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, 2004
                          -----------------

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

For the transition period from              to

Commission file number 1-4184
                       ------

                            Valpey-Fisher Corporation
             (Exact name of registrant as specified in its charter)

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

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

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 (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]


<PAGE>

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes [ ]    No [X]

Aggregate market value of voting stock held by non-affiliates: $7,616,578
(computed by reference to the last sales price of such common stock on June 25,
2004, 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 11, 2005: 4,222,519

Documents incorporated by reference:

Portions of the Registrant's Proxy Statement for the 2005 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report.










                                       2
<PAGE>

                                     PART I

Item 1.  Business
-----------------

General

     Valpey-Fisher Corporation ("Valpey" or "Registrant") is incorporated under
the laws 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 14 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
<PAGE>

     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, electronic
manufacturing services (EMS) companies, and distributors. Valpey's distributors
also sell to both the OEMs and EMS 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 EMS companies. As a result, this has tended to
increase the concentration of sales to the EMS companies. Sales to Solectron
Corporation, an EMS company, accounted for approximately 11%, 14%, and 22% of
Valpey's net sales in 2004, 2003, and 2002, respectively. Sales to Celestica
Corporation, an EMS 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 2004, compared to 35% in 2003 and 46% in 2002. Sales to EMS
companies accounted for approximately 37% of Valpey's sales in 2004, compared to
39% in 2003, and 43% in 2002.

     Export sales amounted to approximately 33% of Valpey's sales in 2004, 34%
in 2003 and 27% in 2002. Information about export sales is set forth in Note 14
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
<PAGE>

Seasonal Fluctuations
---------------------

     During the last few years, the Company has noticed that some of its
customers, most notably the EMS 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 4th quarter.

Research and Development
------------------------

     Research and development expenses amounted to $218,000 in 2004, $107,000 in
2003 and $135,000 in 2002. During 2005, 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 $1,800,000 at both
December 31, 2004 and 2003. Valpey expects to ship the entire December 31, 2004
backlog during 2005.

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 located in 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, 2004, Valpey had approximately $230,000 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
<PAGE>

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 5 of the Notes to
Consolidated Financial Statements included in Item 8 of this Report, which Note
is incorporated by reference.

Employees
---------

     At December 31, 2004, the Company employed 63 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 14 of the
Notes to Consolidated Financial Statements included in Item 8 of this Report,
which Note is incorporated by reference.


                                       6
<PAGE>


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.







                                       7
<PAGE>

Executive Officers of the Registrant
------------------------------------

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

       Name                Age             Office
--------------------       ---             ------

Ted Valpey, Jr.             72     Chairman
Michael J. Ferrantino       62     President and Chief Executive Officer
Michael J. Kroll            56     Vice President, Treasurer and Chief Financial
                                      Officer

     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.





                                       8
<PAGE>

                                     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:
<TABLE>
<CAPTION>

For the years ended December 31,                                         2004                          2003
----------------------------------------------------------- -----------------------------------------------------------
                                                                 High           Low            High           Low
----------------------------------------------------------- -------------- -------------- -------------- --------------
<S>                                                         <C>            <C>            <C>            <C>
      4th quarter                                               $4.30          $3.06          $3.27          $2.83
----------------------------------------------------------- -------------- -------------- -------------- --------------
      3rd quarter                                                4.39           3.00           3.59           2.15
----------------------------------------------------------- -------------- -------------- -------------- --------------
      2nd quarter                                                3.85           2.86           3.75           2.30
----------------------------------------------------------- -------------- -------------- -------------- --------------
      1st quarter                                                4.15           2.90           2.75           2.40
----------------------------------------------------------- -------------- -------------- -------------- --------------
</TABLE>

     No dividend was paid in 2004 or 2003.

     The number of stockholders of record on March 9, 2005 was 764. 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, 2004 regarding
the number of shares of the Registrant's common stock that may be issued under
the Registrant's equity compensation plans.
<TABLE>
<CAPTION>
                                                                                          Number of securities
                                                                                          remaining available for
                                                                                          future issuance under
                                Number of securities to be   Weighted-average exercise    equity compensation plans
                                issued upon exercise of      price of outstanding         (excluding securities
                                outstanding options,         options, warrants and        reflected in the first
     Plan Category              warrants and rights          rights                       column)
-------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                          <C>                           <C>

Equity compensation plans
approved by security holders
(1)                                     532,234                      $3.40                         301,666
Equity 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.
</TABLE>

                                       9
<PAGE>

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, 2004, under prior authorizations from the Board of
Directors, the Company is authorized to purchase up to 233,500 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 2004.





                                       10
<PAGE>

Item 6. Selected Financial Data
-------------------------------
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------
Years Ended December 31,                         2004      2003      2002      2001      2000
===============================================================================================
<S>                                            <C>       <C>       <C>       <C>       <C>
Continuing operations:
-----------------------------------------------------------------------------------------------
    Net sales                                  $11,545   $ 8,496   $ 7,294   $16,897   $26,408
-----------------------------------------------------------------------------------------------
    Gross profit (loss)                          3,260       989    (1,211)    2,287     7,861
-----------------------------------------------------------------------------------------------
    Earnings (loss) before income taxes            (55)   (2,423)   (3,988)    4,294     5,019
-----------------------------------------------------------------------------------------------
    Income (taxes) benefit                           -     1,023     1,198    (1,543)   (1,950)
-----------------------------------------------------------------------------------------------
    Earnings (loss)                                (55)   (1,400)   (2,790)    2,751     3,069
-----------------------------------------------------------------------------------------------
Discontinued operations- net of income
-----------------------------------------------------------------------------------------------
 tax expense (benefit)                            (110)        -       (99)        -       (90)
===============================================================================================
Net earnings (loss)                            $  (165)  $(1,400)  $(2,889)  $ 2,751   $ 2,979
===============================================================================================
Basic earnings (loss) per share: (1)
-----------------------------------------------------------------------------------------------
    Continuing operations                      $  (.01)  $  (.33)  $  (.67)  $   .66   $   .75
-----------------------------------------------------------------------------------------------
    Discontinued operations                       (.03)        -      (.02)        -      (.02)
===============================================================================================
                                               $  (.04)  $  (.33)  $  (.69)  $   .66   $   .73
===============================================================================================
Diluted earnings (loss) per share: (1)
-----------------------------------------------------------------------------------------------
    Continuing operations                      $  (.01)  $  (.33)  $  (.67)  $   .64   $   .70
-----------------------------------------------------------------------------------------------
    Discontinued operations                       (.03)        -      (.02)        -      (.02)
===============================================================================================
                                               $  (.04)  $  (.33)  $  (.69)  $   .64   $   .68
===============================================================================================
Cash dividends per share (1)                   $     -   $     -   $     -   $     -   $   .13
===============================================================================================
Total assets, end of year                      $12,864   $12,744   $15,151   $18,841   $19,654
===============================================================================================
Long-term debt, end of year                    $     -   $     -   $     -   $ 1,277   $     -
===============================================================================================

(1) Amounts reflect the 3-for-2 stock split distributed on November 27, 2000.
</TABLE>


                                       11
<PAGE>

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 collectability 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 $774,000 at December 31, 2004. 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.


                                       12
<PAGE>

Financial Condition and Liquidity

     Cash and cash equivalents amounted to $6,455,000 at December 31, 2004, an
increase of $2,246,000 over the December 31, 2003 level. During 2004, the
Company's continuing operations provided cash of $2,334,000, investing
activities used cash of $105,000 and financing activities provided cash of
$17,000.

     Cash provided from operations of $2,334,000 resulted mainly from the net
loss of $55,000 adjusted for the non-cash effect of depreciation of $819,000 and
the $1,516,000 reduction in working capital. The net reduction in working
capital was mainly due to the receipt of a $1,255,000 tax refund. Accounts
receivable remained fairly level with 2003, however, the days sales outstanding
improved to 44 days in 2004 compared to 47 days in 2003. While sales increased
36% over 2003, inventory declined about 4% mainly due to orders being filled
from existing inventory and a continuing control of inventory levels. The
decrease in accounts payable is mainly due to the timing of inventory and
capital equipment purchases. The increase in accrued liabilities over 2003 was
mainly attributable to increases in employee compensation, environmental costs
and commissions payable.

     Capital expenditures amounted to $141,000 in 2004. The Company`s budget for
2005 capital expenditures is approximately $350,000. During 2004, the Company
sold certain pieces of machinery and equipment, received $25,000 in cash and
recorded a $14,000 gain on the sale.

     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 2005.

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
1st half of 2004, the Company did see some softness in new orders during the 2nd
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.

     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.


                                       13
<PAGE>

     Selling and advertising expenses were mainly equal 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.

Results of Operations - 2003 versus 2002

     Net sales from continuing operations increased $1,202,000 or 16% over 2002.
The sales increase is mainly due to the sales from the MF product line acquired
at the end of May 2003. The 2002 net sales amount includes sales cancellation
charges of approximately $723,000 from two customers. Excluding the effect on
net sales from these sales cancellation charges and the 2003 sales generated
from the MF product line, sales increased 10% over 2002. The book-to-bill ratio
for 2003 was 1.05 versus .95 in 2002. The Company's backlog amounted to $1.8
million at December 31, 2003 compared to $1.1 million at December 31, 2002.
Capital spending in the telecom market, the largest market for our products,
continued to decline until the fourth quarter of 2003 when we saw a slight
increase in order activity. During 2003, the Company saw increased order
activity in the IT markets (servers, switches and storage) and military
avionics. At this time, we are not sure of the potential impact on the Company's
future operations from the current continuing telecom market uncertainties and
our industry's over capacity issues.


                                       14
<PAGE>

     The Company reported a $989,000 gross profit in 2003 compared to a
$1,211,000 gross loss in 2002. The main reasons for the improvement in the 2003
gross profit were a reduction in the provision for excess and obsolete inventory
of $868,000, a $348,000 decrease in overhead expenses mainly due to reductions
in personnel expense and operating supplies compared to 2002 and the $557,000 of
gross profit generated by the MF sales in 2003. Raw material costs, as a
percentage of sales, decreased about 6% from 2002 mainly as a result of product
mix changes and 2003 direct labor remained fairly consistent as a percentage of
sales with 2002.

     Selling and advertising expenses decreased $50,000 (3%) from 2002.
Reductions in advertising and promotional expenses ($118,000) and bad debt
expense ($37,000) partially offset by higher sales commission expense of $62,000
to the Company's outside manufacturers' representatives were the main reasons
for the expense decrease.

     General and administrative expenses increased $537,000 (38%) over 2002.
Increased personnel expenses mainly due to the hiring of a new president in the
fourth quarter of 2002 and approximately $160,000 of personnel expenses
associated with the acquisition of the MF product line, were the primary reasons
for this higher expense.

     Research and development expenses decreased $28,000, mainly due to a
reduction in supplies.

     The decrease in interest income of $59,000 from 2002 was mainly due to
lower average cash balances and lower interest rates during the current year.
The $70,000 decrease in interest expense from the 2002 amount is mainly due to
the Company paying-off the balance of its outstanding term-debt in the first
quarter of 2003. During 2002, the Company received $187,000 in cash as the final
proceeds from the sales of a former subsidiary in 2000 and the related real
estate in 2001 and recorded a total pre-tax gain of $187,000 on these sales.

     The combined federal and state effective income tax rate for 2003 is 42%
compared to 30% in 2002. The difference in the rates is mainly due to the
recording of an income tax valuation allowance for certain deferred tax assets
in 2002. During both years, a valuation allowance has been recorded for the full
amount of the state income tax benefit due to the uncertainty of realization.

     Based on the increases in sales and gross profit over 2002, offset in part
by the higher operating expenses in 2003, the Company reported an operating loss
of $2,460,000 in 2003 compared to an operating loss of $4,201,000 in 2002.
Nonoperating income amounted to $37,000 during 2003 versus $213,000 in 2002. As
a result, the Company reported a pre-tax loss from continuing operations of
$2,423,000 during 2003 compared to a pre-tax loss of $3,988,000 in 2002. The
loss from continuing operations amounted to $1,400,000 in 2003 versus $2,790,000
in 2002. Discontinued operations, net of the income tax benefit, reported a loss
of $99,000 in 2002. In total, the Company reported a consolidated net loss of
$1,400,000 in 2003 versus a consolidated net loss of $2,889,000 in 2002.


                                       15
<PAGE>

Off-Balance Sheet Arrangements

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

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, 2004, the Company has outstanding purchase commitments
approximating $427,000, all of which are expected to be fulfilled in 2005. At
December 31, 2004, the Company did not have any contractual obligations for
capital leases, operating leases or long-term debt.






                                       16
<PAGE>

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 January 2003, the Financial Accounting Standards Board ("FASB") issued
and subsequently revised FAS Interpretation No. ("FIN") 46, "Consolidation of
Variable Interest Entities". FIN 46 requires existing, unconsolidated variable
interest entities ("VIES") to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among the parties involved. To
date, we have not created any VIE nor obtained an interest in any VIE for which
we would be required to apply the consolidation provisions of FIN 46.

     In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition, which codifies, revises and rescinds certain sections of
SAB No. 101, Revenue Recognition, in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The changes noted in SAB 104 did not have a material
effect on our financial position, results of operations and cash flows.

     In November 2004, the FASB issued SFAS No. 151, "Inventory Costs," an
amendment of ARB No. 43, Chapter 4, "Inventory Pricing". This statement
clarifies that abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as current-period
charges and requires the allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. The
provisions of SFAS No. 151 are effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We are currently evaluating the
effects of this statement, which we are required to adopt effective January 1,
2006, on our financial position, results of operations and cash flow.

     In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," a
revision of SFAS No. 123, "Accounting for Stock-Based Compensation" and
superseding APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS
No. 123R requires the Company to expense grants made under stock option and
employee stock purchase plans. The cost will be recognized over the vesting
period of the plans. SFAS No. 123R is effective for the first interim or annual
period beginning after June 15, 2005. We are evaluating the alternatives under
the standard, which we are required to adopt in the third quarter of 2005.


                                       17
<PAGE>

     In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets", an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance in
APB Opinion No. 29, "Accounting for Nonmonetary Transactions", which is based on
the principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged, with certain exceptions. SFAS No. 153
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of
SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. We are evaluating the impact of this
statement on our financial position, results of operations and cash flow.

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, 2004, 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 $64,500 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.






                                       18
<PAGE>

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

Valpey-Fisher Corporation
Consolidated Balance Sheets

December 31,                                                2004           2003
================================================================================
Assets
Current assets:
--------------------------------------------------------------------------------
   Cash and cash equivalents                         $ 6,455,273    $ 4,209,355
--------------------------------------------------------------------------------
   Receivables, net                                    1,137,437      2,466,715
--------------------------------------------------------------------------------
   Inventories                                         1,500,695      1,570,973
--------------------------------------------------------------------------------
   Deferred income taxes and other current assets        629,099        674,932
================================================================================
   Total current assets                                9,722,504      8,921,975
================================================================================
Property, plant and equipment, at cost:
--------------------------------------------------------------------------------
   Land and improvements                                 226,505        226,505
--------------------------------------------------------------------------------
   Buildings and improvements                          2,037,058      2,030,558
--------------------------------------------------------------------------------
   Machinery and equipment                             8,543,017      8,495,386
================================================================================
                                                      10,806,580     10,752,449
--------------------------------------------------------------------------------
   Less accumulated depreciation                       7,807,727      7,064,497
================================================================================
                                                       2,998,853      3,687,952
================================================================================
Other assets                                             142,630        134,565
================================================================================
                                                     $12,863,987    $12,744,492
================================================================================

Liabilities and Stockholders' Equity
Current liabilities:
--------------------------------------------------------------------------------
   Accounts payable                                  $   409,413    $   539,936
--------------------------------------------------------------------------------
   Accrued liabilities                                 1,245,779        900,275
================================================================================
   Total current liabilities                           1,655,192      1,440,211
================================================================================
Deferred income taxes                                    578,117        646,231
--------------------------------------------------------------------------------
Commitments 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:
    4,222,519 and 4,184,815 shares                       211,126        209,241
--------------------------------------------------------------------------------
   Capital surplus                                     5,076,082      4,998,453
--------------------------------------------------------------------------------
   Retained earnings                                   5,501,970      5,667,356
--------------------------------------------------------------------------------
   Less unearned compensation                           (158,500)      (217,000)
================================================================================
   Total stockholders' equity                         10,630,678     10,658,050
================================================================================
                                                     $12,863,987    $12,744,492
================================================================================

See notes to consolidated financial statements.


                                       19
<PAGE>

Valpey-Fisher Corporation
Consolidated Statements of Operations

For the Years Ended December 31,               2004          2003          2002
================================================================================
Net sales                               $11,545,159   $ 8,495,770   $ 7,294,214
--------------------------------------------------------------------------------
Cost of sales                             8,284,788     7,506,406     8,505,146
================================================================================
   Gross profit (loss)                    3,260,371       989,364    (1,210,932)
================================================================================
Selling and advertising expenses          1,409,361     1,406,007     1,456,295
--------------------------------------------------------------------------------
General and administrative expenses       1,736,619     1,936,248     1,398,775
--------------------------------------------------------------------------------
Research and development expenses           218,164       106,791       135,190
================================================================================
                                          3,364,144     3,449,046     2,990,260
================================================================================
   Operating (loss)                        (103,773)   (2,459,682)   (4,201,192)
--------------------------------------------------------------------------------
Other income (expense):
--------------------------------------------------------------------------------
   Interest income                           34,720        48,537       107,571
--------------------------------------------------------------------------------
   Interest expense                               -       (11,941)      (81,522)
--------------------------------------------------------------------------------
   Gains on sales of assets                  13,667             -       187,406
================================================================================
                                             48,387        36,596       213,455
================================================================================
(Loss) from continuing operations
 before income taxes                        (55,386)   (2,423,086)   (3,987,737)
--------------------------------------------------------------------------------
Income tax benefit                                -     1,023,000     1,198,000
================================================================================
(Loss) from continuing operations           (55,386)   (1,400,086)   (2,789,737)
--------------------------------------------------------------------------------
(Loss) from discontinued operations        (110,000)            -       (99,000)
================================================================================
Net (loss)                              $  (165,386)  $(1,400,086)  $(2,888,737)
================================================================================

Basic and diluted (loss) per share:
--------------------------------------------------------------------------------
   Continuing operations                $      (.01)  $      (.33)  $      (.67)
--------------------------------------------------------------------------------
   Discontinued operations                     (.03)          .00          (.02)
================================================================================
                                        $      (.04)  $      (.33)  $      (.69)
================================================================================


See notes to consolidated financial statements.




                                       20
<PAGE>

Valpey-Fisher Corporation
Consolidated Statements of Cash Flows

For the Years Ended December 31,               2004          2003          2002
================================================================================
Cash Flows from Operating Activities:
   (Loss) from continuing operations    $   (55,386)  $(1,400,086)  $(2,789,737)
   Adjustments to reconcile (loss)
    from continuing operations to net
    cash provided by operating
    activities:
      Depreciation and amortization         818,838       833,201       848,342
      Changes in deferred income taxes       32,000       287,000       254,516
      Gains on sales of assets              (13,667)            -      (187,406)
      Non-cash restricted stock
       compensation, net of taxes            35,500        35,500       125,400
   Changes in assets and liabilities,
    excluding the effects of the
    purchase of MF Electronics:
      Receivables, net                    1,277,984       (41,373)    1,054,145
      Inventories                            70,278       581,913     2,441,429
      Other current assets                  (22,338)       36,460        54,622
      Accounts payable and accrued
       liabilities                          190,531       309,227    (1,437,731)
================================================================================
   Net cash provided by operating
    activities                            2,333,740       641,842       363,580
================================================================================
Cash Flows from Investing Activities:
   Capital expenditures                    (140,672)     (153,863)     (254,987)
   Purchase of MF Electronics                     -      (798,762)            -
   Collection of notes receivable            19,351        24,178       141,729
   Proceeds from sales of assets             24,600        82,450       187,406
   Other, net                                (8,065)       (8,065)       (8,065)
================================================================================
   Net cash provided (used) by
    investing activities                   (104,786)     (854,062)       66,083
================================================================================
Cash Flows from Financing Activities:
   Payments on long-term debt                     -    (1,277,402)     (403,389)
   Purchases of common stock                      -       (59,078)     (133,974)
   Stock options exercised                   16,964             -         5,000
================================================================================
   Net cash provided (used) by
    financing activities                     16,964    (1,336,480)     (532,363)
================================================================================
Cash (Used) by Discontinued Operations            -             -       (99,000)
================================================================================
Net Increase (Decrease) in Cash and
 Cash Equivalents                         2,245,918    (1,548,700)     (201,700)
Cash and Cash Equivalents at beginning
 of year                                  4,209,355     5,758,055     5,959,755
================================================================================
Cash and Cash Equivalents at end of
 year                                   $ 6,455,273   $ 4,209,355   $ 5,758,055
================================================================================
Supplemental Disclosures of Cash Flow
 Information
   Cash paid during the year by
    continuing operations for:
      Interest                          $         -   $    11,941   $    81,522
      Income taxes                      $         -   $         -   $         -


                                       21
<PAGE>

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.

In 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.

See notes to consolidated financial statements.








                                       22
<PAGE>

Valpey-Fisher Corporation
Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                       Common       Stock
                                                     -------------------------     Capital      Retained      Unearned
                                                        Shares        Amount       Surplus      Earnings   Compensation
========================================================================================================================
<S>                                                   <C>            <C>         <C>           <C>            <C>
Balance, January 1, 2002                              4,152,515      $207,626    $4,810,220    $9,956,179     $       -
------------------------------------------------------------------------------------------------------------------------
Net (loss)                                                    -             -             -    (2,888,737)            -
------------------------------------------------------------------------------------------------------------------------
Issuance of restricted stock                            100,000         5,000       290,000             -      (290,000)
------------------------------------------------------------------------------------------------------------------------
Purchases and retirement of
 common stock                                           (45,400)       (2,270)     (131,704)            -             -
------------------------------------------------------------------------------------------------------------------------
Amortization of restricted stock grant                        -             -             -             -        14,500
------------------------------------------------------------------------------------------------------------------------
Tax benefit of restricted stock grant                         -             -       110,900             -             -
========================================================================================================================
Balance, December 31, 2002                            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                        -             -             -             -        58,500
------------------------------------------------------------------------------------------------------------------------
Tax 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                        -             -             -             -        58,500
------------------------------------------------------------------------------------------------------------------------
Tax 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)
========================================================================================================================
</TABLE>

See notes to consolidated financial statements.




                                       23
<PAGE>

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. Significant intercompany balances and transactions have been
eliminated in consolidation.

     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, 2004, the
majority of the Company's cash and cash equivalents balance were in excess of
the applicable insurance limits.

     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.

     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.

     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.


                                       24
<PAGE>

Valpey-Fisher Corporation
Notes Continued

     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.
<TABLE>
<CAPTION>

For the Year Ended December 31,                                          2004               2003               2002
=====================================================================================================================
<S>                                                              <C>                <C>                <C>
  Net (loss), as reported                                        $   (165,386)      $ (1,400,086)      $ (2,888,737)
---------------------------------------------------------------------------------------------------------------------
  Deduct: Total stock-based employee
   compensation expense determined under the
   fair value based method for all awards, net of
   related tax effects                                                (55,299)          (111,809)          (123,442)
=====================================================================================================================
Pro forma net (loss)                                             $   (220,685)      $ (1,511,895)      $ (3,012,179)
=====================================================================================================================


Basic and diluted net (loss) per share, as reported                    $ (.04)            $ (.33)            $ (.69)
---------------------------------------------------------------------------------------------------------------------
Basic and diluted net (loss) per share, pro forma                      $ (.05)            $ (.36)            $ (.72)
---------------------------------------------------------------------------------------------------------------------
</TABLE>

     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:
<TABLE>
<CAPTION>
                                                                                 For the Year Ended December 31,
                                                                           ------------------------------------------
                                                                                2004          2003          2002
                                                                           ------------------------------------------
              <S>                                                             <C>           <C>           <C>
              Expected dividend yield                                             0%            0%            0%
---------------------------------------------------------------------------------------------------------------------
              Risk-free interest rate                                           4.4%          3.3%          3.4%
---------------------------------------------------------------------------------------------------------------------
              Expected life of options in years                                   7             7             7
---------------------------------------------------------------------------------------------------------------------
              Assumed volatility                                                 60%           59%           61%
---------------------------------------------------------------------------------------------------------------------
              Estimated fair value per share at date of grant                 $1.65         $1.60         $1.79
---------------------------------------------------------------------------------------------------------------------
</TABLE>

     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, 2004, 2003, and 2002, the Company had no items of other
comprehensive income (loss).

     Reclassifications - Certain reclassifications have been made to prior year
financial statements to conform to current year presentation.


                                       25
<PAGE>

Valpey-Fisher Corporation
Notes Continued

     Recent accounting pronouncements - In January 2003, the Financial
Accounting Standards Board ("FASB") issued and subsequently revised FAS
Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities".
FIN 46 requires existing, unconsolidated variable interest entities ("VIES") to
be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among the parties involved. To date, the Company has
not created any VIE nor obtained an interest in any VIE for which it would be
required to apply the consolidation provisions of FIN 46.

     In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition, which codifies, revises and rescinds certain sections of
SAB No. 101, Revenue Recognition, in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The changes noted in SAB 104 did not have a material
effect on our financial position, results of operations and cash flows.

     In November 2004, the FASB issued SFAS No. 151, "Inventory Costs," an
amendment of ARB No. 43, Chapter 4, "Inventory Pricing". This statement
clarifies that abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as current-period
charges and requires the allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. The
provisions of SFAS No. 151 are effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The Company is currently evaluating
the effects of this statement, which it is required to adopt effective January
1, 2006, on its financial position, results of operations and cash flow.

     In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," a
revision of SFAS No. 123, "Accounting for Stock-Based Compensation" and
superseding APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS
No. 123R requires the Company to expense grants made under stock option and
employee stock purchase plans. The cost will be recognized over the vesting
period of the plans. SFAS No. 123R is effective for the first interim or annual
period beginning after June 15, 2005. The Company is evaluating the alternatives
under the standard, which it is required to adopt in the third quarter of 2005.

     In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets", an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance in
APB Opinion No. 29, "Accounting for Nonmonetary Transactions", which is based on
the principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged, with certain exceptions. SFAS No. 153
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of
SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company is evaluating the impact of
this statement on the Company's financial position, results of operations and
cash flow.


                                       26
<PAGE>

Valpey-Fisher Corporation
Notes Continued

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                                       $     343
       Inventory                                                       125
       Machinery and equipment                                         516
       Trade accounts payable and accrued expenses                    (135)
                                                                 ----------
                                                                 $     849
                                                                 ==========

     The following unaudited pro forma financial information presents the
results of the Company as if the acquisition of MF was completed January 1,
2002. This pro forma financial information is presented for informational
purposes and is not necessarily indicative of the Company's operating results if
the acquisition had been in effect for the periods presented. In addition, they
are not intended to be a projection of future results and do not reflect any
anticipated cost savings or operating efficiencies that the Company believes are
achievable.


 (in thousands, except for per share amounts)
================================================================================
                                                      2003            2002
================================================================================
Net sales                                          $ 10,387        $ 13,767
Net earnings (loss)                                $ (1,762)       $ (3,341)
Basic earnings (loss) per share                      $ (.42)         $ (.80)
Diluted earnings (loss) per share                    $ (.42)         $ (.80)


(4) Gains on Sales of Assets:

     As part of the proceeds from the sale of its Bergen Cable Technologies,
Inc. subsidiary, ("BCT") in 1998 (see Note 5), in 2002, the Company received
$32,400 in cash as its final payment on a note receivable related to the sale
and recorded a pre-tax gain of $32,400 on the sale. The Company had deferred any
gain on its share of the note receivable pending collection of the note. In
addition, in 2002, the Company received $155,000 in cash representing its final
share of the net escrow balance from the sale and reported this amount as a gain
on the sale of assets.


                                       27
<PAGE>

Valpey-Fisher Corporation
Notes Continued

(5) Discontinued Operations:

     In 1998, the Company sold all the assets of BCT (see Note 4). As a result
of this sale, the Company was required to perform environmental cleanup at the
BCT site. During 2004, the Company expensed $110,000 to increase the
environmental expense accrual to reflect the revised estimate to complete the
remediation. During 2002, the Company expensed $150,000 ($99,000 after-tax) to
increase the environmental expense accrual to reflect the revised estimate to
complete the remediation. These expense amounts are presented in the
Consolidated Statements of Operations under the caption "(Loss) from
discontinued operations". As of December 31, 2004, a total of $1,060,000 has
been expensed for the cleanup and $143,000 (see Note 10) is accrued for future
payments. The Company has set up an escrow remediation trust fund ("fund") of
approximately $100,000 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.
<TABLE>
<CAPTION>
(6) Receivables, net: Receivables, net of allowances, consist of the following:
                                                                                                           2004            2003
================================================================================================================================
<S>                                                                                                  <C>             <C>
Accounts receivable, less allowance for doubtful accounts of $100,000 and $80,000                    $1,137,437      $1,160,364
--------------------------------------------------------------------------------------------------------------------------------
Refundable income taxes                                                                                       -       1,287,000
--------------------------------------------------------------------------------------------------------------------------------
Amount due from the sale of assets                                                                            -          19,351
================================================================================================================================
                                                                                                     $1,137,437      $2,466,715
================================================================================================================================

(7) Inventories, net: Inventories, net of reserves, consist of the following:                              2004            2003
================================================================================================================================
Raw materials                                                                                          $964,319      $1,110,035
--------------------------------------------------------------------------------------------------------------------------------
Work in process                                                                                         203,967         274,583
--------------------------------------------------------------------------------------------------------------------------------
Finished goods                                                                                          332,409         186,355
================================================================================================================================
                                                                                                     $1,500,695      $1,570,973
================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

(8) Income Taxes: The components of the provision (benefit) for income taxes are as follows:
                                                                                           2004            2003            2002
================================================================================================================================
<S>                                                                                 <C>             <C>             <C>
Current:
--------------------------------------------------------------------------------------------------------------------------------
    Federal (excluding $(51,000) income tax (benefit) from
     discontinued operations in 2002)                                               $         -     $(1,287,000)    $(1,324,000)
--------------------------------------------------------------------------------------------------------------------------------
    State                                                                                     -               -               -
================================================================================================================================
                                                                                              -      (1,287,000)     (1,324,000)
================================================================================================================================
Deferred:
--------------------------------------------------------------------------------------------------------------------------------
    Federal                                                                             (47,500)        418,000         (31,000)
--------------------------------------------------------------------------------------------------------------------------------
    State                                                                               (22,500)       (227,000)       (474,000)
================================================================================================================================
                                                                                        (70,000)        191,000        (505,000)
================================================================================================================================
Valuation allowance                                                                      70,000          73,000         631,000
================================================================================================================================
    Total                                                                           $         -     $(1,023,000)    $(1,198,000)
================================================================================================================================
</TABLE>

                                       28
<PAGE>


Valpey-Fisher Corporation
Notes Continued

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

<TABLE>
<CAPTION>

                                                                                           2004            2003            2002
================================================================================================================================
<S>                                                                                 <C>             <C>             <C>
Income taxes at statutory rates                                                     $   (56,230)    $  (823,850)    $(1,355,800)
--------------------------------------------------------------------------------------------------------------------------------
State income tax, net of federal tax benefit                                            (10,170)       (276,600)       (241,400)
--------------------------------------------------------------------------------------------------------------------------------
Change in valuation allowance                                                            70,000          73,000         631,000
--------------------------------------------------------------------------------------------------------------------------------
Reversal of accruals                                                                     (9,000)              -        (235,000)
--------------------------------------------------------------------------------------------------------------------------------
Other, net                                                                                5,400           4,450           3,200
--------------------------------------------------------------------------------------------------------------------------------
                                                                                    $         -     $(1,023,000)    $(1,198,000)
================================================================================================================================
</TABLE>

     The tax effects of significant items comprising the Company's deferred tax
assets and liabilities as of December 31, 2004 and 2003 are as follows:
<TABLE>
<CAPTION>

                                                                                                           2004            2003
================================================================================================================================
<S>                                                                                                  <C>             <C>
Deferred tax assets:
--------------------------------------------------------------------------------------------------------------------------------
    Inventory valuation                                                                              $  612,400      $  662,000
--------------------------------------------------------------------------------------------------------------------------------
    State tax loss carryforward                                                                         623,000         619,000
--------------------------------------------------------------------------------------------------------------------------------
    Accruals and allowances                                                                             106,300          69,200
--------------------------------------------------------------------------------------------------------------------------------
    Alternate minimum tax credit carryforward (no expiration)                                            10,400               -
--------------------------------------------------------------------------------------------------------------------------------
    Valuation allowance                                                                                (774,000)       (704,000)
================================================================================================================================
    Net deferred tax assets                                                                             578,100         646,200
================================================================================================================================

--------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
--------------------------------------------------------------------------------------------------------------------------------
    Depreciation                                                                                        364,000         376,600
--------------------------------------------------------------------------------------------------------------------------------
    DISC commissions                                                                                    214,100         269,600
================================================================================================================================
    Total deferred tax liabilities                                                                      578,100         646,200
================================================================================================================================
Net deferred tax assets                                                                              $        -      $        -
================================================================================================================================
</TABLE>

     At December 31, 2004, the Company has state tax loss benefit carryforwards
of $623,000 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 $774,000 at December 31, 2004.
Other current assets include deferred income taxes of approximately $578,100 in
2004 and $646,200 in 2003.

(9) 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. Profit sharing expenses amounted to $ 0 in
2004, 2003 and 2002. 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 $74,000 in 2004, $67,000
in 2003 and $58,000 in 2002.


                                       29
<PAGE>

Valpey-Fisher Corporation
Notes Continued

<TABLE>
<CAPTION>

(10) Accrued Liabilities: Accrued liabilities consist of the following items:                              2004            2003
================================================================================================================================
<S>                                                                                                  <C>             <C>
Employee compensation                                                                                $  585,100      $  396,200
--------------------------------------------------------------------------------------------------------------------------------
Income taxes                                                                                             95,800         105,300
--------------------------------------------------------------------------------------------------------------------------------
Professional fees                                                                                       108,900          90,000
--------------------------------------------------------------------------------------------------------------------------------
Environmental costs (see Note 5)                                                                        142,900          74,000
--------------------------------------------------------------------------------------------------------------------------------
Commissions                                                                                              83,700          43,200
--------------------------------------------------------------------------------------------------------------------------------
Other                                                                                                   229,379         191,575
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                     $1,245,779      $  900,275
================================================================================================================================
</TABLE>

(11) Debt: At December 31, 2004, the Company had no outstanding credit
arrangements with banks or any other financial institution.

(12) Stockholders' Equity: The Company has 4,222,519 and 4,184,815 shares of its
$.05 par value Common Stock outstanding at December 31, 2004 and 2003,
respectively.

     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.

     During 2003, the Company acquired 22,300 shares of common stock at a cost
of $59,000 and retired the shares. At December 31, 2004, under prior
authorizations from the Board of Directors, the Company is authorized to
purchase up to an additional 233,500 shares of stock through the open market or
negotiated transactions.

     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 2004, 2003 and 2002 was $58,500,
$58,500 and $14,500, respectively. 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, 2004, 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"). Through
December 31, 2004, all options granted except for 136,000 options were ISO's. At
December 31, 2004, the 1992 Plan had no options available for future grant and
313,400 common shares reserved for issuance upon exercise of the outstanding
stock options. At December 31, 2004, the 1999, 2001 and 2003 Plans have a total
of 301,666 options available for future grants and 218,834 common shares
reserved for issuance upon exercise of the outstanding stock options.

     A summary of the status of the Company's fixed stock option plans as of
December 31, 2004, 2003, and 2002, and changes during the years ended on those
dates is presented below:


                                       30
<PAGE>

Valpey-Fisher Corporation
Notes Continued
<TABLE>
<CAPTION>

                                                 2004                        2003                        2002
========================================================================================================================
                                         Number    Weighted-Avg.     Number    Weighted-Avg.     Number    Weighted-Avg.
                                       of shares  Exercise Price   of shares  Exercise Price   of shares  Exercise Price
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>          <C>            <C>          <C>            <C>
Outstanding, January 1                  578,438        $3.41        509,938        $3.57        314,438        $3.89
------------------------------------------------------------------------------------------------------------------------
   Granted                               83,500         2.01         86,500         2.61        207,500         3.24
------------------------------------------------------------------------------------------------------------------------
   Exercised                            (37,704)         .45              -            -              -            -
------------------------------------------------------------------------------------------------------------------------
   Forfeited                            (92,000)        3.40        (18,000)        4.18        (12,000)        6.02
========================================================================================================================
Outstanding, December 31                532,234        $3.40        578,438        $3.41        509,938        $3.57
========================================================================================================================
Exercisable, December 31                274,345        $3.59        226,038        $3.56        174,157        $3.55
========================================================================================================================
</TABLE>

     The following table summarizes information about fixed stock options
outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                                             Options Outstanding                             Options Exercisable
                          --------------------------------------------------------  ------------------------------------
                                                         Weighted-Average
                                                        ------------------
     Range of                Number               Remaining                               Number             Weighted
     Exercise             Outstanding            Contractual          Exercise          Exercisable       Avg. Exercise
      Prices              at 12/31/04               Life               Price            at 12/31/04           Price
------------------------------------------------------------------------------------------------------------------------
    <S>                       <C>                 <C>                  <C>                  <C>               <C>
    $1.83 - 1.95              17,984              2.9 years            $ 1.84               17,984            $ 1.84
------------------------------------------------------------------------------------------------------------------------
    $2.39 - 2.80              96,500              8.0                    2.59               28,900              2.52
------------------------------------------------------------------------------------------------------------------------
    $3.05 - 4.28             399,000              7.1                    3.31              212,461              3.31
------------------------------------------------------------------------------------------------------------------------
    $11.04                    18,750              5.8                   11.04               15,000             11.04
========================================================================================================================
                             532,234              7.0                  $ 3.40              274,345            $ 3.59
========================================================================================================================
</TABLE>


(13) (Loss) Per Share: The computation of basic and diluted (loss) per share
from continuing operations is as follows:
<TABLE>
<CAPTION>

========================================================================================================================
                                                                                   2004            2003            2002
========================================================================================================================
<S>                                                                         <C>             <C>             <C>
Basic and Diluted:
------------------------------------------------------------------------------------------------------------------------
(Loss) from continuing operations                                           $   (55,386)    $(1,400,086)    $(2,789,737)
------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding                                           4,212,353       4,187,970       4,165,659
========================================================================================================================
Basic and diluted  (loss) per share from continuing operations                   $ (.01)         $ (.33)         $ (.67)
========================================================================================================================
</TABLE>

     The Company had 532,234, 578,438 and 509,938 options outstanding in 2004,
2003 and 2002, respectively, 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.

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


                                       31
<PAGE>

Valpey-Fisher Corporation
Notes Continued

     One customer accounted for approximately 11%, 14% and 22% of net sales in
2004, 2003 and 2002, respectively. A second customer accounted for approximately
10% of net sales in 2004. Export sales to foreign markets are as follows:

<TABLE>
<CAPTION>
                                                                                   2004            2003            2002
========================================================================================================================
<S>                                                                         <C>             <C>             <C>
  Asia Pacific                                                              $ 1,988,700     $ 1,652,200     $ 1,113,900
------------------------------------------------------------------------------------------------------------------------
  Canada                                                                      1,044,600         560,800         374,200
------------------------------------------------------------------------------------------------------------------------
  Europe and Middle East                                                        708,600         670,900         345,600
------------------------------------------------------------------------------------------------------------------------
  Other                                                                          25,500          20,800          94,900
------------------------------------------------------------------------------------------------------------------------
                                                                            $ 3,767,400     $ 2,904,700     $ 1,948,600
========================================================================================================================
</TABLE>

(15) Quarterly Financial Data (unaudited): Selected unaudited quarterly
financial data for 2004 and 2003 is set forth below:

<TABLE>
<CAPTION>
                                                                        First        Second        Third        Fourth
========================================================================================================================
                             2004                                           (in thousands, except per share data)
<S>                                                                     <C>          <C>           <C>          <C>
------------------------------------------------------------------------------------------------------------------------
Net sales from continuing operations                                    $ 2,767      $ 3,151       $ 3,043      $ 2,584
------------------------------------------------------------------------------------------------------------------------
Gross profit                                                                787          922           936          615
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes                                        (137)         (23)           45           60
------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) from:
   Continuing operations                                                   (137)         (23)           45           60
------------------------------------------------------------------------------------------------------------------------
   Discontinued operations                                                    -         (110)            -            -
------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                                     $  (137)     $  (133)      $    45      $    60
========================================================================================================================

Basic and diluted earnings (loss) per share:
   Continuing operations                                                $  (.03)     $  (.01)      $   .01      $   .01
------------------------------------------------------------------------------------------------------------------------
   Discontinued operations                                                    -         (.02)            -            -
========================================================================================================================
                                                                        $  (.03)     $  (.03)      $   .01      $   .01
========================================================================================================================

                             2003
------------------------------------------------------------------------------------------------------------------------
Net sales from continuing operations                                    $ 1,711      $ 2,180       $ 2,190      $ 2,415
------------------------------------------------------------------------------------------------------------------------
Gross profit                                                                 48          244           257          334
------------------------------------------------------------------------------------------------------------------------
(Loss) before income taxes                                                 (692)        (637)         (587)        (507)
------------------------------------------------------------------------------------------------------------------------
Net (loss) from:
   Continuing operations                                                   (457)        (429)         (396)        (118)
------------------------------------------------------------------------------------------------------------------------
   Discontinued operations                                                    -            -             -            -
========================================================================================================================
Net (loss)                                                              $  (457)     $  (429)      $  (396)     $  (118)
========================================================================================================================

Basic and diluted (loss) per share:
   Continuing operations                                                $  (.11)     $  (.10)      $  (.09)     $  (.03)
------------------------------------------------------------------------------------------------------------------------
   Discontinued operations                                                    -            -             -            -
========================================================================================================================
                                                                        $  (.11)     $  (.10)      $  (.09)     $  (.03)
========================================================================================================================
</TABLE>


                                       32
<PAGE>


Valpey-Fisher Corporation
Notes Continued

     (Loss) per share calculations for each of the quarters are 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 loss per share amounts.

     In the fourth quarter of 2003, net loss from continuing operations includes
a tax benefit of $300,000 ($.07 basic and diluted (loss) per share) as a result
of a reduction in the deferred tax asset valuation allowance during the quarter.

(16) 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, 2004, the Company has outstanding
purchase commitments approximating $427,000, all of which are expected to be
fulfilled in 2005.








                                       33
<PAGE>

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,
2004 and 2003, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2004. 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 audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). 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 consolidated financial position of
Valpey-Fisher Corporation and subsidiaries as of December 31, 2004 and 2003, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ Grant Thornton LLP

Boston, Massachusetts
February 10, 2005






                                       34
<PAGE>

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, 2004, 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 these deficiencies 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
deficiencies constitute 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.
     2.   The lack of adequate segregation of duties in certain accounts payable
          and payroll functions and certain account reconciliations.

     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 is
aware that there is a lack of segregation of duties in some areas due to the
size of the Company and the limited number of employees within the financial and
administrative departments of the Company. 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, 2004 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.


                                       35
<PAGE>

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", and "Executive Compensation" in
Registrant's definitive proxy statement for the 2005 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".




                                       36
<PAGE>

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------

(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, 2004 and 2003
    Consolidated Statements of Operations for the Years Ended December 31, 2004,
     2003 and 2002
    Consolidated Statements of Cash Flows for the Years Ended December 31, 2004,
     2003 and 2002
    Consolidated Statements of Stockholders' Equity for the Years Ended December
     31, 2004, 2003 and 2002
    Notes to Consolidated Financial Statement
    Report of Independent Registered Public Accounting Firm


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

                                                                    Page Number
                                                                    -----------
Report of Independent Registered Public Accounting Firm on
 Supplementary Schedule                                                  40
Schedule II - Valuation Reserves                                         41


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.




                                       37
<PAGE>

3.   The exhibits filed in this report or incorporated by reference, listed on
     the Exhibit Index on page 42 are as follows:


Exhibit No.                                    Description
-----------      ---------------------------------------------------------------

   2.             Agreement of Merger and Recapitalization
   2.1            Asset Purchase Agreement dated April 30, 2003 between Seller,
                   William Stein, Martin Finkelstein and the Company
   3.1            Restated and Amended Articles of Incorporation
   3.2            By-Laws effective May 8, 2003
  10.1        *   1992 Stock Option Plan
  10.2        *   1999 Stock Option Plan
  10.3        *   2001 Stock Option Plan
  10.4        *   Restricted Stock Agreement
  10.5        *   2003 Stock Option Plan
  10.6        *   Key Employee Bonus Plan for 2004
  14              Code of Ethics of the Chief Executive Officer and the Chief
                   Financial and Accounting Officer
  14.1            Code of Business Conduct and Ethics
  21              Subsidiaries of the Registrant
  23              Independent Registered Public Accounting Firm's Consent
  31.1            Certification of the Chief Executive Officer Pursuant to
                   Section 302 of the Sarbanes-Oxley Act of 2002
  31.2            Certification of the Chief Financial Officer Pursuant to
                   Section 302 of the Sarbanes-Oxley Act of 2002
  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


     * Management contract or compensatory plan or arrangement required to be
     filed as an Exhibit pursuant to Item 15(c) of this report.

(b) Reports on Form 8-K

     On November 1, 2004, the Registrant filed a report on Form 8-K dated
     November 1, 2004 reporting under Item 2.02. Results of Operations and
     Financial Condition and Item 9.01 Financial Statements and Exhibits



                                       38
<PAGE>

                                   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 Corporation

Date: March 25, 2005                       By: /s/ Michael J. Ferrantino
                                               -------------------------
                                           Michael J. Ferrantino
                                           President 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.
<TABLE>
<CAPTION>

     Signature                               Title                                       Date
     ---------                               -----                                       ----
<S>                                    <C>                                          <C>
/s/ Ted Valpey, Jr.                    Chairman of the Board                        March 25, 2005
-------------------                     and Director
Ted Valpey, Jr.


/s/ Michael J. Ferrantino              President, Chief Executive Officer and       March 25, 2005
-------------------------               Director (Principal Executive Officer)
Michael J. Ferrantino


/s/ Michael J. Kroll                   Vice President, Treasurer and                March 25, 2005
--------------------                    Chief Financial Officer
Michael J. Kroll                        (Principal Financial Officer and
                                        Principal Accounting Officer)


/s/ Mario Alosco                       Director                                     March 25, 2005
----------------
Mario Alosco


/s/ Richard W. Anderson                Director                                     March 25, 2005
-----------------------
Richard W. Anderson


/s/ Eli Fleisher                       Director                                     March 25, 2005
----------------
Eli Fleisher


/s/ Lawrence Holsborg                  Director                                     March 25, 2005
---------------------
Lawrence Holsborg


/s/ John J. McArdle III                Director                                     March 25, 2005
-----------------------
John J. McArdle III
</TABLE>


                                       39
<PAGE>

Report of Independent Registered Public Accounting Firm on Supplementary
Schedule

To Valpey-Fisher Corporation:

     We have audited the accompanying consolidated balance sheets of
Valpey-Fisher Corporation and subsidiaries (the "Company") as of December 31,
2004 and 2003, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2004, and have issued our report thereon dated February 10,
2005; such consolidated financial statements and report are included in the
Company's 2004 Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of the
Company as of and for the years ended December 31, 2004, 2003 and 2002, listed
in Item 15a(2). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information therein.


                                                 /s/ GRANT THORNTON LLP


Boston, Massachusetts
February 10, 2005




                                       40
<PAGE>

<TABLE>
<CAPTION>
                                   Valpey-Fisher Corporation and Subsidiaries

                                 Schedule II - Valuation and Qualifying Accounts
                                 -----------------------------------------------

                                             Additions
                                       ------------------------
                            Balance at        Charged to        Charged to                           Balance at
                             Beginning         Costs and          Other                                 End
    Description              of Period          Expenses         Accounts       Deductions (1)       of Period
-----------------------------------------------------------------------------------------------------------------
<S>                         <C>               <C>               <C>             <C>                  <C>
Allowance for
Doubtful Accounts:

Year Ended:
December 31, 2004           $    80,000       $   (36,600)      $         -     $    56,600          $   100,000
                           --------------------------------------------------------------------------------------

December 31, 2003           $   200,000       $     2,300       $         -     $  (122,300)         $    80,000
                           --------------------------------------------------------------------------------------

December 31, 2002           $   395,800       $    30,000       $   139,200     $  (365,000)         $   200,000
                           --------------------------------------------------------------------------------------


Inventory Reserve:

Year Ended:
December 31, 2004           $ 1,002,000       $   371,300       $         -     $  (353,800)         $ 1,019,500
                           --------------------------------------------------------------------------------------

December 31, 2003           $ 5,339,000       $   234,900       $         -     $(4,571,900)         $ 1,002,000
                           --------------------------------------------------------------------------------------

December 31, 2002           $ 3,854,000       $ 1,601,000       $   228,000     $  (344,000)         $ 5,339,000
                           --------------------------------------------------------------------------------------

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


                                       41
<PAGE>

                                  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. Filed herewith.
   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. Filed herewith.
  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 2004. Filed herewith.
  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. Filed herewith.
  21              Subsidiaries of the Registrant. Filed herewith.
  23              Independent Registered Public Accounting Firm's Consent. 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.




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