Exhibit 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

1995 compared to 1994

     Results of operations  reflect increases in: net sales of $804,000 or 5.9%;
operating  income of $215,000 or 10.3%; net income of $221,000 or 15.4%; and net
income per share of $.14 or 17.3%.

     The net sales  increase was  attributed to further  expansion  into foreign
markets through our network of 17 sales organizations. Foreign sales amounted to
$4,229,000 or 29.4% of 1995 net sales, an increase of $703,000 or 19.9% compared
to prior year's foreign net sales of $3,526,000.  Domestic net sales amounted to
$10,168,000  an increase of $101,000 or 1.0%  compared to prior year's  domestic
net sales of $10,067,000.  Management  attributes these changes to the continued
decline of domestic  defense  activity and the rapid  expansion of the space and
wireless  communications markets in the far east. Orders increased $1,200,000 or
8.7% to  $14,953,000 in 1995 and the backlog of firm unfilled  orders  increased
$545,000 or 10.7% to $5,656,000 at year-end.

     Cost of sale  increased  $715,000 or 11.0% and as a percentage of net sales
increased  2.3%.  The primary  reasons for that  increase  were:  a diversion of
production   labor  for  the  newly  adopted  Total  Quality   Management  (TQM)
educational  training as well as the ISO-9001  Quality  Standards  Program;  The
manufacture  of  prototypes  and  shipments  of  products  which are  considered
developmental;  and merit pay  increases to the  manufacturing  and  supervisory
staff, that became effective mid-year.

     Selling, general and administrative expenses decreased $118,000 or 2.4% and
as a percentage of sales were 32.7%,  a decrease of 2.8%.  There were  increases
in: sales  commissions of $92,000 as net sales increased:  in Professional  fees
(legal)  of  $89,000  from  defending  our claims  regarding  a 1992  acqusition
disagreement:  Contributions  to the  Company  Savings  and  Investment  Plan of
$54,000  resulting  from the doubling of the matching  contribution  rate by the
Company;  and the Profit Sharing Plan contribution  increase of $36,000 or 14.3%
to  $288,000.  These  increases  were offset by  decreases  in  advertising  and
promotional  expenses  of $36,000 or 20.5%,  proposal  expenses  of  $180,000 or
27.2%, and development expenses of $123,000 or 31.0%, as personnel  concentrated
their efforts on expediting shipments.


1994 compared to 1993

     Results of operations  reflect decreases in: net sales of $660,000 or 4.6%;
operating  income of $829,000 or 28.4%; net income of $553,000 or 27.9%; and net
income per share of $.33 or 28.9%.

     Considering the declining market in the defense industry,  the Company held
its own, as sales for 1994 fell only 4.6% below the 1993 level. Orders were 9.3%
below 1993 levels due primarily to the loss of a major  defense  space  program.
Management  believes that quality and experience in making space qualified parts
were not  factored  into the  award,  and  Merrimac  has  every  expectation  of
regaining  some  of  this  business  if  the  competitor  fails  to  deliver  to
specification or on time.  Additionally,  several other government programs were
delayed  into  1995,  further  contributing  to the  fall in  orders.  Foreign
shipments and orders fell 22% and 3%, respectively,  because several significant
orders  received and shipped in 1993 were not  repeated in 1994.  The backlog at
the end of 1994 was up 2.6% from 1993 levels.

     The cost of sales as a percentage  of sales for 1994  increased by only .9%
over 1993.  The increase  can be  attributed  to a slight rise in  manufacturing
overhead  expenses and direct labor plus the  discontinuance of a three year pay
freeze in  November  1994.  The Company  had 121  employees  at the end of 1994,
approximately  the  same  number  as it had at the end of the  prior  year.  The
Company was preparing to implement a Total Quality  Management  (TQM) program in
1995 in order to be better able to identify and eliminate waste in the Company's
operations, with a goal to improving the Company's Competitive position.

     Selling,  General and Administrative:  The SG&A expenses as a percentage of
sales increased by 4.3% for 1994 when compared to 1993. These increases occurred
in selling expenses  (advertising and technical data),  administrative  expenses
(professional  fees) and general expenses  (proposal and development  expenses).
Significant  proposal  efforts were expended in pursuit of both  commercial  and
government space programs, in which Merrimac was only partially successful.  The
Company's  contribution  to the profit sharing plan amounted to $259,389 in 1994
compared to  $340,922  in 1993,  due to less  favorable  results in 1994,  which
offset some of the above increases.



<PAGE>


Liquidity and Capital Resources

     The Company's  financial  condition remained strong throughout 1995. At the
end of 1995, the Company had liquid resources  comprised of cash and investments
in available-for-sale securities, totaling approximately $4,600,000, compared to
4,000,000 at the end of 1994. The Company's working capital stood at $10,024,000
and its current ratio was 7.0 at the end of 1995 compared to $9,131,000 and 6.9%
respectively at the end of 1994.


     The Company's  operating  activities  generated cash flows of $2,193,000 in
1995 compared to $2,263,000 in 1994 and 2,885,000 in 1993.  The Company made net
investments  in property,  plant and  equipment of $447,000 in 1995  compared to
$1,103,000  in 1994 and  $685,000 in 1993.  During  1995,  the Company made open
market  purchases of 90,004 shares of its common stock at a cost of  $1,035,000.
Purchases  of common  stock were  $904,000  in 1994 and  $101,000  in 1993.  The
Company  paid cash  dividends  quarterly at the annual rate of $.40 per share on
its common stock  amounting  to $676,000 in 1995 and $691,000 in 1994.  In 1993,
the company paid cash  dividends  quarterly at the rate of $.30 per share on its
common stock amounting to $510,000.  The Company intends to continue to pay cash
dividends  quarterly  in 1996 at no less than the 1995  annual  rate of $.40 per
share.


     The  Company  has a  $2,500,000  unsecured  line of credit  agreement  with
Chemical Bank New Jersey, at the bank's floating prime rate and the full line is
available for future borrowing.


     Management  believes that with the liquid  resources and the unused line of
credit  available  at the end of 1995,  along  with cash  flows  expected  to be
generated  by  operations,  the  Company  will  have  sufficient  resources  for
currently  contemplated  operations  in 1996.  The  Company is in the process of
establishing a low cost manufacturing facility in Costa Rica, and anticipates it
will be  operational  in the second half of 1996.  The Company is also exploring
the  possibility  of  acquiring  similar  manufacturers  of  electronic  devices
although  it  currently  has  no  definitive   plans  or  agreements   for  such
acquisitions. Management believes that such acquisitions and business operations
expansion could be financed through the liquid and capital  resources  currently
available as previously  discussed,  and/or through additional  borrowing or the
issuance of equity or debt securities.




<PAGE>



CONSOLIDATED STATEMENTS OF INCOME


Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>

                                                              1995          1994           1993

<S>                                                    <C>           <C>            <C>        
Net sales ..........................................   $14,396,633    13,592,787    $14,252,309

Costs and expenses:
         Cost of sales .............................     7,208,152     6,493,598      6,677,147
         Selling, general and administrative .......     4,710,752     4,828,601      4,452,464
         Amortization of intangible assets (Note 11)       169,180       176,735        199,486
                                                      -----------------------------------------

                                                        12,088,084    11,498,934     11,329,097
                                                      -----------------------------------------
Operating income ...................................     2,308,549     2,093,853      2,923,212
Net interest and other income ......................       282,517       174,343        157,776
                                                      -----------------------------------------
Income before income taxes .........................     2,591,066     2,268,196      3,080,988
Provision for income taxes (Note 8) ................       939,000       837,000      1,097,000
                                                      -----------------------------------------

Net income .........................................   $ 1,652,066   $ 1,431,196    $ 1,983,988
                                                      =========================================
Net income per common share (Note 1) ...............   $       .95   $       .81    $      1.14

Weighted average number of shares outstanding .......     1,736,675     1,765,375      1,743,789
</TABLE>
















<PAGE>


CONSOLIDATED BALANCE SHEETS

December 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
                                                                                                       1995            1994

Assets

<S>                                                                                            <C>             <C>         
Current assets:
         Cash and cash equivalents (Note 1) ................................................   $  2,295,186         789,152
         Available-for-sale in securities (Note 2) .........................................      2,297,705       3,232,272
         Accounts receivable ...............................................................      2,373,181       2,051,653
         Inventories (Note 1) ..............................................................      3,920,010       3,647,830
         Prepaid expenses ..................................................................        112,215          82,817
         Prepaid income taxes ..............................................................           --           104,083
         Deferred tax assets (Note 8) ......................................................        691,200         774,831
                                                                                               ----------------------------
                  Total current assets .....................................................     11,689,497      10,682,638
                                                                                               ----------------------------
Property, plant and equipment, at cost (Note 3) ............................................     12,085,514      11,911,822
         Less accumulated depreciation and amortization ....................................      8,957,870       8,477,332
                                                                                               ----------------------------
         Net property, plant and equipment .................................................      3,127,644       3,434,490

Intangible assets, less accumulated amortization of $574,152 and
         $478,124 (Notes 1 and 11) .........................................................        219,774         421,466
Other assets ...............................................................................        151,597         166,850
                                                                                               ----------------------------
                                       Total Assets                                            $ 15,188,512    $ 14,705,444
                                                                                               ============================
Liabilities and Stockholders' Equity

Current liabilities:
         Accounts payable ..................................................................   $    386,303    $    318,250
         Accrued liabilities (Note 5 and 11) ...............................................        955,277         940,874
         Income taxes payable ..............................................................        323,549         292,357
                                                                                               ----------------------------
                  Total current liabilities ................................................      1,665,129       1,551,481

Deferred tax liabilities (Note 8) ..........................................................        154,500         141,500
                                                                                               ----------------------------
                  Total liabilities ........................................................      1,819,629       1,692,981

Contingencies
Stockholders' equity (Notes 6, 7 and 9)
         Common stock, par value $.50 per share;
         5,000,000 shares authorized; 2,549,452 and 2,521,196 shares issued                       1,274,726       1,260,598
         Additional paid-in capital ........................................................      8,723,124       8,537,460
         Retained earnings .................................................................     10,965,750       9,989,697
         Unrealized holding gain(loss) on available-for-sale securities,
                less deferred tax provision (benefit) ......................................          1,900        (213,720)
                                                                                               -----------------------------
                                                                                                 20,965,500      19,574,035

         Less treasury stock, at cost - 920,739 and 730,535 shares .........................      7,596,617       6,561,572
                                                                                               -----------------------------
                  Total stockholders' equity ...............................................     13,368,883      13,012,463
                                                                                               -----------------------------
                                       Total Liabilities and Stockholders Equity               $ 15,188,512    $ 14,705,444
                                                                                               =============================
</TABLE>

See accompanying notes.



<PAGE>



<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
                                                                                    Unrealized
                                                                      Additional     holding
                                               Common Stock            paid-in        gain          Retained       Treasury
                                           Shares        Amount        capital       (loss)         earnings       stock
-------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>            <C>            <C>            <C>            <C>         
Balance, January 2, 1993                  2,381,759  $1,190,880     $7,551,565                    $7,775,840     $(5,556,569)
-------------------------------------------------------------------------------------------------------------------------------
Net income                                                                                          1,983,988
Exercise of options (Notes 6 and 7)          77,681       38,840        401,814
Shares issued                                10,000        5,000         66,250
Tax benefit - stock options*                                             92,797
Cash dividends (Note 9)                                                                              (510,388)
Purchase of common stock                                                                                             (101,096)
-------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994                  2,469,440    1,234,720      8,112,426                     9,249,440      (5,657,665)
-------------------------------------------------------------------------------------------------------------------------------
Net income                                                                                          1,431,196
Exercise of options (Notes 6 and 7)          38,423       19,212        231,238
Shares issued (Note 11)                      13,333        6,666        144,996
Tax benefit - stock options*                                             48,800
Effect of change in fair value of
  available-for-sale securities (Note 2)                                            $(213,720)
Cash dividends (Note 9)                                                                              (690,939)
Purchase of common stock                                                                                             (903,907)
-------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994                 2,521,196    1,260,598      8,537,460      (213,720)      9,989,697      (6,561,572)
-------------------------------------------------------------------------------------------------------------------------------
Net income                                                                                          1,652,066
Exercise of options (Notes 6 and 7)          28,256       14,128        164,364
Tax benefit - stock options*                                             21,300
Effect of change in fair value of
  available-for-sale securities (Note 2)                                              215,620
Cash dividends (Note 9)                                                                              (676,013)
Purchase of common stock                                                                                            (1,035,045)
-------------------------------------------------------------------------------------------------------------------------------
Balance December 30, 1995                 2,549,452   $1,274,726     $8,723,124     $1,900         $10,965,750     $(7,596,617)
</TABLE>

     *Tax benefit resulting from exercise and disposition of stock options.
     See accompanying notes.


<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
                                                                                           1995           1994           1993
     Cash flows from operating activities:
<S>                                                                                 <C>            <C>            <C>        
              Net income ........................................................   $ 1,652,066    $ 1,431,196    $ 1,983,988
              Adjustments to reconcile net income to net cash
              provided by operating activities:
                       Depreciation and amortization ............................       850,637         837,863        881,014
                       Deferred income taxes ....................................       (46,621)       (110,000)      (107,597)
                       Changes in operating assets and liabilities
                           Accounts receivable ..................................      (321,528)        116,994        153,026
                           Inventories ..........................................      (272,180)        (11,574)      (365,787)
                           Prepaid income taxes .................................       104,083         (20,908)        50,473
                           Prepaid expenses .....................................       (29,398)         27,055         31,959
                           Other assets .........................................        15,253        (165,000)          --  
                           Accounts payable .....................................        68,053         (28,129)        (4,503)
                           Other liabilities ....................................       120,067         102,670        (88,871)
                           Income taxes payable .................................        52,492          82,613        351,341
                                                                                    --------------------------------------------
     Net cash provided by operating activities ..................................     2,192,924       2,262,780      2,885,043
                                                                                    --------------------------------------------
     Cash flows from investing activities:
              Purchase of capital assets ........................................      (450,977)    (1,116,551)      (747,827)
              Proceeds from sales of capital assets .............................         3,690         13,212         63,065
              Proceeds from sales and maturities of available-for-sale securities     1,292,983        400,000
              Purchase of investment securities .................................                                  (4,252,269)
              Proceeds from sales of investment securities ......................                                   1,821,321
                                                                                    --------------------------------------------
     Net cash provided by (used) in investing activities ........................       845,676       (703,339)    (3,115,710)
                                                                                    --------------------------------------------
     Cash flows from financing activities:
              Repurchase of common stock ........................................    (1,035,045)      (903,907)      (101,096)
              Proceeds from the issuance of common stock ........................       178,492        250,450        440,657
              Payments of dividends .............................................      (676,013)      (690,939)      (510,388)
                                                                                    --------------------------------------------
     Net cash used in financing activities ......................................    (1,532,566)    (1,344,396)      (170,827)
                                                                                    --------------------------------------------
     Net increase (decrease) in cash and cash equivalents .......................     1,506,034        215,045       (401,494)
     Cash and cash equivalents at beginning of year .............................       789,152        574,107        975,601
                                                                                    --------------------------------------------
     Cash and cash equivalents at end of year ...................................   $ 2,295,186    $   789,152    $   574,107
                                                                                    ============================================
</TABLE>
<TABLE>
<CAPTION>
<S>                                                                                <C>            <C>               <C>
Supplemental disclosures of cash flows information:
         Cash paid during the year for:
                  Income taxes ..................................................  $    833,776   $   885,295       $ 725,418

Supplemental disclosure of non-cash investing and
financing activity:
         Unrealized holding gain (loss) on available-for-sale
            securities, less deferred tax provision of $143,000
            and tax benefit of $142,000 .........................................  $   215,620    $ (213,720)       $   
         Tax benefit related to employees' stock options ........................       21,300        48,800          92,797
         Increase (decrease) in intangible assets (Note 11) .....................     (105,664)      (38,666)        109,998
         Issuance of common stock (Note 11) .....................................                    151,662          71,250
</TABLE>
See accompanying notes.



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 30,1995, December 31, 1994 and January 1,1994

1.Summary of significant accounting policies


     Principles of consolidation:  The financial statements include the accounts
of the Company and Merrimac  International,  Inc.  FSC, a  wholly-owned  foreign
sales  corporation  (FSC).  All  intercompany  accounts have been  eliminated in
consolidation.


     Fair value of financial instruments: Cash and cash equivalents: The Company
considers all highly liquid  securities  with an original  maturity of less than
three months to be cash  equivalents.  The Company  maintains cash deposits with
banks that at times exceed applicable  insurance limits. The Company reduces its
exposure to credit risk by maintaining such deposits with high quality financial
institutions. Because of their liquidity and short-term maturities, the carrying
value of these financial instruments equals their fair value.


     Use of estimates:  The  preparation  of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates and assumptions  that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

     Contract  revenues:  Sales and  related  costs of sales  under  fixed-price
contracts are recorded as deliveries are made. Prior to shipment,  manufacturing
costs  incurred on such  contracts  are  recorded as work in process  inventory.
Anticipated future losses on contracts are charged to income when identified.

     Investments:  Effective January 2, 1994, the Company adopted the provisions
of Statement of Financial  Accounting Standards No. 115, "Accounting for Certain
Investments  in Debt and Equity  Securities"  and  classified  its  portfolio of
investment  securities,  which is  comprised of municipal  debt  securities,  as
available-for-sale securities pursuant to this new standard.  Available-for-sale
securities are financial instruments that are carried at fair market value based
on quoted market values. Unrealized gains and losses from changes in fair market
value are included as a separate  component of  stockholders'  equity.  Realized
gains and losses,  determined  using the  specific  identification  method,  are
included in income in the period  incurred.  Prior to the  adoption of Statement
No. 115, the Company  carried its  investments  in debt  securities at amortized
cost.

     Statement  No. 115 was  adopted  on a  prospective  basis and prior  period
financial  statements  were not restated.  The  amortized  cost of the Company's
investments  in debt  securities at the date of adoption was  $3,593,466,  which
approximated their market value. Accordingly,  the cumulative effect of adopting
Statement No. 115 as of January 2, 1994 was not material.

     Inventories:  Inventories are valued at the lower of average cost or market
and consist of the following:

                                                       1995                 1994

Finished goods .......................           $1,079,983           $1,223,559
Work in process ......................            1,404,901            1,022,962
Raw materials and
purchased parts ......................            1,435,126            1,401,309

                                                 $3,920,010           $3,647,830


Total inventories are net of valuation allowances for obsolescence of $1,138,514
in 1995 and $992,733 in 1994.

     Depreciation:  Depreciation  is  computed  for  financial  purposes  on the
straight-line method, while accelerated methods are used, where applicable,  for
tax  purposes.  The  following  estimated  useful  lives are used for  financial
statement purposes:

Land improvements .....................................             10 years
Building ..............................................             25 years
Machinery and equipment ...............................             3 - 10 years
Office equipment, furniture and fixtures...............             5 - 10 years



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 30, 1995, December 31, 1994 and January 1, 1994


     Assets under  construction are not depreciated  until the assets are placed
into service.  Fully depreciated assets in use at December 30, 1995 and December
31, 1994 amounted to $6,016,000 and $5,834,000, respectively.

     Intangible  assets:Intangible  assets  represent  excess cost over the fair
value of net assets of acquired  businesses.  The  balance at December  30, 1995
represents  primarily  the amount  allocated  to the cost of  purchasing  unique
technology  which  could  enable  the  Company  to enter  into new and  emerging
markets.  The costs are being amortized over the estimated five year life of the
technology using the straight-line method of amortization.


     Advertising: The Company expenses the cost of advertising and promotions as
incurred.  Advertising  costs  charged  to  operations  were  $140,000  in 1995,
$176,000 in 1994, $123,000 in 1993.

     Income taxes:  In February 1992, the Financial  Accounting  Standards Board
issued Statement No. 109, "Accounting for Income Taxes." The Company adopted the
provisions  of the new standard in its financial  statements  for the year ended
January 1, 1994.  As  permitted  by  Statement  No.  109,  prior year  financial
statements  have not been restated to reflect the change in  accounting  method.
The  cumulative  effect as of  January  3, 1993 of  adopting  Statement  No. 109
increased net income by $50,000.

     Under  Statement  No. 109, the liability  method is used in accounting  for
income  taxes.  Under this  method,  deferred  tax assets  and  liabilities  are
determined based on temporary  differences  between financial  reporting and tax
bases of assets and  liabilities,  and are measured  using the enacted tax rates
and laws that will be in effect when the  differences  are  expected to reverse.
Prior to adoption of Statement No. 109, income tax expense was determined  using
the  deferred  method.  Deferred  tax  expense  was based on items of income and
expense that were reported in different  years in the financial  statements  and
tax  returns  and  were  measured  at the tax  rate in  effect  in the  year the
difference originated.



     Profit Sharing Plan:  Based on the annual  authorization  from the Board of
Directors,  10% of pre-tax income before the profit sharing provision  ($288,000
in 1995, $252,000 in 1994, $341,000 in 1993) is contributed to a trust fund.

     Savings and  Investment  Plan: The Company's  Savings and  Investment  Plan
(401(k) plan) permits  eligible  employees to save and invest up to 16% of their
regular  compensation  with the first 6% of such savings 50% (25% prior to 1995)
matched by the Company. The Company's contributions to the Plan were $105,000 in
1995, $51,000 in 1994 and $50,000 in 1993.

     Participating  employees receive payments from the Company's  contributions
upon  retirement  or early  separation  based on their  vested  portion  of such
contributions on that date.

     Research and development: Research and development expenditures of $275,000
in 1995, $398,000 in 1994 and $254,000 in 1993 were expensed as incurred.

     Interest expense: Interest expense was not material in 1995, 1994 and 1993.

     Net income per share:  Net income per share is based upon weighted  average
number of common  shares and common  equivalent  shares  outstanding  during the
year.  Common  equivalent  shares arise from the dilutive effects of shares that
may be purchased under stock option and purchase plans (see Notes 6 and 7).

     Accounting  period:  The  Company's  fiscal  year is the 52-53 week  period
ending on the Saturday closest to December 31. References to 1995, 1994 and 1993
to the 52 weeks ended December 30, 1995,  December 31, 1994 and January 1, 1994,
respectively.  Quarterly financial information is reported on a 12-12-16-12 week
basis in a 52 week fiscal year, and  12-12-16-13  week basis in a 53 week fiscal
year.




<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 30, 1995, December 31, 1994 and January 1, 1993



2. Investments in Available-for-sale securities

     The  amortized  cost  of  the  Company's  portfolio  of  available-for-sale
investments  in marketable  municipal  debt  securities at December 30, 1995 and
December 31, 1994 is  reconciled  to the fair market  value,  which was also the
carrying value, of the portfolio as follows:

                                      1995              1994
                                   -----------       ----------
        Amortized cost             $2,294,548        $3,587,992
        Gross unrealized gains          8,278            ---
        Gross unrealized losses        (5,121)         (355,720)
                                   -----------       -----------
        Fair market value          $2,297,705        $3,232,272

     The net  unrealized  gains of $3,157 in 1995 and net  unrealized  losses of
$355,720 in 1994 are included as a separate  component of stockholders'  equity,
net of deferred tax effects.  Sales  totaled  $993,000 in 1995 and $100,000 in
1994. Realized gains and losses in 1995 and 1994 were not material?

     The amortized  cost and fair market value of the  portfolio by  contractual
maturities as of December 30, 1995 are as follows:

Date Due                                       Amortized        Estimated Fair
(years)                                          Cost            Market Value
--------------------------------------------------------------------------------

After 1 through 5 ....................       $  199,918           $  198,800
After 5 through 10 ...................        1,994,630            2,000,240
After 10 .............................          100,000               98,665
================================================================================
                                             $2,294,548           $2,297,705



3. Property, plant and equipment

Property Plant and Equipment consist of the following:

                                                         1995               1994

Land and land improvements ...............        $   547,446        $   547,446
Building .................................          2,245,928          2,226,956
Machinery and equipment ..................          5,654,608          5,586,960
Office equipment,
furniture and fixtures ...................          3,637,532          3,550,460
================================================================================
                                                  $12,085,514        $11,911,822


4.Line of credit

     The Company has a $2,500,000  unsecured Bank line of credit  agreement with
interest  payable  at the  prime  rate.  There  were no  borrowings  or  amounts
outstanding  under this line of credit  agreement at either December 30, 1995 or
December 31, 1994, or January 1, 1994.


5.Accrued liabilities

Accrued liabilities consist of the following:

                                                       1995                 1994

Commissions ..........................           $  143,833           $  136,047
Vacation .............................              152,403              109,888
Profit sharing .......................              270,960              199,389
Payroll, employee compensation........              212,373              238,466
Warranty reserve .....................              100,000              100,000
Other  ...............................               75,708              157,084
================================================================================
                                                 $  955,277           $  940,874






<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 30,1995, December 31,1994 and January 1,1994



6.Stock options

A summary of stock option activity follows:
<TABLE>
<CAPTION>

                                    1995                         1994                           1993

                            Option        Number        Option           Number       Option          Number
                             price        of shares      price         of shares       price         of shares
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>     <C>       <C>        <C>     <C>        <C>         <C>     <C>      <C>    
Beginning of year .....  $4.45   $10.88    54,527     $4.45 - $10.88    73,645     $4.45 - $8.00      84,976
Granted ...............      9.00          97,000         9.75           4,500      7.13 - 10.88      30,000
Exercised .............   4.45    6.48     (3,493)     4.45 - 8.00     (22,118)     4.45 - 8.00      (38,831)
Cancelled .............   7.13    10.88    (7,350)       10.88          (1,500)     5.50 - 8.00       (2,500)
----------------------------------------------------------------------------------------------------------------------
At end of year ........   5.50 -  10.88   140,684      4.45 - 10.88     54,527      4.45 - 10.88      73,645
----------------------------------------------------------------------------------------------------------------------
Exercisable at year end                    49,684                       54,527                        49,645
</TABLE>



     Under the 1983 Key  Employees  Stock  Option  Plan,  206,250  shares of the
Company's  common  stock were  initially  reserved for  issuance.  The 1983 plan
provided  that the option  price  could not be less than 100% of the fair market
value of the shares on the date of grant and that any  options so granted  could
be  exercised  at any time  between  one and ten  years  from the date of grant.
Although no additional options could be granted as of December 30, 1995, options
for a total of 18,034 shares remained outstanding and exercisable under the 1983
plan.

     Under the 1993 Stock Option Plan  300,000  shares of the  Company's  common
stock were initially reserved for issuance.  The 1993 plan provides for issuance
of qualified and  non-qualified  options.  The  qualified  options may be issued
under the same terms as those under the 1983 Plan. The non-qualified options may
be granted to  employees  at an exercise  price  determined  by the Stock Option
Committee of the Board of Directors  which may not be less than par value.  Such
options may become  exercisable  immediately  after the grant and/or at any time
before the tenth anniversary of the grant. The non-qualified options may also be
granted to non-employee  directors,  provided the option price is at least equal
to the closing price on the date the option is granted.  Such options may become
exercisable  immediatly  after the grant  and/or  at any time  before  the fifth
anniversary of the grant.

     As of December  30, 1995  options  for a total of 122,650  shares  remained
outstanding  under  the 1993  Plan of  which  options  for  31,650  shares  were
exercisable and options for 177,350 were available for future grant.
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 30,1995, December 31,1994 and January 1,1994


7.Stock Purchase Plan

A summary of Stock Purchase Plan subscription activity is as follows:
<TABLE>
<CAPTION>

                                      1994                         1993                           1992

                          Subscription      Number      Subscription     Number       Subscription     Number
                             price        of shares        price        of shares        price        of shares

<S>                        <C>    <C>     <C>           <C>    <C>       <C>          <C>    <C>       <C>   
Beginning of year ....... $4.68 - $6.80   43,442        $4.68 - $9.24   29,981       $4.68 - $6.80     48,831
Granted .................     9.24                           6.69        29,766           9.24          22,000
Exercised ...............  4.68 -  9.24  (24,763)        4.68 - 9.24   (16,305)       4.68 - 6.80     (38,850)
Cancelled ...............     9.25        (1,747)            --           --             4.68          (2,000)
==================================================================================================================
End of year                6.69 - 9.20    16,932         4.68 - 9.24    43,442        4.68 - 9.24      29,981
</TABLE>

     In 1985, the Company's  stockholders  approved the Employees Stock Purchase
Plan  pursuant  to which  275,000  shares of the  Company's  common  stock  were
initially  reserved for issuance to eligible  employees.  On April 17, 1990, the
Company's  stockholders  approved an extension of the Plan through  December 31,
1994.

     The Plan allows employees to purchase,  through payroll deductions,  shares
at 85% of the fair market value of the shares at the time of the offer or at the
time of the purchase, whichever is less.

     In 1995 the Company's  stockholders  approved a new Plan, pursuant to which
as of December 30, 1995 a total of 200,000 shares of the Company's  common stock
could be purchased by eligible  employees on substantially the same terms as the
prior Plan.

8.Income taxes

     Effective January 3, 1993, the Company changed its method of accounting for
income  taxes from the  deferred  method to the  liability  method  required  by
Financial  Accounting  Standards Board Statement No. 109, "Accounting for Income
Taxes". As permitted under the new rules, prior years' financial statements have
not been restated.

     The cumulative  effect of adopting  Statement No. 109 as of January 3, 1993
was an increase in net income by $50,000 which is included in other income.

     The provision for income taxes consists of the following components:

                                             1995           1994           1993
Current tax:

Federal ............................   $   767,000    $   739,000    $   887,000
State ..............................       219,000        208,000        268,000
--------------------------------------------------------------------------------
                                           986,000        947,000      1,155,000
--------------------------------------------------------------------------------
Deferred tax benefit:

Federal ............................       (46,000)      (101,000)      (55,000)
State ..............................        (1,000)        (9,000)       (3,000)
--------------------------------------------------------------------------------
                                           (47,000)      (110,000)      (58,000)
--------------------------------------------------------------------------------
Provision for income taxes .........   $   939,000    $   837,000    $ 1,097,000



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 30,1995, December 31,1994 and January 1,1994



8.Income taxes (continued)


     Temporary  differences which gave rise to a significant portion of deferred
tax assets and  liabilities  at December  30, 1995 and  December 31, 1994 are as
follows:

                                                                 1995       1994

Current deferred tax assets:
         Inventory valuation allowance....................   $489,600   $426,800
         Unrealized holding loss on securities ...........               142,000
         Capitalized inventory costs .....................    107,400    118,400
         Warranty cost ...................................     43,000     43,000
         Other ...........................................     51,200     44,631
         =======================================================================
                                                              691,200     74,831


Non-current deferred tax liabilities:
         Depreciation and amortization ...................    101,000     88,400
         State Income taxes ..............................     53,400     53,100
         -----------------------------------------------------------------------
                                                              154,500    141,500
         =======================================================================
         Net deferred tax assets .........................   $536,700   $633,331


     The change in net deferred  tax assets  during 1995 of $96,000 is comprised
of the deferred tax credit of $47,000  included in the  provision for income tax
and the deferred tax provision  associated  with the unrealized  holding gain on
available-for-sale securities of $143,000 included in stockholders' equity.


     The change in net deferred tax assets  during 1994 of $252,000 is comprised
of the deferred tax credit of $110,000  included in the provision for income tax
and  deferred  tax  benefit  associated  with  the  unrealized  holding  loss on
available-for-sale securities of $142,000 included in stockholders' equity.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 30,1995, December 31,1994 and January 1,1994


8.Income taxes (continued)

     The  statutory  federal  income tax rate is reconciled to the effective tax
rate  (computed by dividing  the  provision  for income  taxes by income  before
income taxes) as follows:
<TABLE>
<CAPTION>

                                                          1995       1994        1993


<S>                                                      <C>         <C>         <C>   
Statutory rate .......................................   34.00%      34.00%      34.00%

Effect of:
   State income tax expense net of federal deduction      5.55        6.49        5.68
   Tax exempt interest ................................  (2.22)      (2.72)      (1.16)
   Foreign Sales Corporation .........................   (1.59)      (1.33)      (2.39)
   Other .............................................     .50         .46        (.47)

Effective tax rate ...................................   36.24%      36.90%      35.60%
</TABLE>


9.Cash dividends

     The Company's  Board of Directors  declared the following cash dividends in
1995, 1994 and 1993:

                         Date            Record        Dividend
                         declared         date         per share


               1995      Feb 22           Mar 1          .10
                         Apr 28           Jun 1          .10
                         Jul 20           Sep 2          .10
                         Sep  9           Dec 2          .10
               ------------------------------------------------
               1994      Feb 22           Mar 1          .10
                         Apr 28           Jun 1          .10
                         Jul 20           Sep 2          .10
                         Sep 9            Dec 2          .10
               ------------------------------------------------
               1993      Feb 24           Mar 10         .075
                         Apr 29           Jun 2          .075
                         Jul 20           Sep 1          .075
                         Oct 13           Dec 2          .075



10.Nature of business

     Management  considers the Company to be in only one business  segment:  the
manufacture and sale of electronic  devices  offering  extremely broad frequency
coverage and high  performance  characteristics.  The Company sells primarily to
customers in the defense  industries.  Foreign sales  amounted to  approximately
$4,229,000 in 1995, $3,526,000 in 1994 and $4,129,000 in 1993.

     Sales to any one  foreign  geographic  area did not exceed 10% of net sales
for 1994, 1993 or 1992. In 1994,  sales to Raytheon  Company  amounted to 10% of
net sales. In 1992,  sales to General  Electric Company amounted to 12.8% of net
sales.

     Accounts receivable are financial  instruments that expose the Company to a
concentration  of credit risk. A substantial  portion of the Company's  accounts
receivable  are  from  customers  in  the  defense  industry,  and  36%  of  its
receivables  at December 30, 1995 were from five  customers.  Exposure to credit
risk is limited by the large number of customers comprising the remainder of the
Company's  customer  base  and  their  geographical  dispersion  and by  ongoing
customer credit evaluations.




<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31,1994, January 1,1994 and January 2,1993


11. Acquisitions and loss from shutdown of subsidiary

     In May 1992,  the Company  acquired  the  business  and assets of Microwave
Research and Development, Inc. (MRD), an electronic components manufacturer, for
approximately  $715,000 in cash and an agreement to issue up to 40,000 shares of
the Company's  common stock in installments on the first business day of January
1993,  1994 and 1995, or make certain cash  payments  instead of the issuance of
such shares.  The number of shares to be issued and/or the amount of the cash to
be paid  was  contingent  upon  the  market  value of the  Company's  shares  on
specified dates.

     The  acquisition was accounted for using the purchase method of accounting.
The Company  initially  recorded the excess of the cost of the acquisition  over
the fair value of the net assets acquired of approximately  $828,000  (including
$249,000 representing the approximate market value at the date of acquisition of
the 40,000 shares  potentially  issuable to the sellers) as an intangible  asset
(technology),  which it began amortizing over the five year period from the date
of the  acquisition  on a  straight-line  basis.  As a result of  changes in the
market value of the shares,  the company  made a cash  payment of  approximately
$63,000  and issued  13,333  shares to the  sellers in January  1993 and January
1994, respectively,  and had accrued a liability of approximately $106,000 as of
December 31, 1994 for the payment that was  scheduled to be made in January 1995
pursuant to the original  terms of the  agreement.  However,  management  of the
Company  believed  that the sellers had breached  certain terms of the agreement
and the Company  reached a  settlement  with the sellers  during 1995 whereby it
will not be  required  to make the  payment  that would have been due in January
1995.

     As a result  of the  changes  in the  market  value of the  shares  and the
settlement,  the carrying value of the intangible  asset initially  recorded was
reduced by  approximately  $106,000 in 1995 and $39,000 in 1994 and increased by
approximatly  $110,000 in 1993, and charges for  amortization  of the intangible
asset  totaled  approximatly  $96,000 in 1995,  $177,000 in 1994 and $199,000 in
1993.


12. Contingencies

     On July 1, 1993, the Company filed a $750,000 amended complaint against the
former  principals  of an  acquired  Canadian  business,  in the  United  States
District Court for the District of New Jersey,  for  misrepresentations  made by
them in conjunction with the Stock Purchase Agreement between the parties. On or
about November 1, 1993, the former  principals  filed an action in Ontario Court
against  the  Company for breach of the same Stock  Purchase  Agreement,  fraud,
breach of employment agreements,  wrongful dismissal, breach of lease and damage
to leased premises. The former principals have demanded $(Canadian) 1,000,000 in
compensatory  and  punitive  damages.  During  1995 the  Company  and the former
principles  settled a lawsuit filed in the United States  district Court without
compensation  to either party.  However the  litigation in Ontario is continuing
and the Company has filed a counter claim  demanding  $1,500,000 in compensatory
and punitive damages. The Company believes that the former principals' action is
without merit and intends to pursue its action and vigorously contest the former
principals'  lawsuit. 

     The  company  is a party  to  other  lawsuits,  both as a  plaintiff  and a
defendant,  arising  in the  normal  course of  business.  It is the  opinion of
Management,  after  consultation  with counsel,  that the  disposition  of these
various  lawsuits,  including the lawsuit described above, will not individually
or in the  aggregate  materially  adversely  affect the  consolidated  financial
position or the results of operations of the Company.



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31,1994, January 1,1994 and January 2,1993


13. Quarterly financial information (unaudited)


     Summarized  quarterly  financial data reported on a 12-12-16-12  week basis
for 1995 and 1994 are as follows:

                                          Quarter ended

                  1995   March 25     June 17      October 7    December 30

Net sales ............   $3,452,193   $3,076,952   $4,355,200   $3,512,288
Gross profit .........    1,811,073    1,427,368    2,054,914    1,895,126
Net income ...........      449,761      279,808      469,020      453,477
Net income per share .          .26          .16          .26          .27
--------------------------------------------------------------------------
                  1994   March 26     June 18      October 8    December 31

Net sales ............   $3,061,241   $3,430,526   $3,948,675   $3,152,345
Gross profit .........    1,584,971    1,725,467    1,889,263    1,899,488
Net income ...........      350,972      299,183      308,850      472,191
Net income per share .          .19          .17          .18          .27



14. New accounting pronouncements


     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived   Assets  and  for  Long-Lived  assets  to  be  Disposed  of,"  which
establishes  accounting  standards  for the  impairment  of  long-lived  assets,
certain identifiable  intangibles and goodwill related to those assets which are
held and used or disposed of.  Statement  No. 121 will be  effective  for fiscal
years  beginning  after December 15, 1995. The Company does not anticipate  that
the adoption of  statement  No. 121 will have a material  adverse  effect on the
Company's consolidated financial Statements.

     During  October  1995,  the  Financial  Accounting  Standards  Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation,"  which  establishes a fair value based method of  accounting  for
stock-based  compensation  plans and requires  additional  disclosures for those
companies who elect not to adopt the new method of accounting. While the Company
studies the impact of the  pronouncement,  it  continues to account for employee
purchase  rights and stock  options  under APB Opinion No. 25,  "Accounting  for
Stock Issued to Employees." Statement No. 123 will be effective for fiscal years
beginning after December 15, 1995.


QUARTERLY COMMON STOCK DATA
<TABLE>
<CAPTION>

                                    Fiscal 1995                     Fiscal 1993
                                      Quarter                        Quarter
                          1st      2nd      3rd     4th      1st     2nd     3rd    4th
Market price per share:

<S>                        <C>     <C>      <C>     <C>      <C>     <C>     <C>    <C>
         High .......      9 3/8   9 13/16  12 3/8  12 1/4   12 3/4  10 7/8  12     9 3/8

         Low ........      7 7/8   8 1/2    9 5/8   7 5/8    10 1/2  9 1/8   8 1/4  7 5/8

</TABLE>




     The Company's  Common Stock is traded on the American  Stock Exchange under
the symbol MRM.

     The market price  information  is provided  with regard to the high and low
bid prices of the Company's stock during the periods indicated.




<PAGE>




 J. H COHN & COMPANY
 75 EISENHOWER PARKWAY                                    LAWRENCEVILLE,NJ
 ROSELAND NJ 07068-1697                                   NEW YORK,NY
 (201) 228-3500                                           ROSELAND, NJ
                                                          SAN DIEGO,CA


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders Merrimac Industries, Inc.


     We have audited the  accompanying  consolidated  balance sheets of MERRIMAC
INDUSTRIES, INC. as of December 30, 1995 and December 31, 1994, and the related
consolidated  statements of income,  stockholders' equity and cash flows for the
years then ended included in the 1995 Annual Report to  shareholders of Merrimac
Industries  Inc. and  incorporated  by  reference in this Annual  Report on Form
l0-KSB.  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  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financal statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.


     In our  opinion,  the  1995  and  1994  consolidated  financial  statements
referred to above  present  fairly,  in all  material  respects,  the  financial
position of Merrimac  Industries,  Inc. as of December 30, 1995 and December 31,
1994,  and their results of operations  and cash flows for the years then ended,
in conformity with generally accepted accounting principles.


     As  described  in  Note l to the  consolidated  financial  statements,  the
Company changed its method of valuing investments in debt securities in 1994.





                                                         /s/ J.H. COHN & COMPANY
                                                         -----------------------
                                                            J. H. COHN & COMPANY



Roseland, New Jersey
February l7, l996






<PAGE>



ERNST & YOUNG  LLP                             MetroPark
                                             99 Wood Avenue South
                                             P.O. Box 751
                                             Iselin, New Jersey 08830-0471


                         Report of Independent Auditors


The Board of Directors and Shareholders Merrimac Industries, Inc.


     We have audited the consolidated statements of income, stockholders' equity
and cash flows of Merrimac  Industries  Inc. for the year ended  January 1, 1994
included in the 1995 Annual Report to Shareholders of Merrimac  Industries,  Inc
and  incorporated by reference in this Form 10-KSB.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion  on these  financial  statements  and  schedule  based on our
audits.


     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
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,  Merrimac Industries Inc. consolidated
results of operations  and its cash flows for the year ended January 1, 1994, in
conformity with generally accepted accounting principles.



                                                           /s/ Ernst & Young LLP
                                                           ---------------------
                                                               Ernst & Young LLP



MetroPark, New Jersey
February 21, 1994



Exhibit 13