-in, first out method (FIFO).


**Property,
      plant and equipment -** The
      Company uses the straight-line method of providing for depreciation of property,
      plant and equipment for financial reporting purposes and accelerated methods
      for
      tax purposes. The estimated lives used to compute depreciation are as follows:
      land improvements - 10 years, building and improvements - 15 to 40 years and
      machinery and equipment - 3 to 10 years. Expenditures for additions, renewals
      and betterments of property and equipment are capitalized. Expenditures for
      repairs and maintenance are charged to expense as incurred. As assets are
      retired or sold, the related cost and accumulated depreciation are removed
      from
      the accounts and any gain or loss is included in the results of
      operations.


**Revenue
      recognition -** Revenue
      is recognized when an agreement of sale exists, product delivery has occurred,
      title has passed, pricing is fixed or determinable, and collection is reasonably
      assured.


**Research
      and development** ***-*** Research
      and development costs are expensed as incurred *.*







-27-








**Valpey-Fisher
      Corporation**


**Notes
      Continued**





**Income
      taxes -** The
      Company computes deferred income taxes based on the differences between the
      financial statement and tax basis of assets and liabilities using enacted rates
      in effect in the years in which the differences are expected to reverse.
      Valuation allowances are established when necessary to reduce deferred tax
      assets to the amount expected to be realized. The tax effect of the differences
      between compensation expense for financial statement and income tax purposes
      is
      charged or credited to capital surplus.


**Earnings
      (loss) per share -** Basic
      earnings (loss) per share is computed by dividing net earnings (loss) by the
      weighted average number of common shares outstanding. Diluted earnings (loss)
      per share is computed by dividing net earnings (loss) by the diluted weighted
      average shares outstanding. Diluted weighted average shares includes the
      weighted average number of common shares outstanding and the weighted average
      number of common shares that would have been outstanding if potentially dilutive
      common shares relating to stock options had been issued using the treasury
      stock
      method.


**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 (SFAS) 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
      earnings (loss) per share if the Company had applied the fair value recognition
      provisions of SFAS No.123 to stock-based compensation.




For
                the Year Ended December 31,
            
            2005
            
            2004
            
            2003Net
                earnings (loss), as reported
            
            $
            244,548
            
            $
            (165,386
            )
            $
            (1,400,086
            )Deduct:
                Total stock-based employee
              compensation
                expense determined under the
              fair
                value based method for all awards, net of
              related
                tax effects
            
            
            (173,271
            )
            
            (55,299
            )
            
            (111,809
            )Pro
                forma net earnings (loss)
            
            $
            71,277
            
            $
            (220,685
            )
            $
            (1,511,895
            )Basic
                and diluted net earnings (loss) per share:
              As
                reported
            
            $
            .06
            
            $
            (.04
            )
            $
            (.33
            )Pro
                forma
            
            $
            .02
            
            $
            (.05
            )
            $
            (.36
            )






-28-







**Valpey-Fisher
      Corporation**


**Notes
      Continued**





For
      purposes of the above pro forma disclosures, the estimated fair value of the
      options is amortized to expense over the five-year vesting period of the
      options. The fair value of these options was estimated at the grant date using
      the Black-Scholes option pricing model with the following
      weighted-assumptions:





For
                the Year Ended December 31,2005
            
            2004
            
            2003Expected
                dividend yield
            
            
            0
            %
            
            0
            %
            
            0
            %Risk-free
                interest rate
            
            
            4.0
            %
            
            4.4
            %
            
            3.3
            %Expected
                life of options in years
            
            
            7
            
            
            7
            
            
            7Assumed
                volatility
            
            
            57
            %
            
            60
            %
            
            59
            %Estimated
                fair value per share at date of grant
            
            $
            1.84
            
            $
            1.65
            
            $
            1.60




**Comprehensive
      income (loss) -** Comprehensive income (loss) is defined as the change in equity of a business
      enterprise during a period from transactions and other events and circumstances
      from nonowner sources. For the years ended December 31, 2005, 2004, and 2003,
      the Company had no items of other comprehensive income (loss).




**Recent
      accounting pronouncements -**




In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No. 151, “Inventory Costs — an amendment of ARB No. 43”
(“SFAS 151”), which is the result of its efforts to converge U.S.
      accounting standards for inventories with International Accounting Standards.
      SFAS No. 151 requires idle facility expenses, freight, handling costs,
      and wasted material (spoilage) costs to be recognized as current-period charges.
      It also requires that allocation of fixed production overheads to the costs
      of
      conversion be based on the normal capacity of the production facilities.
      SFAS No. 151 will be effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. The Company does not expect the
      adoption of SFAS 151 will have material impact on its financial position,
      results of operations, and cash flows.




In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 123R, “Share-Based Payment,” which replaces SFAS No. 123,
“Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees.” SFAS No. 123R requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the financial statements based on their fair values. The
      pro
      forma disclosures previously permitted under SFAS No. 123 will no longer be
      an
      alternative to financial statement recognition. On April 14, 2005, the U.S.
      Securities and Exchange Commission adopted a new rule amending compliance dates
      for SFAS No. 123R. In accordance with the new rule, the Company will be required
      to adopt the accounting provisions of SFAS No. 123R in its first quarter of
      2006, beginning January 1, 2006. The Company currently estimates based on the
      stock options outstanding at December 31, 2005 that stock option expense for
      the
      year ended December 31, 2006 will be approximately $162,000.




** FASB
      Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations
      (“FIN 47”), was issued in March 2005. This interpretation became effective for
      the Company in the fourth quarter of 2005 and clarifies that an entity is
      required to recognize a liability for the fair value of a conditional asset
      retirement obligation when incurred if the liability’s fair value can be
      reasonably estimated. The impact of this interpretation was not material to
      the
      Company’s consolidated financial statements.




-29-






**Valpey-Fisher
      Corporation**


**Notes
      Continued**




In
      May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
      Corrections, which replaces APB Opinion No. 20, Accounting Changes, and
      SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements.
      Opinion No. 20 had required that changes in accounting principles be
      recognized by including the cumulative effect of the change in the period in
      which the new accounting principle was adopted. SFAS No. 154 requires
      retrospective application of the change to prior periods’ financial statements,
      unless it is impracticable to determine the period-specific effects of the
      change. The Statement is effective for fiscal years beginning after
      December 15, 2005. The Company does not believe the adoption of this
      statement will have a material impact on its consolidated financial
      statements.





**(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 total purchase price was $798,762 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, Massachusetts.





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
            
            $
            343Inventory
            
            
            125Machinery
                and equipment
            
            
            516Trade
                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, 2003. 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.




(in
                  thousands, except for per share amounts)2003Net
                  sales
              
              $
              10,387Net
                  (loss)
              
              $
              (1,762
              )Basic
                  and diluted (loss) per share
              
              $
              (.42
              )










-30-






**Valpey-Fisher
      Corporation**


**Notes
      Continued**





**(4)  
      Discontinued Operations:**




In
      1998,
      the Company sold all the assets of Bergen Cable Technologies, Inc. subsidiary.
      As a result of this sale, the Company was required to perform environmental
      cleanup at this site. During 2005 and 2004, the Company expensed $100,000 and
      $110,000, respectively, to increase the environmental expense accrual to reflect
      the revised estimate to complete the remediation. These expense amounts, net
      of
      income tax benefit, are presented in the Consolidated Statements of Operations
      under the caption “(Loss) from discontinued operations, net of income tax
      benefit”. As of December 31, 2005, a total of $1,160,000 has been expensed for
      the cleanup and $221,000 (see Note 8) is accrued for future payments. The
      Company was required to set up an escrow remediation trust fund (“fund”) of
      approximately $102,000 to cover the periodic payments as required. This fund
      is
      included in the cash and cash equivalents account in the consolidated balance
      sheet. These costs represent the Company’s best estimate, but the ultimate costs
      will not be known until the remediation is complete.




**(5)  
                Inventories, net:**Inventories,
                net of reserves, consist of the following:
            
            2005
            
            2004Raw
                materials
            
            $
            636,715
            
            $
            964,319Work
                in process
            
            
            194,247
            
            
            203,967Finished
                goods
            
            
            197,141
            
            
            332,409$
            1,028,103
            
            $
            1,500,695








**(6)
      Income Taxes:** The
      provision (benefit) for income taxes for continuing operations consisted of
      the
      following:


2005
              
              2004
              
              2003Current:Federal
              
              $
              278,100
              
              $
              -
              
              $
              (1,287,000
              )State
              
              
              (800
              )
              
              -
              
              
              -277,300
              
              
              -
              
              
              (1,287,000
              )Deferred:Federal
              
              
              (93,000
              )
              
              (47,500
              )
              
              418,000State
              
              
              55,800
              
              
              (22,500
              )
              
              (227,000
              )(37,200
              )
              
              (70,000
              )
              
              191,000Valuation
                  allowance
              
              
              (45,500
              )
              
              70,000
              
              
              73,000Total
              
              $
              194,600
              
              $
              -
              
              $
              (1,023,000
              )





The
      Company recorded an income tax benefit relating to the discontinued operations
      of $40,300 in 2005 and $0 in 2004.







-31-






**Valpey-Fisher
      Corporation**


**Notes
      Continued**





The
      total
      income tax provision (benefit) for continuing operations differs from that
      computed by applying the federal income tax rate to income before income taxes.
      The reasons for the difference are as follows:


2005
            
            2004
            
            2003Income
                taxes at statutory rates
            
            $
            169,600
            
            $
            (56,230
            )
            $
            (823,850
            )State
                income taxes, net of federal tax effect
            
            
            36,300
            
            
            (10,170
            )
            
            (276,600
            )Federal
                tax effect of state tax operating losses utilized
            
            
            31,200
            
            
            -
            
            
            -Change
                in valuation allowance
            
            
            (45,500
            )
            
            70,000
            
            
            73,000Reversal
                of accruals
            
            
            -
            
            
            (9,000
            )
            
            -Other,
                net
            
            
            3,000
            
            
            5,400
            
            
            4,450$
            194,600
            
            $
            -
            
            $
            (1,023,000
            )




The
      tax effects of significant items comprising the Company’s deferred tax assets
      and liabilities as of December 31, 2005 and 2004 are as follows:


2005
            
            2004Deferred
                tax assets:Inventory
                valuation
            
            $
            666,800
            
            $
            612,400State
                tax loss carryforward
            
            
            526,500
            
            
            623,000Accruals
                and allowances
            
            
            137,800
            
            
            106,300Alternative
                minimum tax credit carryforward (no expiration)
            
            
            -
            
            
            10,400Valuation
                allowance
            
            
            (728,500
            )
            
            (774,000
            )Net
                deferred tax assets
            
            
            602,600
            
            
            578,100Deferred
                tax liabilities:Depreciation
            
            
            287,800
            
            
            364,000DISC
                commissions
            
            
            160,500
            
            
            214,100Total
                deferred tax liabilities
            
            
            448,300
            
            
            578,100Net
                deferred tax assets
            
            $
            154,300
            
            $
            -





At
      December 31, 2005, the Company has state tax loss benefit carryforwards of
      $526,500 that begin to expire in 2007. Due to the uncertainty of the realization
      of this state tax benefit and management’s estimate that operating income and
      the reversal of future taxable temporary differences will more likely than
      not
      be sufficient to recognize all of the other deferred tax assets, the Company
      has
      established a valuation allowance of $728,500 at December 31, 2005. Other
      current assets include deferred income taxes of approximately $602,600 in 2005
      and $578,100 in 2004 .





**(7)
      Profit Sharing and Savings Plan:** The
      Company has a trusteed profit sharing 401(k) plan that covers all qualified
      employees. Under the profit sharing section of the plan, the Company may make
      contributions to the plan at the discretion of the Board of Directors. No profit
      sharing contributions were made in 2005, 2004 and 2003. Under the 401(k) section
      of the plan, the Company matched 50% of employee contributions up to 6% of
      compensation. Total Company contributions charged to operations were
      approximately $76,000 in 2005, $74,000 in 2004 and $67,000 in 2003.







-32-






**Valpey-Fisher
      Corporation**


**Notes
      Continued**








**(8)
                Accrued Liabilities:**Accrued
                liabilities consist of the following items:
            
            2005
            
            2004Employee
                compensation
            
            $
            611,600
            
            $
            585,100Income
                taxes
            
            
            334,300
            
            
            95,800Professional
                fees
            
            
            160,000
            
            
            108,900Environmental
                costs (see Note 4)
            
            
            220,600
            
            
            142,900Commissions
            
            
            95,100
            
            
            83,700Other
            
            
            285,968
            
            
            229,379$
            1,707,568
            
            $
            1,245,779





**(9)
      Debt:** At
      December 31, 2005, the Company had no outstanding credit arrangements with
      banks
      or any other financial institution.








**(10)
      Stockholders’ Equity:** The
      Company has 4,246,503 and 4,222,519 shares of its $.05 par value Common Stock
      outstanding at December 31, 2005 and 2004, respectively.




During
      2005, the Company acquired 6,000 shares of common stock at a cost of $17,900
      and
      retired the shares. At December 31, 2005, under prior authorizations from the
      Board of Directors, the Company is authorized to purchase up to an additional
      227,500 shares of stock through the open market or negotiated
      transactions.





In
      2004,
      the Company issued options to four employees for 29,500 shares of common stock
      in payment for a bonus accrued in 2003. The option price was $.05 per share.
      At
      the date of grant, the fair market value of the 29,500 shares of common stock
      less the option price was $85,550.




In
      the
      fourth quarter of 2002, the Company granted 100,000 shares of restricted stock
      to the President and Chief Executive Officer for $5,000. The shares issued
      under
      a Restricted Stock Agreement vest over a period of five years. Unearned
      compensation was recorded at the date of the grant based on the market value
      of
      $295,000. Unearned compensation, which is shown as a separate component of
      stockholders’ equity, is being amortized over the five year vesting period. The
      amount amortized to expense in each of


the
      years
      2005, 2004 and 2003 was $58,500. The tax effect of the differences between
      compensation expense for financial statement and income tax purposes is charged
      or credited to capital surplus.





At
      December 31, 2005, the Company has four Stock Option Plans that allow for the
      granting of options to officers, key employees, and other individuals to
      purchase a maximum of 1,000,000 shares of the Company’s common stock. The option
      price and terms are determined by the Company’s Compensation Committee. The
      options granted may qualify as incentive stock options (“ISO’s”). At December
      31, 2005, the 1992 and 1999 Plans had no options available for future grant
      and
      268,916 common shares reserved for issuance upon exercise of the outstanding
      stock options. At December 31, 2005, the 2001 and 2003 Plans have a total of
      180,166 options available for future grants and 219,834 common shares reserved
      for issuance upon exercise of the outstanding stock options.







-33-






**Valpey-Fisher
      Corporation**


**Notes
      Continued**




A
      summary
      of the status of the Company’s fixed stock option plans as of December 31, 2005,
      2004, and 2003, and changes during the years ended on those dates is presented
      below:





2005
            
            2004
            
            2003Number
              of
                shares
            
            Weighted-Avg.
                Exercise Price
            
            Number
                of shares
            
            Weighted-Avg.
                Exercise Price
            
            Number
                of shares
            
            Weighted-Avg.
                Exercise PriceOutstanding,
                January 1
            
            
            532,234
            
            $
            3.40
            
            
            578,438
            
            $
            3.41
            
            
            509,938
            
            $
            3.57Granted
            
            
            121,500
            
            
            2.99
            
            
            83,500
            
            
            2.01
            
            
            86,500
            
            
            2.61Exercised
            
            
            (29,984
            )
            
            2.06
            
            
            (37,704
            )
            
            .45
            
            
            -
            
            
            -Forfeited
            
            
            (135,000
            )
            
            3.42
            
            
            (92,000
            )
            
            3.40
            
            
            (18,000
            )
            
            4.18Outstanding,
                December 31
            
            
            488,750
            
            $
            2.98
            
            
            532,234
            
            $
            3.40
            
            
            578,438
            
            $
            3.41Exercisable,
                December 31
            
            
            203,658
            
            $
            3.89
            
            
            274,345
            
            $
            3.59
            
            
            226,038
            
            $
            3.56





The
      following table summarizes information about fixed stock options outstanding
      at
      December 31, 2005:










Options
                  Outstanding
              
              
              Options
                  ExercisableWeighted-AverageRange
                  of
                Exercise
                Prices
              Number
                Outstanding
                at
                  12/31/05
              
              
              Remaining
                Contractual
                Life
              
              
              Exercise
                Price
              
              
              Number
                Exercisable
                  at
                12/31/05
              
              
              Weighted
                Avg.
                  Exercise
                Price
 $2.48
                  - 2.96
              181,000
              8.5
              $2.80
              33,800
              $2.61$3.05
                  - 4.28
              289,000
              7.3
              3.24
              151,108
              3.29$11.04
              18,750
              4.8
              11.04
              18,750
              11.04488,750
              6.1
              $2.98
              203,658
              $3.89





The
      Company adopted the disclosure-only option under SFAS No.123 “Accounting for
      Stock-Based Compensation.” The following table illustrates the effect on net
      earnings (loss) per share if the Company had applied the fair value recognition
      provisions of SFAS No.123 to stock-based compensation.


For
                the Year Ended December 31,
            
            2005
            
            2004
            
            2003Net
                earnings (loss), as reported
            
            $
            244,548
            
            $
            (165,386
            )
            $
            (1,400,086
            )Deduct:
                Total stock-based employee
              compensation
                expense determined under the
              fair
                value based method for all awards, net of
              related
                tax effects
            
            
            (173,271
            )
            
            (55,299
            )
            
            (111,809
            )Pro
                forma net earnings (loss)
            
            $
            71,277
            
            $
            (220,685
            )
            $
            (1,511,895
            )Basic
                and diluted net earnings (loss) per share:
              As
                reported
            
            $
            .06
            
            $
            (.04
            )
            $
            (.33
            )Pro
                forma
            
            $
            .02
            
            $
            (.05
            )
            $
            (.36
            )







-34-







**Valpey-Fisher
      Corporation**


**Notes
      Continued**





For
      purposes of the above pro forma disclosures, the estimated fair value of the
      options is amortized to expense over the five-year vesting period of the
      options. The fair value of these options was estimated at the grant date using
      the Black-Scholes option pricing model with the following
      weighted-assumptions:





For
                the Year Ended December 31,2005
            
            2004
            
            2003Expected
                dividend yield
            
            
            0
            %
            
            0
            %
            
            0
            %Risk-free
                interest rate
            
            
            4.0
            %
            
            4.4
            %
            
            3.3
            %Expected
                life of options in years
            
            
            7
            
            
            7
            
            
            7Assumed
                volatility
            
            
            57
            %
            
            60
            %
            
            59
            %Estimated
                fair value per share at date of grant
            
            $
            1.84
            
            $
            1.65
            
            $
            1.60





**(11)
      Earnings**  **(Loss)
      Per Share:** The
      computation of basic and diluted earnings (loss) per share from continuing
      operations is as follows:




2005
              
              2004
              
              2003**Basic:**Earnings
                  (loss) from continuing operations
              
              $
              304,248
              
              $
              (55,386
              )
              $
              (1,400,086
              )Weighted
                  average shares outstanding
              
              
              4,239,547
              
              
              4,212,353
              
              
              4,187,970Basic
                  earnings (loss) per share from continuing operations
              
              $
              .07
              
              $
              (.01
              )
              $
              (.33
              )**Diluted:**Earnings
                  (loss) from continuing operations
              
              $
              304,248
              
              $
              (55,386
              )
              $
              (1,400,086
              )Weighted
                  average shares outstanding
              
              
              4,239,547
              
              
              4,212,353
              
              
              4,187,970Diluted
                  effect of stock options outstanding, using
                the
                  treasury stock method
              
              
              68,629
              
              
              -
              
              
              -Diluted
                  weighted average shares outstanding
              
              
              4,308,176
              
              
              4,212,353
              
              
              4,187,970Diluted
                  earnings (loss) per share from continuing operations
              
              $
              .07
              
              $
              (.01
              )
              $
              (.33
              )




In
      2005,
      the computation of diluted earnings per share excluded stock options to purchase
      28,750 shares as the exercise prices were greater than the average market price.
      The Company had 532,234 and 578,438 options outstanding in 2004 and 2003,
      respectively, which were not included in the computation of dilutive shares
      since the Company had a net loss and the inclusion of such shares would be
      anti-dilutive.






-35-






**Valpey-Fisher
      Corporation**


**Notes
      Continued**





**(12)
      Industry Segment:** The
      Company operates in one segment: the design, production, import, and sale of
      quartz crystals and oscillators and ultrasonic transducer devices.




One
      customer accounted for approximately 12%, 11% and 14% of net sales in 2005,
      2004
      and 2003, respectively. A second customer accounted for approximately 10% of
      net
      sales in 2004. Export sales to foreign markets are as follows:


2005
            
            2004
            
            2003Asia
                Pacific
            
            $
            1,955,900
            
            $
            1,988,700
            
            $
            1,652,200Europe
                and Middle East
            
            
            1,190,600
            
            
            708,600
            
            
            670,900Canada
            
            
            704,200
            
            
            1,044,600
            
            
            560,800Other
            
            
            33,900
            
            
            25,500
            
            
            20,800$
            3,884,600
            
            $
            3,767,400
            
            $
            2,904,700





**(13)**  **Quarterly
      Financial Data (unaudited):** Selected
      unaudited quarterly financial data for 2005 and 2004 is set forth
      below:




First
            
            Second
            
            Third
            
            Fourth(in
                thousands, except per share data)2005Net
                sales from continuing operations
            
            $
            3,022
            
            $
            3,015
            
            $
            2,780
            
            $
            2,610Gross
                profit
            
            
            965
            
            
            1,056
            
            
            967
            
            
            826Earnings
                before income taxes
            
            
            69
            
            
            145
            
            
            146
            
            
            139Net
                earnings (loss) from:
              Continuing
                operations
            
            
            45
            
            
            96
            
            
            96
            
            
            67Discontinued
                operations
            
            
            -
            
            
            -
            
            
            -
            
            
            (60
            )Net
                earnings
            
            $
            45
            
            $
            96
            
            $
            96
            
            $
            7Basic
                and diluted earnings (loss) per share:
              Continuing
                operations
            
            $
            .01
            
            $
            .02
            
            $
            .02
            
            $
            .01Discontinued
                operations
            
            
            -
            
            
            -
            
            
            -
            
            
            (.01
            )$
            .01
            
            $
            .02
            
            $
            .02
            
            $
            -








First
            
            Second
            
            Third
            
            Fourth2004Net
                sales from continuing operations
            
            $
            2,767
            
            $
            3,151
            
            $
            3,043
            
            $
            2,584Gross
                profit
            
            
            787
            
            
            922
            
            
            936
            
            
            615Earnings
                (loss) before income taxes
            
            
            (137
            )
            
            (23
            )
            
            45
            
            
            60Net
                earnings (loss) from:
              Continuing
                operations
            
            
            (137
            )
            
            (23
            )
            
            45
            
            
            60Discontinued
                operations
            
            
            -
            
            
            (110
            )
            
            -
            
            
            -Net
                earnings (loss)
            
            $
            (137
            )
            $
            (133
            )
            $
            45
            
            $
            60Basic
                and diluted (loss) per share:
              Continuing
                operations
            
            $
            (.03
            )
            $
            (.01
            )
            $
            .01
            
            $
            .01Discontinued
                operations
            
            
            -
            
            
            (.02
            )
            
            -
            
            
            -$
            (.03
            )
            $
            (.03
            )
            $
            .01
            
            $
            .01






-36-






**Valpey-Fisher
      Corporation**


**Notes
      Continued**





Earnings
      (loss) per share calculations for each of the quarters is based on the weighted
      average number of shares outstanding for each period and the sum of the quarters
      may not necessarily be equal to the full year earnings (loss) per share
      amounts.






( **14)
      Commitments and Contingencies** :
      During
      the normal course of business, the Company incurs certain commitments to make
      future payments for the purchase of inventory, machinery and equipment and
      production supplies based on its projected requirements. At December 31, 2005,
      the Company has outstanding purchase commitments approximating $448,000, all
      of
      which are expected to be fulfilled in 2006.





In
      connection with the sale of its Bergen Cable Technologies, Inc. subsidiary
      in
      1998, the Company was required to perform environmental cleanup at this site
      (see Note 4).






**(15)
      Supplemental Cash Flow Information**: Supplemental cash flow information
      for 2005, 2004, and 2003 consists of the following:




2005
            
            2004
            
            2003Cash
              paid during the year by continuing operations for:Interest
            
            $
            -
            
            $
            -
            
            $
            11,941Income
                taxes
            
            $
            83,000
            
            $
            -
            
            $
            -Noncash
              Investing and Financing Activities:


In
      2004,
      the Company issued 29,500 shares of common stock valued at $85,550 to four
      employees in payment for a bonus accrued in 2003.




Certain
      revisions have been made to the 2004 and 2003 Consolidated Statements of Cash
      Flows related to reporting of discontinued operations to note that all cash
      flows represent operating activities.







-37-





**Report
      of Independent Registered Public Accounting Firm**





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





We
      have
      audited the accompanying consolidated balance sheets of Valpey-Fisher
      Corporation and subsidiaries (the “Company”) as of December 31, 2005 and 2004,
      and the related consolidated statements of operations, stockholders’ equity, and
      cash flows for each of the three years in the period ended December 31, 2005.
      These financial statements are the responsibility of the Company’s management.
      Our responsibility is to express an opinion on these financial statements based
      on our audits.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Valpey-Fisher Corporation
      and subsidiaries as of December 31, 2005 and 2004, and the results of their
      operations and their cash flows for each of the three years in the period ended
      December 31, 2005, in conformity with accounting principles generally accepted
      in the United States of America.








/s/
      Grant
      Thornton LLP





Boston,
      Massachusetts


February
      17, 2006











-38-







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





Not
      applicable.








**Item
      9A. Controls and Procedures**





**Evaluation
      of disclosure controls and procedures.**




As of
      December 31, 2005, the Company carried out an evaluation, under the supervision
      and with the Company’s management, including the Company’s President and Chief
      Executive Officer and the Company’s Chief Financial Officer, of the
      effectiveness of the design and operation of the Company’s 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, except as noted below,
      that the Company’s disclosure controls and procedures are effective in timely
      alerting them to material information relating to the Company (including its
      consolidated subsidiaries) required to be included in the Company’s periodic SEC
      filings. We believe that this deficiency did not affect the accuracy of our
      financial statements in this report.





The
      Company’s independent registered accounting firm has advised management and the
      audit committee that the following identified internal control deficiency
      constitutes a significant deficiency in the Company’s internal control.





1.
            Reliance
                on the Chief Financial Officer for period end financial reporting
                functions, accounting estimates and income
                taxes.





Management
      recognizes that a control system, no matter how well conceived and operated,
      can
      provide only reasonable, not absolute assurance that the objectives of the
      control system are met. Further, the design of a control system must reflect
      the
      fact that there are resource constraints, and the benefits of controls must
      be
      considered relative to their costs. Management will continue to evaluate the
      employees involved and the control procedures in place, the risks associated
      with such lack of segregation of duties and whether the potential benefits
      of
      adding employees to clearly segregate duties or other alternatives justifies
      the
      expense associated with the changes. In addition, management will be reviewing
      this matter with its outside consultants to examine other available alternative
      solutions.





**Changes
      in internal control.**





**** Other
      than
      as discussed above , such
      evaluation did not identify any change in the Company’s internal controls over
      financial reporting that occurred during the quarter ended December 31, 2005
      that has materially affected, or is reasonably likely to materially affect,
      the
      Company’s internal control over financial reporting.









-39-








**Item
      9B. Other Information**




None







**PART
      III**





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





The
      remaining information called for by Part III is hereby incorporated by reference
      from the information set forth and under the headings “Common Stock Ownership of
      Certain Beneficial Owners and Management”, “Election of Directors”, “Corporate
      Governance and Board Matters”, “Executive Compensation” and “Principal
      Accountant Fees and Services” in Registrant’s definitive proxy statement for the
      2006 Annual Meeting of Stockholders, which meeting involves the election of
      directors, such definitive proxy statement to be filed with the Securities
      and
      Exchange Commission pursuant to Regulation 14A within 120 days after the end
      of
      the fiscal year covered by this Annual Report on Form 10-K. In addition,
      information on Registrant’s executive officers has been included in Part I above
      under the caption “Executive Officers of the Registrant”.










-40-








**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules**





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





1.****
            The
                following Consolidated Financial Statements are included in Item
                8:Consolidated
                Balance Sheets, December 31, 2005 and 2004Consolidated
                Statements of Operations for the Years Ended December 31, 2005, 2004
                and
                2003Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2005, 2004
                and
                2003Consolidated
                Statements of Stockholders’ Equity for the Years EndedDecember
                31, 2005, 2004 and 2003Notes
                to Consolidated Financial StatementReport
                of Independent Registered Public Accounting
                Firm






2.
            The
                following schedule to the Consolidated Financial Statements and the
                Report
                of IndependentRegistered
                Accounting Firm on Schedule are filed as part of this
                report.




Report
      of
      Independent Registered Public Accounting Firm on Supplementary Schedule


Schedule
      II - Valuation Reserves ****




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







-41-








3.
      The
      exhibits filed in this report or incorporated by reference, listed on the
      Exhibit Index are as follows:







**Exhibit
                No.**
            
            **Description**2.
            
            Agreement
                of Merger and Recapitalization2.1
            
            Asset
                Purchase Agreement dated April 30, 2003 between Seller, William Stein,
                Martin Finkelstein and the Company3.1
            
            Restated
                and Amended Articles of Incorporation3.2
            
            By-Laws
                effective May 8, 200310.1
            *
            1992
                Stock Option Plan10.2
            *
            1999
                Stock Option Plan10.3
            *
            2001
                Stock Option Plan10.4
            *
            Restricted
                Stock Agreement10.5
            *
            2003
                Stock Option Plan10.6
            *
            Key
                Employee Bonus Plan for 200514
            
            Code
                of Ethics of the Chief Executive Officer and the Chief Financial
                and
                Accounting Officer14.1
            
            Code
                of Business Conduct and Ethics21
            
            Subsidiaries
                of the Registrant23
            
            Independent
                Registered Public Accounting Firm’s Consent31.1
            
            Certification
                of the Chief Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            
            Certification
                of the Chief Financial Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002








*
      Management contract or compensatory plan or arrangement required to be filed
      as
      an


Exhibit
      pursuant to Item 15(c) of this report.










-42-







**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, Registrant has duly caused this report to be signed on its behalf by
      the
      undersigned, thereunto duly authorized.




Valpey-Fisher
                CorporationDate:
              March 27, 2006
            By:
            /s/
              Michael J. FerrantinoMichael
              J. FerrantinoPresident
              and Chief Executive Officer (Principal Executive
              Officer)







Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.







Signature
            Title
            Date/s/
                Ted Valpey, Jr.
            Chairman
                of the Board
            March
                27, 2006Ted
                Valpey, Jr.
            and
                Director/s/
                Michael J. Ferrantino
            President,
                Chief Executive Officer
            March
                27, 2006Michael
                J. Ferrantino
            and
                Director (Principal Executive Officer)/s/
                Michael J. Kroll
            Vice
                President, Treasurer and Chief
                Financial Officer
            March
                27, 2006Michael
                J. Kroll
            (Principal
                Financial Officer and Principal Accounting Officer)/s/Mario
                Alosco
            Director
            March
                27, 2006Mario
                Alosco/s/Richard
                W. Anderson
            Director
            March
                27, 2006Richard
                W. Anderson/s/Eli
                Fleisher
            Director
            March
                27, 2006Eli
                Fleisher





/s/Lawrence
                Holsborg
            Director
            March
                27, 2006Lawrence
                Holsborg/s/John
                J. McArdle III
            Director
            March
                27, 2006John
                J. McArdle III










-43-





**Report
      of Independent Registered Public Accounting Firm on Supplementary Schedule**





Board
      of
      Directors and Stockholders of Valpey-Fisher Corporation:





We
      have
      audited in accordance with the standards of the Public Company Accounting
      Oversight Board (United States) the consolidated financial statements of
      Valpey-Fisher Corporation and Subsidiaries referred to in our report dated
      February 17, 2006, which is included in the Company’s 2005 Annual Report to
      Stockholders. Our audit was conducted for the purpose of forming an opinion
      on
      the basic financial statements taken as a whole. The schedule of valuation
      and
      qualifying accounts Schedule II is presented for purposes of additional analysis
      and is not a required part of the basic financial statements. This schedule
      has
      been subjected to the auditing procedures applied in the audit of the basic
      financial statements and, in our opinion, is fairly stated in all material
      respects in relation to the basic financial statements taken as a
      whole.








/s/
      GRANT
      THORNTON LLP





Boston,
      Massachusetts


February
      17, 2006








-44-






**Valpey-Fisher
      Corporation and Subsidiaries**




**Schedule
      II - Valuation and Qualifying Accounts**






**Additions****Description**
            
            **Balance
                at**
              **Beginning**
              **of
                Period**
            
            **Charged
                to**
              **Costs
                and**
              **Expenses**
            
            **Charged
                to**
              **Other**
              **Accounts**
            
            **Deductions
                (1)**
            
            **Balance
                at**
              **End**
              **of
                Period**Allowance
                for
              Doubtful
                Accounts:Year
                Ended:December
                31, 2005
            
            $
            100,000
            
            $
            36,100
            
            $
            -
            
            $
            (21,100
            )
            $
            115,000December
                31, 2004
            
            $
            80,000
            
            $
            (36,600
            )
            $
            -
            
            $
            56,600
            
            $
            100,000December
                31, 2003
            
            $
            200,000
            
            $
            2,300
            
            $
            -
            
            $
            (122,300
            )
            $
            80,000Inventory
                Reserve:Year
                Ended:December
                31, 2005
            
            $
            1,019,500
            
            $
            351,800
            
            
            
            
            $
            $
                (208,200
            )
            $
            1,163,100December
                31, 2004
            
            $
            1,002,000
            
            $
            371,300
            
            $
            -
            
            $
            (353,800
            )
            $
            1,019,500December
                31, 2003
            
            $
            5,339,000
            
            $
            234,900
            
            $
            -
            
            $
            (4,571,900
            )
            $
            1,002,000








(1)
      Deductions related to the allowance for doubtful accounts represent the amounts
      written-off against the reserve, less recoveries.











-45-





**EXHIBIT
      INDEX**




**Exhibit
                No.**
            
            (inapplicable
                items are omitted)2.
            
            Agreement
                of Merger and Recapitalization between MATEC Corporation a Delaware
                corporation and MATEC Corporation a Maryland corporation. (incorporated
                by
                reference to Exhibit 2 on Registrant’s Form 10-K for the year ended
                December 31, 2004).2.1
            
            Asset
                Purchase Agreement dated April 30, 2003 between Seller, William Stein,
                Martin Finkelstein and the Company (incorporated by reference to
                Exhibit 2
                on Registrant’s Form 8-K dated May 28, 2003).3.1
            
            Restated
                and Amended Articles of Incorporation as of June 3, 2002 (incorporated
                by
                reference to Exhibit 3.2 on Registrant’s Form 10-Q for the period ended
                June 30, 2002).3.2
            
            By-Laws
                effective May 8, 2003 (incorporated by reference to Exhibit 3.3 on
                Registrant’s Form 10-K for the year ended December 31,
                2003).10.1
            
            1992
                Stock Option Plan (incorporated by reference to Exhibit 10.1 on
                Registrant’s Form 10-K for the year ended December 31,
                2002).10.2
            
            1999
                Stock Option Plan. (incorporated by reference to Exhibit 10.2 on
                Registrant’s Form 10-K for the year ended December 31,
                2004).10.3
            
            2001
                Stock Option Plan (incorporated by reference to Exhibit A to the
                Proxy
                Statement of Registrant for its Annual Meeting of Stockholders held
                on May
                10, 2001).10.4
            
            Restricted
                Stock Agreement (incorporated by reference to Exhibit 10.5 on Registrant’s
                Form 10-K for the year ended December 31, 2003).10.5
            
            2003
                Stock Option Plan (incorporated by reference to Exhibit 10.1 on
                Registrant’s Form 10-Q for the quarterly period ended June 29,
                2003).10.6
            
            Key
                Employee Bonus Plan for 2005. (incorporated by reference to Exhibit
                10.1
                on Registrant’s Form 10-Q for the quarterly period ended April 3, 2005).14
            
            Code
                of Ethics of the Chief Executive Officer and the Chief Financial
                and
                Accounting Officer (incorporated by reference to Exhibit 14 on
                Registrant’s Form 10-K for the year ended December 31,
                2003).14.1
            
            Code
                of Business Conduct and Ethics. (incorporated by reference to Exhibit
                14.1
                on Registrant’s Form 10-K for the year ended December 31,
                2004).21
            
            Subsidiaries
                of the Registrant. Filed herewith.23
            
            Consent
                of Independent Registered Public Accounting Firm. Filed
                herewith.31.1
            
            Certification
                of the Chief Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002. Filed herewith.31.2
            
            Certification
                of the Chief Financial Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002. Filed herewith.32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer Pursuant
                to 18
                U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002. Filed
                herewith.







-46-