UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.   20549





FORM
10-Q





x                      QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended April 4, 2009





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





For the
transition period from       to




Commission
File No. 0-11201





Merrimac
Industries, Inc.


(Exact
Name of Registrant as Specified in Its Charter)







DELAWARE
                
                22-1642321(State
      or Other Jurisdiction of
                
                (I.R.S.
      EmployerIncorporation
      or Organization)
                
                Identification
      No.)





41
FAIRFIELD PLACE


WEST
CALDWELL, NEW JERSEY 07006


(Address
of Principal Executive Offices) (Zip Code)





(973)
575-1300


(Registrant’s
Telephone Number)





Former
name, former address and former fiscal year, if changed since last
report:   N/A





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes ̈   No ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See definition of "accelerated filer”, “large accelerated filer” and a
      “smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check
      one):Large accelerated filer    ̈
                Accelerated filer    ̈Non-accelerated filer      ̈
                Smaller reporting company   x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes ̈ Nox





As of May
14, 2008, there were 2,952,324 shares of Common Stock, par value $.01 per share,
outstanding.





MERRIMAC
INDUSTRIES, INC.





INDEX





PagePART
      I.      FINANCIAL
INFORMATIONItem
      1.        Financial
      StatementsConsolidated
      Statements of Operations
                for
      the Quarters Ended April 4, 2009 and March 29, 2008
      (Unaudited)
              1Consolidated
      Balance Sheets-April 4, 2009 (Unaudited) and
                January
      3, 2009
              2Consolidated
      Statement of Stockholders’ Equity for the Quarter
                Ended
      April 4, 2009 (Unaudited)
              3Consolidated
      Statements of Cash Flows for the Quarters
                Ended
      April 4, 2009 and March 29, 2008 (Unaudited)
              4Notes
      to Consolidated Financial Statements
              5Item
      2.         Management's
      Discussion and Analysis of Financial Condition
                and
      Results of Operations
              14Item
      3.         Quantitative and
      Qualitative Disclosures about Market Risk
              22Item
      4(T).    Controls and Procedures
              22PART
      II.     OTHER INFORMATIONItem
      1.         Legal
      Proceedings
              23Item
      1A.      Risk Factors
              23Item
      5.        Other
      Information
              23Item
      6.        Exhibits
              23Signatures
              24





PART I.
FINANCIAL INFORMATION





ITEM 1.
FINANCIAL STATEMENTS





MERRIMAC
INDUSTRIES, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





Quarters
      EndedApril
      4,
                                            2009
                                          
                                          
                                          March
      29,
                                            2008(Restated)Net
      sales
                                          
                                          $
                                          7,606,532
                                          
                                          
                                          $
                                          5,757,686Costs
      and expenses:Cost
      of sales
                                          
                                          
                                          4,224,084
                                          
                                          
                                          
                                          3,944,681Selling,
      general and administrative
                                          
                                          
                                          2,358,402
                                          
                                          
                                          
                                          2,244,570Research
      and development
                                          
                                          
                                          59,395
                                          
                                          
                                          
                                          372,8186,641,881
                                          
                                          
                                          
                                          6,562,069Operating
      income (loss)
                                          
                                          
                                          964,651
                                          
                                          
                                          
                                          (804,383
                                          )Interest
      and other expense, net
                                          
                                          
                                          (65,345
                                          )
                                          
                                          
                                          (60,573
                                          )Income
      (loss) before income taxes
                                          
                                          
                                          899,306
                                          
                                          
                                          
                                          (864,956
                                          )Provision
      for income taxes
                                          
                                          
                                          42,826
                                          
                                          
                                          
                                          -Net
      income (loss)
                                          
                                          $
                                          856,480
                                          
                                          
                                          $
                                          (864,956
                                          )Net
      income (loss) per common share – basic and diluted
                                          
                                          $
                                          0.29
                                          
                                          
                                          $
                                          (0.29
                                          )Weighted
      average number of shares outstanding – basic
                                          
                                          
                                          2,952,324
                                          
                                          
                                          
                                          2,932,521Weighted
      average number of shares outstanding – diluted
                                          
                                          
                                          2,969,824
                                          
                                          
                                          
                                          2,932,521





See
accompanying notes.


1





MERRIMAC
INDUSTRIES, INC.


CONSOLIDATED
BALANCE SHEETS





April
      4,
                                            
                                            
                                            January
      3,2009
                                            
                                            
                                            2009(UNAUDITED)
                                            
                                            
                                            (NOTE
      1)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                            
                                            $
                                            2,425,806
                                            
                                            
                                            $
                                            1,191,768Accounts
      receivable, net
                                            
                                            
                                            4,892,140
                                            
                                            
                                            
                                            5,765,575Inventories,
      net
                                            
                                            
                                            5,746,637
                                            
                                            
                                            
                                            4,899,706Other
      current assets
                                            
                                            
                                            492,020
                                            
                                            
                                            
                                            542,320Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                                            
                                            
                                            2,586,205
                                            
                                            
                                            
                                            1,880,338Total
      current assets
                                            
                                            
                                            16,142,808
                                            
                                            
                                            
                                            14,279,707Property,
      plant and equipment
                                            
                                            
                                            37,858,765
                                            
                                            
                                            
                                            37,765,928Less
      accumulated depreciation and amortization
                                            
                                            
                                            29,197,631
                                            
                                            
                                            
                                            28,556,441Property,
      plant and equipment, net
                                            
                                            
                                            8,661,134
                                            
                                            
                                            
                                            9,209,487Other
      assets
                                            
                                            
                                            495,475
                                            
                                            
                                            
                                            543,217Total
      assets
                                            
                                            $
                                            25,299,417
                                            
                                            
                                            $
                                            24,032,411LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of long-term debt
                                            
                                            $
                                            291,667
                                            
                                            
                                            $
                                            291,667Accounts
      payable
                                            
                                            
                                            700,037
                                            
                                            
                                            
                                            794,351Accrued
      liabilities
                                            
                                            
                                            1,399,542
                                            
                                            
                                            
                                            1,432,124Customer
      deposits
                                            
                                            
                                            1,113,030
                                            
                                            
                                            
                                            654,133Income
      taxes payable
                                            
                                            
                                            60,274
                                            
                                            
                                            
                                            17,448Total
      current liabilities
                                            
                                            
                                            3,564,550
                                            
                                            
                                            
                                            3,189,723Long-term
      debt, net of current portion
                                            
                                            
                                            2,538,195
                                            
                                            
                                            
                                            2,611,111Deferred
      liabilities
                                            
                                            
                                            60,924
                                            
                                            
                                            
                                            64,254Total
      liabilities
                                            
                                            
                                            6,163,669
                                            
                                            
                                            
                                            5,865,088Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, par value $.01 per share:Authorized:  1,000,000
      sharesNo
      shares issued
                                            
                                            
                                            –
                                            
                                            
                                            
                                            –Common
      stock, par value $.01 per share:20,000,000
      shares authorized; 3,315,229 shares issued; and 2,952,324 shares
      outstanding at April 4, 2009 and January 3, 2009
                                            
                                            
                                            33,153
                                            
                                            
                                            
                                            33,153Additional
      paid-in capital
                                            
                                            
                                            20,491,869
                                            
                                            
                                            
                                            20,379,924Retained
      earnings
                                            
                                            
                                            1,732,890
                                            
                                            
                                            
                                            876,41022,257,912
                                            
                                            
                                            
                                            21,289,487Less
      treasury stock, at cost – 362,905 shares at April 4, 2009 and January 3,
      2009
                                            
                                            
                                            (3,122,164
                                            )
                                            
                                            
                                            (3,122,164
                                            )Total
      stockholders’ equity
                                            
                                            
                                            19,135,748
                                            
                                            
                                            
                                            18,167,323Total
      liabilities and stockholders’ equity
                                            
                                            $
                                            25,299,417
                                            
                                            
                                            $
                                            24,032,411





See
accompanying notes.


2





MERRIMAC
INDUSTRIES, INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


QUARTER
ENDED APRIL 4, 2009


(UNAUDITED)





Common
      Stock
                                    
                                    
                                    Additional
                                      Paid-in
                                    
                                    
                                    Retained
                                    
                                    
                                    Treasury
      StockShares
                                    
                                    
                                    Amount
                                    
                                    
                                    Capital
                                    
                                    
                                    Earnings
                                    
                                    
                                    Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    TotalsBalance,
      January 3, 2009
                                    
                                    
                                    3,315,229
                                    
                                    
                                    $
                                    33,153
                                    
                                    
                                    $
                                    20,379,924
                                    
                                    
                                    $
                                    876,410
                                    
                                    
                                    362,905
                                    
                                    
                                    $
                                    (3,122,164
                                    )
                                    
                                    $
                                    18,167,323Net
      income
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    856,480
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    856,480Share-based
      compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    111,945
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    111,945Balance,
      April 4, 2009
                                    
                                    
                                    3,315,229
                                    
                                    
                                    $
                                    33,153
                                    
                                    
                                    $
                                    20,491,869
                                    
                                    
                                    $
                                    1,732,890
                                    
                                    
                                    
                                    362,905
                                    
                                    
                                    $
                                    (3,122,164
                                    )
                                    
                                    $
                                    19,135,748





See
accompanying notes.


3


MERRIMAC
INDUSTRIES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




Quarters
      EndedApril
      3,
                                    2009
                                  
                                  
                                  March
      29,
                                    2008(Restated)Cash
      flows from operating activities:Net
      income (loss)
                                  
                                  $
                                  856,480
                                  
                                  
                                  $
                                  (864,956
                                  )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                                  
                                  
                                  651,137
                                  
                                  
                                  
                                  618,341Amortization
      of deferred financing costs
                                  
                                  
                                  27,686
                                  
                                  
                                  
                                  8,040Share-based
      compensation
                                  
                                  
                                  111,945
                                  
                                  
                                  
                                  120,346Changes
      in operating assets and liabilities:Accounts
      receivable
                                  
                                  
                                  873,435
                                  
                                  
                                  
                                  (496,982
                                  )Inventories
                                  
                                  
                                  (846,931
                                  )
                                  
                                  
                                  (541,656
                                  )Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                                  
                                  
                                  (705,867
                                  )
                                  
                                  
                                  –Other
      current assets
                                  
                                  
                                  50,300
                                  
                                  
                                  
                                  32,203Other
      assets
                                  
                                  
                                  20,056
                                  
                                  
                                  
                                  (15,524
                                  )Accounts
      payable
                                  
                                  
                                  (94,314
                                  )
                                  
                                  
                                  32,890Accrued
      liabilities
                                  
                                  
                                  (32,582
                                  )
                                  
                                  
                                  (503,656
                                  )Customer
      deposits
                                  
                                  
                                  458,897
                                  
                                  
                                  
                                  (17,024
                                  )Income
      taxes payable
                                  
                                  
                                  42,826
                                  
                                  
                                  
                                  –Deferred
      liabilities
                                  
                                  
                                  (3,330
                                  )
                                  
                                  
                                  738Net
      cash provided by (used in) operating activities
                                  
                                  
                                  1,409,738
                                  
                                  
                                  
                                  (1,627,240
                                  )Cash
      flows from investing activities:Purchases
      of capital assets
                                  
                                  
                                  (102,784
                                  )
                                  
                                  
                                  (351,845
                                  )Cash
      proceeds from sale of discontinued operations
                                  
                                  
                                  –
                                  
                                  
                                  
                                  664,282Net
      cash (used in) provided by investing activities
                                  
                                  
                                  (102,784
                                  )
                                  
                                  
                                  312,437Cash
      flows from financing activities:Repayment
      of borrowings
                                  
                                  
                                  (72,916
                                  )
                                  
                                  
                                  (387,500
                                  )Restricted
      cash returned
                                  
                                  
                                  –
                                  
                                  
                                  
                                  250,000Proceeds
      from the exercise of stock options
                                  
                                  
                                  –
                                  
                                  
                                  
                                  28,331Proceeds
      from stock purchase plan sales
                                  
                                  
                                  –
                                  
                                  
                                  
                                  46,383Net
      cash used in financing activities
                                  
                                  
                                  (72,916
                                  )
                                  
                                  
                                  (62,786
                                  )Net
      increase (decrease) in cash and cash equivalents
                                  
                                  
                                  1,234,038
                                  
                                  
                                  
                                  (1,377,589
                                  )Cash
      and cash equivalents at the beginning of period
                                  
                                  
                                  1,191,768
                                  
                                  
                                  
                                  2,004,471Cash
      and cash equivalents at the end of period
                                  
                                  $
                                  2,425,806
                                  
                                  
                                  $
                                  626,882Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
                                  
                                  $
                                  73,901
                                  
                                  
                                  $
                                  62,044





See
accompanying notes


4




MERRIMAC
INDUSTRIES, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS
OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnote disclosures otherwise required by
accounting principles generally accepted in the United States of America for a
full fiscal year. The financial statements do, however, reflect all adjustments
of a normal recurring nature, which are in the opinion of management, necessary
for a fair presentation of the financial position of Merrimac Industries, Inc.
(“Merrimac” or the “Company”) as of April 4, 2009 and its results of operations
and cash flows for the periods presented. Results of operations of interim
periods are not necessarily indicative of results for a full year.





The
consolidated balance sheet at January 3, 2009 has been derived from the audited
financial statements at that date but does not include all the information
required by accounting principles generally accepted in the United States of
America for complete financial statements.  For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 20, 2009 for the year ended January 3, 2009.  See
the summary of Significant Accounting Policies in the Company’s 2008 Annual
Report on Form 10-K for a discussion of the accounting policies utilized by the
Company.





2.
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS





In April
2009, the Company’s management determined that there were misstatements in the
Company’s previously reported fiscal year 2008 quarterly financial
statements.  These misstatements were due to a combination of factors
and primarily affected work in process inventories and cost of goods sold as
well as having a minor impact on accrued liabilities and selling, general and
administrative expenses.  The main factors causing the misstatements
were control deficiencies following the Company-wide conversion to an enterprise
resource planning (ERP) software system and as a result of changes in personnel
in the Company’s financial operations department.  The unaudited
condensed impact of the errors found affected all three previously reported
quarters of fiscal year 2008 and the restatement of the quarterly consolidated
financial statements are presented in the Company’s fiscal year 2008 Form 10-K.
The consolidated statement of operations and consolidated statements of cash
flows for the quarter ended March 29, 2008 presented herein are the restated
consolidated financial statements and throughout this Form 10-Q, where
applicable, the restated consolidated financial statements for the quarter ended
March 29, 2008 are presented.





3.
DISCONTINUED OPERATIONS





Company
management determined, and the Board of Directors approved on August 9, 2007,
that the Company should divest its FMI operations. The divestiture enables
Merrimac to concentrate its resources on RF Microwave and Multi-Mix®
Microtechnology product lines to generate sustainable, profitable
growth.  Beginning with the third quarter of 2007, the Company
reflected FMI as a discontinued operation and the Company reclassified prior
consolidated financial statements to reflect the results of operations,
financial position and cash flows of FMI as discontinued
operations.





On
December 28, 2007, the Company sold substantially all of the assets of its
wholly-owned subsidiary, FMI, to Firan Technology Group Corporation (“FTG”), a
manufacturer of high technology/high reliability printed circuit boards, that
has operations in Toronto, Ontario, Canada and Chatsworth, California. The
transaction was effected pursuant to an asset purchase agreement entered into
between Merrimac, FMI and FTG. The total consideration payable by FTG was
$1,482,000 (Canadian $1,450,000) plus the assumption of certain liabilities of
approximately $368,000 (Canadian $360,000). FTG paid $818,000 (Canadian
$800,000) of the purchase price at closing and the balance was paid on February
21, 2008 following the conclusion of a transitional period.





There was
no impact from FMI, which was formerly represented as Merrimac’s microwave
micro-circuitry segment, on the consolidated financial statements for the
quarters ended April 4, 2009 and March 29, 2008.





4.
CONTRACT REVENUE RECOGNITION





The
Company derives its revenues from sales of the following: customized products,
which include amounts billable for non-recurring engineering services and in
some instances the production and delivery of prototypes, and the subsequent
production and delivery of units under short-term, firm-fixed price contracts;
the design, documentation, production and delivery of a series of complex
components under long-term firm-fixed price contracts; and the delivery of
off-the-shelf standard products.





The
Company accounts for all contracts, except those for the sale of off-the-shelf
standard products, in accordance with AICPA Statement of Position No. 81-1,
“Accounting for Performance of Construction-Type and Certain Production-Type
Contracts” (“SOP 81-1”).





5


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




The
Company recognizes all amounts billable under short-term contracts, including
those involving non-recurring engineering (“NRE”) services for customization of
products, in net sales and all related costs in cost of sales under the
completed-contract method when the customized units are delivered. The Company
periodically enters into contracts with customers for the development and
delivery of a prototype prior to the shipment of units. Under those
circumstances, the Company recognizes all amounts billable for NRE services in
net sales and all related costs in cost of sales when the prototype is delivered
and recognizes all of the remaining amounts billable and the related costs when
the units are delivered.





Periodically,
the Company has complex, long-term contracts for the engineering design,
development and production of space electronics products for which revenue is
recognized under the percentage-of-completion method. Sales and related contract
costs for design and documentation services under this type of contract are
recognized based on the cost-to-cost method. Sales and related contract costs
for products delivered under these contracts are recognized on the
units-of-delivery method. The Company has one contract which is primarily
related to the design and development (and to a lesser extent, the production of
space electronics) for which revenue under the entire contract is recognized
under the percentage-of-completion method using the cost-to-cost method. For
such contract, the Company has recognized costs and estimated earnings in excess
of billings of approximately $2,586,000 at April 4, 2009.





Pursuant
to SOP 81-1, anticipated losses on all contracts are charged to operations in
the period when the losses become known.





Sales of
off-the-shelf standard products and related costs of sales are recorded when
title transfers to our customer, which is generally on the date of shipment,
provided persuasive evidence of an arrangement exists, the sales price is fixed
or determinable and collection of the related receivable is
probable.





5.
ACCOUNTING PERIOD





The
Company's fiscal year is the 52-53 week period ending on the Saturday closest to
December 31. The Company has quarterly dates that correspond with the Saturday
closest to the last day of each calendar quarter and each quarter consists of 13
weeks in a 52-week year. Periodically, the additional week to make a 53-week
year is added to the fourth quarter, making such quarter consist of 14 weeks
(fiscal year 2014 will be the next 53 week year).





6. RECENT
ACCOUNTING PRONOUNCEMENTS





In
October 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) FAS 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active”. The FSP clarifies the
application of Statement of Financial Accounting Standards (“SFAS”) Statement
No. 157, “Fair Value Measurements”, in a market that is not active and provides
an example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. The FSP
is effective for prior periods for which financial statements have not been
issued. Management currently believes that FAS 157-3 will have no material
impact on the Company’s consolidated financial statements.





In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS Statement No. 142, “Goodwill and Other
Intangible Assets”. The intent of this FSP is to improve the consistency between
the useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141(R), and other accounting principles generally accepted in the
United States of America. This FSP is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of FSP FAS 142-3 did not have a material impact
on the Company’s consolidated financial statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007 and became effective for us on January 1,
2008.





Fair
value is defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties.  A liability’s
fair value is defined as the amount that would be paid to transfer the liability
to a new obligor, not the amount that would be paid to settle the liability with
the creditor.  The FASB establishes a three-level hierarchy for fair
value measurements based upon the transparency of inputs to the valuation as of
the measurement date and expands disclosures about financial instruments
measured at fair value. Assets and liabilities recorded at fair value are
categorized based upon the level of judgment associated with the inputs used to
measure their fair value.  Hierarchical levels defined by SFAS No. 157
and directly related to the amount of subjectivity associated with the inputs to
fair valuation of these assets and liabilities are as follows:





6


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Level
1: Inputs are unadjusted, quoted prices in active markets for identical assets
or liabilities at the measurement date.  The types of assets and
liabilities carried at this level are equities listed in active markets,
investments in publicly traded mutual funds with quoted market prices and listed
derivatives.




Level 2:
Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market
data of the instrument’s anticipated life.  Fair value assets and
liabilities that are generally included in this category are municipal bonds and
certain derivatives.





Level 3:
Financial assets and financial liabilities whose values are based on prices or
valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement.  Consideration is
given to the risk inherent in the valuation method and the risk inherent in the
inputs to the model.  Generally, assets and liabilities carried at
fair value and included in this category are certain derivatives.





The
adoption of SFAS No. 157 did not have a material impact on the Company’s
consolidated financial statements.





In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in net income. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The adoption of the standard did not have a material impact on the Company’s
consolidated financial position and results of operations since the Company did
not elect the fair value option for financial assets and
liabilities.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”). SFAS 141(R) established principles and
requirements for how an acquiring company recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquired company and the goodwill acquired.
SFAS 141(R) also established disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141R is
effective for fiscal periods beginning after December 15, 2008. The adoption of
SFAS 141(R) did not have a material impact on the Company’s consolidated
financial statements.





On April
1, 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies”
This FSP amends and clarifies FASB Statement No. 141 (revised 2007), “Business
Combinations” , to
address application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. FSP No. FAS 141(R)-1 shall be effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The
adoption of SFAS 141(R)-1 did not have a material impact on the Company’s
consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of Accounting Research Bulletin
No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting
standards of ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent's ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 is effective for fiscal periods
beginning after December 15, 2008. The adoption of SFAS No. 160 did not have a
material impact on the Company’s consolidated financial statements.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities—an amendment of SFAS No. 133 ” (“SFAS No. 161”). SFAS No.
161 changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedge items
affect an entity’s financial position, financial performance, and cash flows.
SFAS No. 161 is effective for fiscal years beginning after November 15, 2008.
The adoption of SFAS No. 161 did not have a material impact on the Company’s
consolidated financial statements.





7


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




In
November 2008, the FASB ratified the Emerging Issues Task Force ("EITF") Issue
No. 08-6, "Equity Method Investment Accounting Considerations."  EITF
08-6 applies to all investments accounted for under the equity
method.  It states that an entity shall measure its equity investment
initially at cost.  Contingent consideration should only be included
in the initial measurement of the equity method investment if it is required to
be recognized by specific authoritative guidance other than SFAS
141(R).  However, if any equity method investment agreement involves a
contingent consideration arrangement in which the fair value of the investor's
share of the investee's net assets exceeds the investor's initial cost, a
liability should be recognized.  An equity method investor is required
to recognize other-than-temporary impairments of an equity method investment and
shall account for a share issuance by an investee as if the investor had sold a
proportionate share of its investment.  Any gain or loss to the
investor resulting from an investee's share issuance shall be recognized in
earnings. EITF 08-6 shall be effective in fiscal years beginning on or after
December 15, 2008, and interim periods within those fiscal years and shall be
applied prospectively.  The adoption of EITF 08-6 did not have a
material impact on the Company’s consolidated financial statements.





7.
SHARE-BASED COMPENSATION





On
January 1, 2006, the start of the first quarter of fiscal 2006, the Company
adopted the provisions of SFAS No. 123 (revised 2004), "Share-Based Payment"
("SFAS 123R") which requires that the costs resulting from all share-based
payment transactions be recognized in the financial statements at their fair
values. The Company adopted SFAS 123R using the modified prospective application
method under which the provisions of SFAS123R apply to new awards and to awards
modified, repurchased, or cancelled after the adoption date. Additionally,
compensation cost for the portion of the awards for which the requisite
service has not been rendered that are outstanding as of the adoption date is
recognized in the consolidated statement of operations over the remaining
service period after the adoption date based on the award's
original estimate of fair value.





Because
of the Company’s net operating loss carryforwards, no tax benefits resulting
from the exercise of stock options have been recorded, thus there was no effect
on cash flows from operating or financing activities.





The
components of share-based compensation expense in the statements of operations
are as follows:





Quarters EndedApril 4, 2009
                  
                  
                  March 29,2008Stock
      options
                  
                  $
                  95,000
                  
                  
                  $
                  98,000Restricted
      stock
                  
                  
                  17,000
                  
                  
                  
                  16,000Employee
      stock purchase plan
                  
                  
                  -
                  
                  
                  
                  6,000Total
      share-based compensation
                  
                  $
                  112,000
                  
                  
                  $
                  120,000








For the
quarters ended April 4, 2009 and March 29, 2008 share-based compensation expense
related to the various stock option plans and the 2001 Employee Stock Purchase
Plan was allocated as follows:





Quarters EndedApril 4, 2009
                  
                  
                  March 29, 2008Cost
      of sales
                  
                  $
                  42,000
                  
                  
                  $
                  45,000Selling,
      general and administrative
                  
                  
                  70,000
                  
                  
                  
                  75,000Total
      share-based compensation
                  
                  $
                  112,000
                  
                  
                  $
                  120,000





The fair
value of the options granted was estimated on the date of grant using the
Black-Scholes option valuation model. There were no options granted in either of
the quarters ended April 4, 2009 or March 29, 2008.





The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility.





8


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Share-Based
Compensation Plans:





At April
4, 2009, the Company maintains share-based compensation arrangements under the
following plans: (i) 1997 Long Term Incentive Plan; (ii) 2001 Stock Option Plan;
(iii) 2006 Stock Option Plan; (iv) 2006 Key Employee Incentive Plan; and (v)
2006 Non-Employee Directors' Stock Plan (see Note 7 of Form 10-K).





The 2006
Stock Option Plan authorizes the grant of an aggregate of 500,000 shares of
common stock to employees, directors and consultants of the
Company.  Under the 2006 Stock Option Plan, the Company may grant to
eligible individuals incentive stock options, as defined in Section 422 of the
Internal Revenue Code of 1986 (the “Code”), and/or non-qualified stock options.
The purpose of the 2006 Stock Option Plan is to attract, retain and motivate
employees, compensate consultants, and to enable employees, consultants and
directors, including non-employee directors, to participate in the long-term
growth of the Company by providing for or increasing the proprietary interests
of such persons in the Company, thereby assisting the Company to achieve its
long-range goals.





At April
4, 2009, there were 293,800 options outstanding under the 2006 Stock Option Plan
of which 113,933 were exercisable. Options are granted at the closing price of
the Company’s shares on the American Stock Exchange on the date immediately
prior to grant, pursuant to the 2006 Stock Option Plan.  Options
available for grant under the 2006 Stock Option Plan were 206,200 at April 4,
2009.





At April
4, 2009, there were 126,600 options outstanding under the 1993 Stock Option
Plan, the 1997 Long Term Incentive Plan and the 2001 Stock Option Plan, of which
all were exercisable. No options are available for future grant under the 1993
Stock Option Plan, the 1997 Long Term Incentive Plan or the 2001 Stock Option
Plan.





A summary
of all stock option activity and information related to all options outstanding
for the quarter ended April 4, 2009 follows:





Weighted-
                                Average
                                Exercise
                                Price
                              
                              
                              Number
                                of
                                Shares
                              
                              
                              Average
                                Contractual
                                Term (Years)
                              
                              
                              Aggregate
                                Intrinsic
                                ValueOutstanding at January
      3, 2009
                              
                              $
                              9.12
                              
                              
                              
                              435,400Granted
                              
                              
                              -
                              
                              
                              
                              -Exercised
                              
                              
                              -
                              
                              
                              
                              -Expired
                              
                              
                              6.38
                              
                              
                              
                              (15,000
                              )Forfeited
                              
                              
                              -
                              
                              
                              
                              -Outstanding
      at April 4, 2009
                              
                              
                              9.22
                              
                              
                              
                              420,400
                              
                              
                              
                              6.3
                              
                              
                              $
                              -Exercisable
      at April 4, 2009
                              
                              $
                              9.39
                              
                              
                              
                              240,533
                              
                              
                              
                              5.3
                              
                              
                              $
                              -





There
were no options granted during the three months ended April 4, 2009 and March
29, 2008.





As of
April 4, 2009, the total future compensation cost related to nonvested stock
options and the employee stock purchase plan not yet recognized in the statement
of operations was $368,000.  Of that total, $245,000, $118,000 and
$5,000 are expected to be recognized in 2009, 2010 and 2011, respectively. There
were no options vested during the quarters ended April 4, 2009 and March 29,
2008





The 2006
Non-Employee Directors’ Stock Plan is a plan that authorizes the grant of an
aggregate of 100,000 shares of Common Stock to the non-employee directors of the
Company.  The plan authorizes each non-employee director to receive
1,500 shares of restricted stock beginning in 2006, and 1,500 shares or such
other amount as the Board of Directors may, from time to time, decide for each
year in the future following the Company’s Annual Meeting of
Stockholders.





On June
26, 2008, the Company issued a grant of 9,000 shares of restricted stock to six
of its non-employee directors.  The per-share price of the grant was
$5.15 (the closing price of the Company’s shares on The American Stock Exchange
on the date immediately prior to the grant, pursuant to the terms of the plan).
One third of such restricted stock vests on each anniversary of the grant date
over a three-year period.  Share-based compensation expense, for the
quarters ended April 4, 2009 and March 29, 2008, related to the grants of
restricted stock was approximately $17,000 and $16,000, which was based on a
straight-line amortization. Restricted shares of common stock available for
grant under the 2006 Non-Employee Directors’ Stock Plan were 71,500 at April 4,
2009.





9


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




A summary
of unvested restricted stock activity and information related to all restricted
stock outstanding follows:





Weighted-Average
                        Grant-Day Fair Value
                      
                      
                      SharesOutstanding
      at January 3, 2009
                      
                      $
                      7.36
                      
                      
                      
                      17,500Granted
                      
                      
                      -
                      
                      
                      
                      -Vested
                      
                      
                      -
                      
                      
                      
                      -Outstanding
      at April 4, 2009
                      
                      $
                      7.36
                      
                      
                      
                      17,500


As of
April 4, 2009, the total future compensation cost related to the 2006
Non-Employee Directors’ Stock Plan not yet recognized in the statement of
operations was $85,000.  Of that total, $49,000, $30,000, and $6,000
are expected to be recognized in 2009, 2010 and 2011, respectively.





The
Company elected to adopt the detailed method provided in SFAS 123(R) for
calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the
tax effects of employee stock-based compensation, and to determine the
subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of
the tax effects of employee stock-based compensation awards that are outstanding
upon adoption of SFAS 123(R).





8.
INVENTORIES





Inventories
are stated at the lower of cost or market, using the average cost method. Cost
includes materials, labor, and manufacturing overhead related to the purchase
and production of inventories.





Inventories
consist of the following:


April 4,
                    2009
                  
                  
                  January 3,
                    2009Finished
      goods
                  
                  $
                  472,448
                  
                  
                  $
                  700,174Work
      in process
                  
                  
                  2,704,100
                  
                  
                  
                  1,837,324Raw
      materials and purchased parts
                  
                  
                  2,570,089
                  
                  
                  
                  2,362,208Total
                  
                  $
                  5,746,637
                  
                  
                  $
                  4,899,706





9.
CURRENT AND LONG-TERM DEBT





The
Company was obligated under the following debt instruments at April 4, 2009 and
January 3, 2009:





April 4, 2009
                                                    
                                                    
                                                    January 3, 2009Wells
      Fargo Bank N.A.:Revolving
      line of credit, 1.00% above prime (prime having a 5% floor limit for loan
      purposes)
                                                    
                                                    $
                                                    
                                                    
                                                    
                                                    $
                                                    Equipment
      loan, due September 29, 2011, 1.00% above prime (prime having a 5% floor
      limit for loan purposes) 6.00% at April 4, 2009
                                                    
                                                    
                                                    427,083
                                                    
                                                    
                                                    
                                                    458,333Mortgage
      loan, due September 29, 2011, 1.50% above prime (prime having a 5% floor
      limit for loan purposes) or LIBOR plus 3.5%, 6.50% at April 4,
      2009
                                                    
                                                    
                                                    2,402,779
                                                    
                                                    
                                                    
                                                    2,444,4452,829,862
                                                    
                                                    
                                                    
                                                    2,902,778Less
      current portion
                                                    
                                                    
                                                    291,667
                                                    
                                                    
                                                    
                                                    291,667Long-term
      portion
                                                    
                                                    $
                                                    2,538,195
                                                    
                                                    
                                                    $
                                                    2,611,111





10


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


On
September 29, 2008, the Company entered into a credit facility with Wells Fargo
Bank, N.A. (“WFB”) (the “Wells Fargo Credit Facility”) which replaced the credit
facility with Capital One, N.A. On September 30, 2008, the Company repaid all
outstanding amounts under the credit facility with Capital One, N.A. with the
proceeds of the Wells Fargo Credit Facility.  The Wells Fargo Credit
Facility consists of a three-year $5,000,000 collateralized revolving credit
facility, a three-year $500,000 equipment term loan and a three-year $2,500,000
real estate term loan.  The revolving line of credit is subject to an
availability limit under a borrowing base calculation of 85% of eligible
domestic accounts receivable with a sublimit of $5,000,000, 75% of eligible
foreign accounts receivable with a sublimit of $800,000, and 30% of eligible
inventories with a sublimit of $400,000.  The revolving line of credit
is also subject to a minimum borrowing base availability of
$500,000.  As of April 4, 2009, the Company had a borrowing base of
approximately $3,038,000 and availability under the credit facility as of April
4, 2009 of approximately $2,538,000.The revolving line of credit expires
September 29, 2011.  The revolving line of credit bears interest at
the prime rate plus one percent, with the prime rate having a floor limit of 5%
for loan purposes.  The Company may request a LIBOR quote for an
initial minimum of $1,000,000 with subsequent requests at a minimum of
$500,000.  No more than three such requests may be active at any point
in time.  LIBOR advances bear interest at the LIBOR rate plus 3.25%
for a credit advance, or 3.50% for a term loan.   The equipment
loan is required to be repaid in equal monthly installments of $13,900 based on
a four-year amortization period.  The real estate loan is required to
be paid in equal monthly installments amortized over a 180 month time period,
with any unpaid principal and interest due and payable on the termination date
of September 29, 2011.





The Wells
Fargo Credit Facility is collateralized by substantially all of the Company’s
assets.





The
credit facility requires the Company to maintain certain financial covenants,
including a minimum debt service coverage ratio of not less than 1.1 to 1.0 and
minimum net income.  For the quarter ended April 4, 2009 and for the
quarters ending July 4, 2009 and beyond, net income is not to be less than 75%
of the Company’s projected net income or not more than 100% of the Company’s
projected net loss.  Additionally, the credit facility prohibits
incurring or contracting to incur capital expenditures exceeding $600,000 in the
year ending January 2, 2010 and $600,000 in each subsequent year.  The
Company also must also not permit the amount due from its affiliate in Costa
Rica, Multi-Mix Microtechnology S.R.L., to exceed $4,500,000 through the quarter
ended April 4, 2009, $4,750,000 through the quarter ending July 4, 2009 and
$5,000,000 through the quarter ending October 3, 2009 and each fiscal quarter
thereafter.  The credit agreement contains other standard covenants
related to the Company’s operations, including prohibitions on the creation of
additional liens, the incurrence of additional debt, the payment of dividends,
the sale of certain assets and other corporate transactions, without Wells
Fargo’s consent.  The Company was in compliance with all of its
financial covenants as of April 4, 2009.





At April
4, 2009 and January 3, 2009, the fair value of the Company's debt approximates
carrying value. The fair value of the Company's long-term debt is estimated
based on current interest rates.





10.
WARRANTIES





The
Company's standard catalog items, as well as products sold under contracts, have
warranty obligations. With the exception of a very limited number of contracts,
all of the Company’s products have a one-year warranty.  For items
sold with extended warranties, estimated warranty costs for each contract are
determined based on the contract terms and technology-specific issues. The
Company accrues estimated warranty costs at the time of sale and any additional
amounts are recorded when such costs are probable and can be reasonably
estimated. Warranty expense was approximately $13,000 and  $50,000 for
the quarters ended April 4, 2009 and March 29, 2008,
respectively.  The warranty reserve was $180,000 and $200,000 at April
4, 2009 and January 3, 2009, respectively.





11.
INCOME TAXES





As of
April 4, 2009, the Company has deferred tax assets of approximately $1.5 million
related to net operating loss carryforwards, tax credit carryforwards and
deductible temporary differences, which should reduce taxable income in future
periods. A valuation allowance is required when management assesses that it is
more likely than not that all or a portion of a deferred tax asset will not be
realized. The Company's 2002, 2003, 2006 and 2007 net losses have weighed
heavily in the Company's overall assessments. The Company established a full
valuation allowance for its remaining U.S. net deferred tax assets as a result
of its assessment at December 28, 2002. This assessment continued unchanged from
2003 through the first quarter of 2009. The Company’s projected taxable income
for fiscal year 2009 exceeds the Company’s net operating loss carryforwards,
accordingly, the tax provision for the quarter ended April 4, 2009 is based on
the taxable income not covered by the Company's net operating loss
carryforwards.





Internal
Revenue Service Code Section 382 places a limitation on the utilization of net
operating loss carryforwards when an ownership change, as defined in the tax
law, occurs.  Generally, an ownership change occurs when there is a
greater than 50 percent change in ownership.  If such a change should
occur, the actual utilization of net operating loss carryforwards, for tax
purposes, would be limited annually to a percentage of the fair market value of
the Company at the time of such change.  The Company may become
subject to these limitations in 2009 depending on the extent of the changes in
its ownership.





11


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


On
December 31, 2006, the Company adopted FIN 48, which clarifies the accounting
for uncertainty in tax positions.  As of that date the Company had no
uncertain tax positions and did not record any additional benefits or
liabilities.  At April 4, 2009 and January 3, 2009, the Company had no
uncertain tax positions and did not record any additional benefits or
liabilities.  The Company will recognize any accrued interest or
penalties related to unrecognized tax benefits within the provision for income
taxes.





12.
BUSINESS SEGMENT DATA





The
Company's continuing operations are conducted primarily through one business
segment, electronic components and subsystems. This segment involves the design,
manufacture and sale of electronic component devices offering extremely broad
frequency coverage and high performance characteristics for communications,
defense and aerospace applications. Of the identifiable assets, 83% are located
in the United States and 17% are located in Costa Rica.





13. NET
INCOME (LOSS) PER COMMON SHARE





Basic net
income (loss) per common share is calculated by dividing net income (loss) by
the weighted average number of common shares outstanding during the
period.





The
calculation of diluted net income (loss) per common share is similar to that of
basic net income (loss) per common share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, principally those
issuable under stock options, were issued during the reporting period to the
extent they are not anti-dilutive, using the treasury stock method.





Because
of the net loss for the quarter ended March 29, 2008 approximately 508,000
shares underlying stock options were excluded from the calculation of diluted
net income (loss) per share as the effect would be anti-dilutive. For the
quarter ended April 4, 2009, 420,400 shares underlying options were excluded
from the calculation of diluted net income per share because the options did not
have any intrinsic value.





The
weighted average number of shares outstanding basic and diluted is as follows
for the quarters ended April 4, 2009 and March 29, 2008:





Quarters EndedApril 4,
                          2009
                        
                        
                        March 29,
                          2007Weighted
      average number of shares outstanding - basic
                        
                        
                        2,952,324
                        
                        
                        
                        2,932,521Dilutive
      effect of options and restricted stock
                        
                        
                        17,500
                        
                        
                        
                        –Weighted
      average number of shares outstanding - diluted
                        
                        
                        2,969,824
                        
                        
                        
                        2,932,521





14.
RELATED PARTY TRANSACTIONS





During
the first quarter of 2009, the Company's outside general counsel Katten Muchin
Rosenman LLP was paid $98,000 for providing legal services to the Company.
During the first quarter of 2008, Katten Muchin Rosenman LLP was paid $73,000. A
director of the Company is counsel to Katten Muchin Rosenman LLP but does not
share in the fees that the Company pays to such law firm and his compensation is
not based on such fees.





During
2009 and 2008, the Company retained Career Consultants, Inc. and SK Associates
to perform executive searches and to provide other services to the Company. The
Company paid an aggregate of $10,000 and $1,000 to these companies during the
first quarters of 2009 and 2008, respectively.  A director of the
Company is the chairman and chief executive officer of these
companies.





During
each of the first quarters of 2009 and 2008, a director of the Company was paid
$9,000 for providing technology-related consulting services to the
Company.





The
Company has an agreement with DuPont Electronic Technologies (“DuPont”), a
stockholder and the employer of a director, for providing technological and
marketing-related personnel and services on a cost-sharing basis to the Company
under the Technology Agreement dated February 28, 2002. No payments were made to
DuPont during the first quarters of 2009 and 2008. A director of the Company is
an officer of DuPont, but does not share in any of these payments.





12


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Each
director who is not an employee of the Company receives a monthly director's fee
of $1,500, plus an additional $500 for each meeting of the Board and of any
Committees of the Board attended. In addition, the Chair of the Audit Committee
receives an annual fee of $2,500 for his services in such
capacity.  The directors are also reimbursed for reasonable travel
expenses incurred in attending Board and Committee meetings. In addition,
pursuant to the 2006 Stock Option Plan, each non-employee director is granted an
option to purchase 2,500 shares of the Common Stock of the Company on the date
of each Annual Meeting of Stockholders. Such options have a three-year vesting
period.  Each such grant has an exercise price equal to the fair
market value on the date of such grant and will expire on the tenth anniversary
of the date of the grant. Pursuant to the 2006 Non-Employee Directors’ Stock
Plan, each non-employee director is granted 1,500 shares of restricted Common
Stock of the Company on the date of each Annual Meeting of Stockholders. One
third of such restricted stock vests on the anniversary of the grant date over a
three-year vesting period.





DuPont
and two entities affiliated with Ludwig Kutner, one of our directors, hold
registration rights, which currently give them the right in perpetuity to
register an aggregate of 1,003,413 shares of Common Stock of the Company. There
are no settlement alternatives and the registration of the shares of Common
Stock would be on a "best efforts" basis.





15.             STOCKHOLDER
RIGHTS PLAN





On March
5, 1999, the Board of Directors of the Company approved a stockholder rights
plan and declared a dividend of one common share purchase right (a "Right") for
each outstanding share of Common Stock of the Company. The dividend was payable
on March 19, 1999 (the "Record Date") to stockholders of record as of the close
of business on that date. Each Right will entitle the holder to purchase from
the Company, upon the occurrence of certain events, one share of Common Stock
for $25.00.





Generally,
if any person or group acquires beneficial ownership of 12.5% or more of the
Company's outstanding Common Stock, each Right (other than Rights held by such
acquiring person or group) will be exercisable, at the $25.00 purchase price,
for a number of shares of Common Stock having a market value of $50.00. Upon an
acquisition of the Company, each Right (other than Rights held by the acquiror)
will generally be exercisable, at the $25.00 purchase price, for a number of
shares of common stock of the acquiror having a market value of $50.00. In
certain circumstances, each Right may be exchanged by the Company for one share
of Common Stock. On March 19, 2009 the plan was amended to extend the expiration
date, from March 19, 2009 to December 31, 2009 unless earlier exchanged or
redeemed at $0.01 per Right.





16.  LEGAL
PROCEEDINGS





On March
10, 2008, a statement of claim in Ontario Superior Court of Justice was filed by
nineteen former FMI employees against the Company, FMI and FTG seeking damages
for wrongful dismissal for approximately $1,000,000 (Canadian $977,000)
following the sale of FMI’s assets to FTG. The former FMI employees are alleging
that an employment contract existed between FMI and the plaintiffs and are
seeking additional damages for termination of the alleged
contract.  The Company has an Employment Practices Liability insurance
policy that extends coverage to the Company’s subsidiaries.  The
insurance carrier agreed to provide a defense in this matter on April 24, 2008
and they retained Canadian counsel to defend this claim.  Thus far the
Company has paid fees and legal costs of $25,000 related to the matter, which is
the deductible amount of the insurance policy. In accordance with the
requirements of SFAS No. 5, after discussions with counsel, the Company believes
an unfavorable outcome is probable and management estimates the amount of the
probable loss to be $50,000 for which a provision was made as of the end of
fiscal year 2008. The Company and their insurance carrier intend to defend these
claims vigorously.


13




ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 FORWARD-LOOKING
STATEMENTS
 This
Quarterly Report on Form 10-Q contains statements relating to future results of
Merrimac (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995.   In this report, the words “we”, “us” and
“our” refer to Merrimac and its subsidiaries.  Actual results may
differ materially from those projected as a result of certain risks and
uncertainties. These risks and uncertainties include, but are not limited to:
risks associated with demand for and market acceptance of existing and newly
developed products as to which the Company has made significant investments,
particularly its Multi-Mix® products; risks associated with adequate capacity to
obtain raw materials and reduced control over delivery schedules and costs due
to reliance on sole source or limited suppliers; slower than anticipated
penetration into the satellite communications, defense and wireless markets;
failure of our Original Equipment Manufacturer or OEM customers to successfully
incorporate our products into their systems; changes in product mix resulting in
unexpected engineering and research and development costs; delays and increased
costs in product development, engineering and production; reliance on a small
number of significant customers; the emergence of new or stronger competitors as
a result of consolidation movements in the market; the timing and market
acceptance of our or our OEM customers' new or enhanced products; general
economic and industry conditions; the ability to protect proprietary information
and technology; competitive products and pricing pressures; our ability and the
ability of our OEM customers to keep pace with the rapid technological changes
and short product life cycles in our industry and gain market acceptance for new
products and technologies; risks relating to governmental regulatory actions in
communications and defense programs; and inventory risks due to technological
innovation and product obsolescence, as well as other risks and uncertainties as
are detailed from time to time in the Company's Securities and Exchange
Commission filings. The words “believe,” “expect,” “plan,” “anticipate,” and
“intend” and similar expressions identify forward-looking statements. These
forward-looking statements are made only as of the date of the filing of this
Form 10-Q, and the Company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
  OVERVIEW
 
 Continuing
operations.
  Merrimac
Industries, Inc. was originally incorporated as Merrimac Research and
Development, a New York corporation, in 1954. In 1994 we were reincorporated as
a New Jersey corporation and subsequently reincorporated as a Delaware
corporation in 2001.
  We
design, manufacture and sell electronic components, integrated circuits and
subsystems offering extremely broad frequency coverage, high performance
characteristics and extraordinary thermal management. Our operations are
conducted through two operating facilities located in West Caldwell, New Jersey
and San Jose, Costa Rica.
  We are a
versatile technology company specializing in radio frequency and microwave
applications solutions. We specialize in Multi-Mix®, stripline, microstrip,
discreet element, bonded stripline and thick metal-backed Teflon® and mixed
dielectric multilayer circuit technologies for defense, aerospace and commercial
applications.  Of special significance has been the combination of two
or more of these technologies into single components and integrated
multifunction subassemblies to achieve a unique and proprietary solution
offering superior performance and reliability while minimizing package size and
weight. Our components and integrated assemblies are found in applications as
diverse as satellites, military and commercial aircraft, radar, radio systems,
medical diagnostic instruments communications systems and wireless connectivity.
We maintain ISO 9001:2000 and AS 9100 registered quality assurance programs. Our
components range in price from $0.50 to more than $10,000 and our subsystems
range from $500 to more than $1,500,000.
  Strategically,
we position our marketing, research and development, and manufacturing
operations to develop new products and expand our existing markets. Our research
and development efforts, driven by our marketing strategy, are targeted at
providing customers with more complex, reliable, and compact products
competitively priced.
  Our
Multi-Mix® product development is focused on the military and space market
segments.  While we will carefully monitor and be alert to commercial
opportunities for our Multi-Mix® technology, where the customer is willing to
compensate us for our design work, we will limit the speculative funding of this
commercial segment.  The self-funded investment that we have
previously made has created a library of pre-engineered designs, especially in
RF Module Amplifiers, which provide platform families for both commercial and
military final customization.
  We market
and sell our products domestically and internationally through a direct sales
force as well as independent domestic and international sales
organizations.  We   develop and offer for sale products
built to specific customer specifications, as well as standard catalog
items.
 
 We had a
strong backlog at the end of 2007 and a high volume of orders throughout 2008,
which resulted in a significant increase in sales in 2008 of 33.5%. The higher
sales volume in 2008 generated a 25.9% improvement in gross profit, which
combined with reductions in our research and development costs and our efforts
to keep selling, general and administrative expenses from growing relative to
sales, restored us to profitability in fiscal year 2008. We continue to have a
strong backlog and a high volume of orders in 2009 and expect an increase in
sales in 2009 over 2008. Due to the expected sales increase and our efforts to
keep overall costs down we anticipate that we will remain profitable in
2009.
 
 14




Our cost
of sales consists of materials, salaries and related expenses, and outside
services for manufacturing and certain engineering personnel and manufacturing
overhead. Our products are designed and manufactured in our facilities located
in West Caldwell, NJ and Costa Rica. Our manufacturing and production facilities
infrastructure overhead are relatively fixed and are based on our expectations
of future net revenues. Should we experience a reduction in net revenues in a
quarter, we could have difficulty adjusting short-term expenditures and
absorbing any excess capacity expenses. If this were to occur, our operating
results for that quarter would be negatively impacted. In order to remain
competitive, we must continually reduce our manufacturing costs through design
and engineering innovations and increases in manufacturing efficiencies. There
can be no assurance that we will be able to reduce our manufacturing
costs.





We
anticipate that depreciation and amortization expenses will exceed capital
expenditures in fiscal year 2009 by approximately $1,900,000. We intend to issue
commitments to purchase approximately $500,000 of capital equipment from various
vendors for the remainder of 2009 and we anticipate that such equipment will be
purchased and become operational during the remainder of 2009.  Our planned
equipment purchases and other commitments are expected to be funded through cash
resources and cash flows expected to be generated from operations, and
supplemented by our $5,000,000 revolving credit facility with Wells
Fargo.





Selling,
general and administrative expenses consist of personnel costs for
administrative, selling and marketing groups, sales commissions to employees and
manufacturing representatives, travel, product marketing and promotion costs, as
well as legal, accounting, information technology and other administrative
costs. In 2009 we may need to increase our expenditures for selling, general and
administrative expenses, especially in connection with implementation of our
strategic plan for generating and expanding sales of Multi-Mix®
products.





Research
and development expenses consist of materials, salaries and related expenses of
certain engineering personnel, and outside services related to product
development projects. We charge all research and development expenses to
operations as incurred. We believe that continued investment in research and
development is critical to our long-term business success.  We intend
to continue to invest in research and development programs in future periods
focusing our efforts on Multi-Mix® process enhancements for military and space
market applications.  However, overall we expect to reduce our
research and development expenditures in fiscal 2009 as a result of limiting our
investment in speculative funding of the commercial segment.





We
anticipate 2009 orders from our defense and satellite customers will increase
compared to fiscal year 2008 levels. Nevertheless, in times of armed conflict or
war, military spending is concentrated on armaments build up, maintenance and
troop support, and not on the research and development and specialty
applications that are the Company’s core strengths and revenue
generators.





Discontinued
operations.





Filtran
Microcircuits Inc. (“FMI”) was established in 1983, and we acquired FMI in
February 1999. FMI is a manufacturer of microwave micro-circuitry for the high
frequency communications industry. FMI has been engaged in the production of
microstrip, bonded stripline, and thick metal-backed Teflon® (PTFE)
microcircuits for RF applications including satellite, aerospace, PCS, fiber
optic telecommunications, automotive, navigational and defense applications
worldwide. FMI has supplied mixed dielectric multilayer and high speed
interconnect circuitry to meet customer demand for high performance and
cost-effective packaging.





Our
management determined, and the Board of Directors approved on August 9, 2007,
that we should divest our FMI operations with the view to enable us to
concentrate our resources on RF Microwave and Multi-Mix® Microtechnology product
lines to generate sustainable, profitable growth. Beginning with the third
quarter of 2007, we reflected FMI as a discontinued operation and we
reclassified prior financial statements to reflect the results of operations,
financial position and cash flows of FMI as discontinued
operations.





On
December 28, 2007, we sold substantially all of the assets of FMI to Firan
Technology Group Corporation, a manufacturer of high technology/high reliability
printed circuit boards that has operations in Toronto, Ontario, Canada and
Chatsworth, California. The transaction was effected pursuant to an asset
purchase agreement entered into between Merrimac, FMI and FTG. The total
consideration payable by FTG was $1,482,000 (Canadian $1,450,000) plus the
assumption of certain liabilities of approximately $368,000 (Canadian $360,000).
FTG paid $818,000 (Canadian $800,000) of the purchase price at the closing on
December 28, 2007 and the balance was paid on February 21, 2008 following the
conclusion of a transitional period.





There was
no impact of FMI, which was formerly represented as our microwave
micro-circuitry segment, on the consolidated financial statements for the
quarters ended April 4, 2009 and March 29, 2008.


15





CRITICAL
ACCOUNTING ESTIMATES AND POLICIES





Our
management makes certain assumptions and estimates that impact the reported
amounts of assets, liabilities and stockholders' equity, and sales and expenses.
These assumptions and estimates are inherently uncertain. The management
judgments that are currently the most critical are related to the accounting for
our investments in Multi-Mix® Microtechnology, contract revenue recognition,
inventory valuation and valuation of deferred tax assets. Below is a further
description of these policies as well as the estimates involved.





Contract
Revenue Recognition





We derive
our revenues from sales of the following: customized products, which include
amounts billable for non-recurring engineering services and in some instances
the production and delivery of prototypes, and the subsequent production and
delivery of units under short-term, firm-fixed price contracts; the design,
documentation, production and delivery of a series of complex components under
long-term firm-fixed price contracts; and the delivery of off-the-shelf standard
products.





We
account for all contracts, except those for the sale of off-the-shelf standard
products, in accordance with AICPA Statement of Position No. 81-1, “Accounting
for Performance of Construction-Type and Certain Production-Type Contracts”
(“SOP 81-1”).





We
recognize all amounts billable under short-term contracts, including those
involving non-recurring engineering (“NRE”) services for customization of
products, in net sales and all related costs in cost of sales under the
completed-contract method when the customized units are delivered. We
periodically enter into contracts with customers for the development and
delivery of a prototype prior to the shipment of units. Under those
circumstances, we recognize all amounts billable for NRE services in net sales
and all related costs in cost of sales when the prototype is delivered and
recognizes all of the remaining amounts billable and the related costs when the
units are delivered.





Periodically,
we have complex, long-term contracts for the engineering design, development and
production of space electronics products for which revenue is recognized under
the percentage-of-completion method. Sales and related contract costs for design
and documentation services under this type of contract are recognized based on
the cost-to-cost method. Sales and related contract costs for products delivered
under these contracts are recognized on the units-of-delivery method. We have
one contract, which is primarily related to the design and development (and to a
lesser extent, the production of space electronics) for which revenue under the
entire contract is recognized under the percentage-of-completion method using
the cost-to-cost method. For such contract, we recognized revenues, costs and
estimated earnings in excess of billings of approximately $2,586,600 at April 4,
2009.





Pursuant
to SOP 81-1, anticipated losses on all contracts are charged to operations in
the period when the losses become known.





Sales of
off-the-shelf standard products and related costs of sales are recorded when
title transfers to our customer, which is generally on the date of shipment,
provided persuasive evidence of an arrangement exists, the sales price is fixed
or determinable and collection of the related receivable is
probable.





Inventory
Valuation





Inventories
are valued at the lower of average cost or market. Inventories are periodically
reviewed for their projected manufacturing usage utilization and, when
slow-moving or obsolete inventories are identified, they are charged to
operations.





Procurement
of inventories is based on specific customer orders and forecasts. Customers
have certain rights of modification with respect to these orders and forecasts.
As a result, customer modifications to orders and forecasts affecting
inventories previously procured by us and our purchases of inventories beyond
customer needs may result in excess and obsolete inventories for the related
customers. Although we may be able to use some of these excess components and
raw materials in other products we manufacture, a portion of the cost of this
excess inventories may not be recoverable from customers, nor may any excess
quantities be returned to the vendors. We also may not be able to recover the
cost of obsolete inventories from vendors or customers.





Write
offs or write downs of inventories generally arise from:





·
              declines
      in the market value of inventories;
 ·
              changes
      in customer demand for inventories, such as cancellation of orders;
      and


·
            our
      purchases of inventories beyond customer needs that result in excess
      quantities on hand and that we are not able to return to the vendor or
      charge back to the customer.


16





Valuation
of Deferred Tax Assets





As of
April 4, 2009, we have significant deferred tax assets resulting from net
operating loss carryforwards, tax credit carryforwards and deductible temporary
differences, which should reduce taxable income in future periods. A valuation
allowance is required when management assesses that it is more likely than not
that all or a portion of a deferred tax asset will not be realized. The
Company's 2002, 2003, 2006 and 2007 net losses have weighed heavily in the
Company's overall assessments. The Company established a full valuation
allowance for our remaining U.S. net deferred tax assets as a result of our
assessment at December 28, 2002. This assessment continued unchanged from 2003
through the first quarter of 2009.





CONSOLIDATED
STATEMENTS OF OPERATIONS SUMMARY


(UNAUDITED)


Percentage of Net Sales
                                          Quarters
      EndedApril
      4,
                                          2009
                                        
                                        
                                        March
      29,
                                          2008
                                          (Restated)Net
      sales
                                        
                                        
                                        100.0
                                        %
                                        
                                        
                                        100.0
                                        %Costs
      and expenses:Cost
      of sales
                                        
                                        
                                        55.5
                                        
                                        
                                        
                                        68.5Selling,
      general and administrative
                                        
                                        
                                        31.0
                                        
                                        
                                        
                                        39.0Research
      and development
                                        
                                        
                                        0.8
                                        
                                        
                                        
                                        6.587.3
                                        
                                        
                                        
                                        114.0Operating
      income (loss)
                                        
                                        
                                        12.7
                                        
                                        
                                        
                                        (14.0
                                        )Interest
      and other expense, net
                                        
                                        
                                        (0.9
                                        )
                                        
                                        
                                        (1.0
                                        )Income
      (loss) before income taxes
                                        
                                        
                                        11.8
                                        
                                        
                                        
                                        (15.0
                                        )Provision
      for income taxes
                                        
                                        
                                        (0.5
                                        )
                                        
                                        
                                        –Net
      income (loss)
                                        
                                        
                                        11.3
                                        %
                                        
                                        
                                        (15.0
                                        )%





FIRST
QUARTER OF 2009 COMPARED TO THE FIRST QUARTER OF 2008





Net sales.





Net sales
for the first quarter of 2009 increased $1,849,000 or 32.1% to $7,607,000, from
the first quarter of 2008 net sales of $5,758,000. Net sales increased due to
the higher level of orders received during 2008 resulting in a larger backlog of
orders to fulfill in the first quarter of fiscal year 2009 including increased
sales of Multi-Mix® products to defense industry related customers.





Backlog
represents the amount of orders we have received that have not been shipped as
of the end of a particular fiscal period.  The orders in backlog are a
measure of future sales and determine our upcoming material, labor and service
requirements.  The book-to-bill ratio for a particular period
represents orders received for that period divided by net sales for the same
period.  We look for this ratio to exceed 1.0, indicating the backlog
is being replenished by new orders at a higher rate than the sales being removed
from the backlog.





The
following table presents key performance measures that we use to monitor our
operating results for the quarters ended April 4, 2009 and March 29,
2008:





Quarters
      EndedApril
      4, 2009
                            
                            
                            March
      29,2008Beginning
      backlog
                            
                            $
                            20,967,000
                            
                            
                            $
                            17,991,000Plus
      orders
                            
                            
                            7,533,000
                            
                            
                            
                            8,155,000Less
      net sales
                            
                            
                            (7,607,000
                            )
                            
                            
                            (5,758,000
                            )Ending
      backlog
                            
                            $
                            20,893,000
                            
                            
                            $
                            20,388,000Book-to-bill
      ratio
                            
                            
                            .99
                            
                            
                            
                            1.42





Orders of
$7,533,000 were received during the first quarter of 2009, a decrease of 622,000
or 7.6% compared to $8,155,000 in orders received during the first quarter of
2008. Backlog increased by $505,000 or 2.5% to $20,893,000 at the end of
the first quarter of 2009 compared to $20,388,000 at the end of the first
quarter of 2008. The book-to-bill ratio for the first quarter of 2009 was .99 to
1 and for the first quarter of 2008 was 1.42 to 1. Our book-to-bill ratio
was lower in the first quarter of 2009 compared to 2008 primarily due to the
high sales volume in the first quarter of 2009 and although orders received were
lower in the first quarter of 2009 compared to 2008, we continue to receive a
consistently high level of orders that are in line with our projections and
expectations.


17





The
backlog of unfilled orders includes amounts based on signed contracts as well as
agreed letters of intent, which we have determined are legally binding and
likely to proceed.  Although backlog represents only business that is
considered likely to be performed, cancellations or scope adjustments may and do
occur.  The elapsed time from the award of a contract to completion of
performance may be up to approximately four years.  The dollar amount
of backlog is not necessarily indicative of our future earnings related to the
performance of such work due to factors outside our control, such as changes in
project schedules, scope adjustment or project cancellations.  We
cannot predict with certainty the portion of backlog to be performed in a given
year.  Backlog is adjusted quarterly to reflect project cancellations,
deferrals, revised project scope and cost, and sales of subsidiaries, if
any.





Cost of sales and gross
profit.





The
following table provides comparative gross profit information between the
quarters ended April 4, 2009 and March 29, 2008.








Quarter
      ended April 4, 2009
                    
                    
                    Quarter
      ended March 29, 2008 (Restated)$
                    
                    
                    Increase/
                      (Decrease)
                      from
      prior
                      period
                    
                    
                    %
      of
                      Net
      Sales
                    
                    
                    
                    $
                    
                    
                    Increase/
                      (Decrease)
                      from
      prior
                      period
                    
                    
                    %
      of
                      Net
      SalesConsolidated
      gross profit
                    
                    $
                    3,382,000
                    
                    
                    $
                    1,569,000
                    
                    
                    
                    44.5
                    %
                    
                    $
                    1,813,000
                    
                    
                    $
                    210,000
                    
                    
                    
                    31.5
                    %





The
increase in consolidated gross profit in the first quarter of 2009 compared to
2008 was primarily due to the increase in sales.  The improved gross
profit percentage was due to a return to standard pricing levels compared to the
aggressive low pricing strategy that was in place at the end of 2007 and in the
first quarter of 2008.  Additionally, the gross profit percentage
improved in the first quarter of 2009 due to the impact of the higher level of
sales allowing us to better absorb fixed manufacturing costs.





Depreciation
expense included in consolidated cost of sales for the first quarter of 2009 was
$622,000, an increase of $50,000 compared to the first quarter of
2008.





Selling, general and administrative
expenses.





Selling,
general and administrative expenses were $2,358,000 for the first quarter of
2009, an increase of $114,000 or 5.1%, compared to the first quarter of
2008.  When expressed as a percentage of net sales, selling, general
and administrative expenses decreased from 39.0% of sales in 2008 to 31.0% of
sales in 2009. The increase in such expenses for the first quarter of 2009 was
due to higher commissions related to the higher sales volume and higher
professional fees, that were somewhat offset by a decrease in marketing
expense.





Research and development
expenses.





Research
and development costs decreased $314,000 to $59,000 in the first quarter of 2009
compared to $373,000 in the first quarter of 2008.  The decrease
reflects our decision to focus our research and development efforts on military
and space applications and reduce our investment in speculative commercial
applications. Substantially all of the research and development expenses were
related to Multi-Mix® Microtechnology products.





Operating
income (loss).





Operating
income for the first quarter of 2009 was $965,000, compared to an operating loss
of $804,000 for the first quarter of 2008. The improvement in operating income
for the first quarter was primarily due to the improved gross profit resulting
from increased sales and the decrease in research and development costs compared
to the first quarter of 2008.





Interest and other expense,
net.





Interest
and other expense, net was $65,000 for the first quarter of 2009 compared to
interest and other expense, net of $61,000 for the first quarter of 2008. The
interest expense was principally incurred on borrowings under the term loans
which were financed by Wells Fargo in the first quarter of 2009 and Capital One
in the first quarter of 2008.


18





Income taxes.





Income
tax expense was $43,000 in the first quarter of 2009 compared to $0 in the first
quarter of 2008.





As of
April 4, 2009, we had deferred tax assets of approximately $1.5 million related
to net operating loss carryforwards, tax credit carryforwards and deductible
temporary differences, which should reduce taxable income in future periods. A
valuation allowance is required when management assesses that it is more likely
than not that all or a portion of a deferred tax asset will not be realized. Our
2002, 2003, 2006 and 2007 net losses have weighed heavily in our overall
assessments. We established a full valuation allowance for our remaining U.S.
net deferred tax assets as a result of our assessment at December 28, 2002. This
assessment continued unchanged from 2003 through the first three months of
2009.





On
December 31, 2006, we adopted FIN 48, which clarifies the accounting for
uncertainty in tax positions.  As of that date we had no uncertain tax
positions and did not record any additional benefits or
liabilities.  At April 4, 2009 and March 29, 2008, we had no uncertain
tax positions and did not record any additional benefits or
liabilities.  We will recognize any accrued interest or penalties
related to unrecognized tax benefits within the provision for income
taxes.





Internal
Revenue Service Code Section 382 places a limitation on the utilization of net
operating loss carryforwards when an ownership change, as defined in the tax
law, occurs.  Generally, an ownership change occurs when there is a
greater than 50 percent change in ownership.  If such a change should
occur, the actual utilization of net operating loss carryforwards, for tax
purposes, would be limited annually to a percentage of our fair market value at
the time of such change.  We may become subject to these limitations
in 2009 depending on the extent of the changes in our ownership.





Discontinued
operations.





Although
there were losses from discontinued operations in later quarters of 2008 and
there may be some costs later in the year of 2009 that pertain to discontinued
operations, there was no income or loss from discontinued operations in the
first quarter of 2009 or 2008.  Accordingly the loss from discontinued
operations for the first quarter of 2009 and 2008 was $0.0 per
share.





Net
income (loss).





For the
reasons set forth above, net income for the first quarter of 2009 was $856,000
compared to a net loss of $865,000 for the first quarter of 2008. Net income for
the first quarter of 2009 was $0.29 per share compared to a net loss of $0.29
per share for the first quarter of 2008.





LIQUIDITY
AND CAPITAL RESOURCES





We had
liquid resources comprised of cash and cash equivalents totaling approximately
$2,426,000 at the end of the first quarter of 2009 compared to approximately
$1,192,000 at the end of the first quarter of 2008. The cash position increased
primarily as a result of our operating income during the last three quarters.
Our working capital was approximately $12,600,000 and our current ratio was 4.5
to 1 at the end of the first quarter of 2009 compared to $11,100,000 and 4.5 to
1, respectively, at the end of 2008.  At April 4, 2009, we had
available borrowing capacity under our revolving line of credit of
$2,538,000.





Our
operating activities provided cash flows of $1,410,000 during the first quarter
of 2009 compared to a use of $1,627,000 of operating cash flows during the first
quarter of 2008. The cash provided by operating activities in the first quarter
of 2009 was mainly due to the net income of $856,000, depreciation and
amortization of $651,000, collection of accounts receivable of $873,000 and an
increase in customer deposits of $459,000.  These were somewhat offset
by an increase in inventories of $847,000 and increase in costs and estimated
earnings in excess of billing of $706,000. The primary uses of operating
cash flows from for the first quarter of 2008 were the net loss of $865,000
which was reduced by depreciation and amortization of $618,000 and share-based
compensation of $120,000, an increase in accounts receivable of $497,000 as a
result of the higher first quarter sales level, an increase in inventories of
$542,000 to meet the production associated with the increase in backlog and an
aggregate decrease in accounts payable, customer deposits and accrued
liabilities of $488,000.





In the
first quarter of 2009 our net cash used in investing activities was $103,000
compared to the net cash provided by investing activities of $312,000 in the
first quarter of 2008.  The cash used in investing activities in the
first quarter of 2009 was attributable to the net cash investments in property,
plant and equipment of $103,000.  In 2008 the net cash provided by
investing activities was due to the cash proceeds from the sale of discontinued
operations of $664,000 which was somewhat offset by net cash investments in
property, plant and equipment of $352,000. The capital expenditures in the first
quarter of 2009 and 2008 were primarily related to new production and test
equipment.


19





Our net
cash used in financing activities was $73,000 in the first quarter of 2009
compared to $63,000 in 2008.  In 2009 the net cash used in financing
activities was due to repayment of borrowings of $73,000.  In 2008 the
net cash used in financing activities was primarily due to repayment of
borrowings of $388,000, which was largely offset by the return of restricted
cash of $250,000.





Our
planned equipment purchases and other commitments are expected to be funded
through cash resources and cash flows expected to be generated from operations,
and supplemented by our $5,000,000 revolving credit facility.





On
September 29, 2008, we entered into a credit facility with Wells Fargo Bank,
N.A. (“WFB”) (the “Wells Fargo Credit Facility”) which replaced our credit
facility with Capital One, N.A. On September 30, 2008, we repaid all outstanding
amounts under the credit facility with Capital One, N.A. with the proceeds of
the Wells Fargo Credit Facility.  The Wells Fargo Credit Facility
consists of a three-year $5,000,000 collateralized revolving credit facility, a
three-year $500,000 equipment term loan and a three-year $2,500,000 real estate
term loan.  The revolving line of credit is subject to an availability
limit under a borrowing base calculation of 85% of eligible domestic accounts
receivable with a sublimit of $5,000,000, 75% of eligible foreign accounts
receivable with a sublimit of $800,000, and 30% of eligible inventories with a
sublimit of $400,000.  The revolving line of credit is also subject to
a minimum borrowing base availability of $500,000.  As of April 4,
2009, we had a borrowing base of approximately $3,038,000 and availability under
the credit facility as of April 4, 2009 of approximately $2,538,000. The
revolving line of credit expires September 29, 2011.  The revolving
line of credit bears interest at the prime rate plus one percent, with the prime
rate having a floor limit of 5% for loan purposes.  We may request a
LIBOR quote for an initial minimum of $1,000,000 with subsequent requests at a
minimum of $500,000.  No more than three such requests may be active
at any point in time.  LIBOR advances bear interest at the LIBOR rate
plus 3.25% for a credit advance, or 3.50% for a term loan.   The
equipment loan is required to be repaid in equal monthly installments of $13,900
based on a four-year amortization.  The real estate loan is required
to be paid in equal monthly installments amortized over a 180 month time period,
with any unpaid principal and interest due and payable on the termination date
of September 29, 2011. The two term loans require mandatory prepayment
subject to a prepayment fee of 1%-2% of the outstanding balance should the
appraised value of the collateral fall below certain levels.





The
equipment term loan bears interest at the prime (with a floor of 5%) rate plus
1%.  The real estate term loan bears interest at the prime rate (with
a floor of 5%) plus 1.50% or LIBOR plus 3.50%.





The Wells
Fargo Credit Facility is collateralized by substantially all of our
assets.





The
credit facility requires us to maintain certain financial covenants, including a
minimum debt service coverage ratio of not less than 1.1 to 1.0 and minimum net
income.  For the quarter ended April 4, 2009 and for the quarters
ending July 4, 2009 and beyond, net income is not to be less than 75% of our
projected net income and not more than 100% of our projected net
loss.  Additionally, the credit facility prohibits us from incurring
or contracting to incur capital expenditures exceeding $600,000 in the year
ending January 2, 2010 and $600,000 in each subsequent year-end.  We
also must also not permit the amount due from our affiliate in Costa Rica,
Multi-Mix Microtechnology S.R.L to exceed $4,500,000 through the quarter ended
April 4, 2009, $4,750,000 through the quarter ending July 4, 2009 and $5,000,000
through the quarter ending October 3, 2009 and each fiscal quarter
thereafter.  The credit agreement contains other standard covenants
related to our operations, including prohibitions on the creation of additional
liens, the incurrence of additional debt, the payment of dividends the sale of
certain assets and other corporate transactions, without Wells Fargo’s
consent.  We were in compliance with all of our financial covenants as
of April 4, 2009.





As of
April 4, 2009, under the Wells Fargo Credit Facility, we had no amount
outstanding under the revolving credit facility, $427,083 outstanding under the
equipment term loan and $2,402,779 outstanding under the real estate term
loan.





At April
4, 2009 and January 3, 2009, the fair value of our debt approximates carrying
value. The fair value of our long-term debt is estimated based on current
interest rates.





Depreciation
and amortization expenses exceeded capital expenditures for production equipment
during the first three months of 2009 by approximately $548,000, and we
anticipate that depreciation and amortization expenses will exceed capital
expenditures in fiscal year 2009 by approximately $1,900,000. We intend to issue
commitments to purchase $500,000 of capital equipment from various vendors for
the remainder of 2009. We anticipate that such equipment will be purchased and
become operational during 2009.





RECENT
ACCOUNTING PRONOUNCEMENTS





In
October 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) FAS 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active”. The FSP clarifies the
application of Statement of Financial Accounting Standards (“SFAS”) Statement
No. 157, “Fair Value Measurements”, in a market that is not active and provides
an example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. The FSP
is effective for prior periods for which financial statements have not been
issued. We currently believe that FAS 157-3 will have no material impact on our
consolidated financial statements.


20





In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS Statement No. 142, “Goodwill and Other
Intangible Assets”. The intent of this FSP is to improve the consistency between
the useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141(R), and other accounting principles generally accepted in the
United States of America. This FSP is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of FAS 142-3 did not have a material impact on
our consolidated financial statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007 and became effective for us on January 1,
2008.





Fair
value is defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties.  A liability’s
fair value is defined as the amount that would be paid to transfer the liability
to a new obligor, not the amount that would be paid to settle the liability with
the creditor.  The FASB establishes a three-level hierarchy for fair
value measurements based upon the transparency of inputs to the valuation as of
the measurement date and expands disclosures about financial instruments
measured at fair value. Assets and liabilities recorded at fair value are
categorized based upon the level of judgment associated with the inputs used to
measure their fair value.  Hierarchical levels defined by SFAS No. 157
and directly related to the amount of subjectivity associated with the inputs to
fair valuation of these assets and liabilities are as follows:





Level
1: Inputs are unadjusted, quoted prices in active markets for identical assets
or liabilities at the measurement date.  The types of assets and
liabilities carried at this level are equities listed in active markets,
investments in publicly traded mutual funds with quoted market prices and listed
derivatives.





Level
2: Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market
data of the instrument’s anticipated life.  Fair value assets and
liabilities that are generally included in this category are municipal bonds and
certain derivatives.





Level 3:
Financial assets and financial liabilities whose values are based on prices or
valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement.  Consideration is
given to the risk inherent in the valuation method and the risk inherent in the
inputs to the model.  Generally, assets and liabilities carried at
fair value and included in this category are certain derivatives.





The
adoption of SFAS No. 157 did not have a material impact on our consolidated
financial statements.





In
February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities". SFAS No. 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in net income. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The adoption of the standard did not have a material impact on our consolidated
financial position and results of operations since we did not elect the fair
value option for financial assets and liabilities.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141(R)"). SFAS 141(R) established principles and
requirements for how an acquiring company recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquired company and the goodwill acquired.
SFAS 141(R) also established disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141R is
effective for fiscal periods beginning after December 15, 2008. The adoption of
SFAS 141R did not have a material impact on our consolidated financial
statements.





On April
1, 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from Contingencies”
This FSP amends and clarifies FASB Statement No. 141 (revised 2007), “Business
Combinations”, to
address application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. FSP No. FAS 141(R)-1 shall be effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The
adoption of FSP No. FAS 141(R)-1 did not have a material impact on our
consolidated financial statements.


21





In
December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of Accounting Research Bulletin
No. 51" ("SFAS No. 160"). SFAS No. 160 establishes accounting and reporting
standards of ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent's ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 is effective for fiscal periods
beginning after December 15, 2008. The adoption of  SFAS No. 160 did
not have a material impact on our consolidated financial
statements.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities—an amendment of SFAS No. 133 (“SFAS No. 161”). SFAS No. 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedge items
affect an entity’s financial position, financial performance, and cash flows.
The adoption of SFAS No. 161 did not have a material impact on our consolidated
financial statements.





In
November 2008, the FASB ratified the Emerging Issues Task Force ("EITF") Issue
No. 08-6, "Equity Method Investment Accounting Considerations."  EITF
08-6 applies to all investments accounted for under the equity
method.  It states that an entity shall measure its equity investment
initially at cost.  Contingent consideration should only be included
in the initial measurement of the equity method investment if it is required to
be recognized by specific authoritative guidance other than SFAS
141(R).  However, if any equity method investment agreement involves a
contingent consideration arrangement in which the fair value of the investor's
share of the investee's net assets exceeds the investor's initial cost, a
liability should be recognized.  An equity method investor is required
to recognize other-than-temporary impairments of an equity method investment and
shall account for a share issuance by an investee as if the investor had sold a
proportionate share of its investment.  Any gain or loss to the
investor resulting from an investee's share issuance shall be recognized in
earnings. EITF 08-6 shall be effective in fiscal years beginning on or after
December 15, 2008, and interim periods within those fiscal years and shall be
applied prospectively.  The provisions of EITF 08-6 will be adopted in
2009.  The adoption of EITF 08-6 did not have a material impact on our
consolidated financial statements.





ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





For
quantitative and qualitative disclosures about the market risks affecting
Merrimac, see “Quantitative and Qualitative Disclosures about Market Risk” in
Item 7A of Part II of the Company’s Annual Report on Form 10-K for the fiscal
year ended January 3, 2009, which is incorporated herein by
reference.  Our exposure to market risk has not changed materially
since January 3, 2009.





ITEM
4(T). CONTROLS AND PROCEDURES





As of
April 4, 2009, (the end of the period covered by this report), the Company's
management carried out an evaluation, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of April
4, 2009, the Company's disclosure controls and procedures were not
effective.





In
designing and evaluating the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934),
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We believe that our disclosure
controls and procedures do not provide such reasonable assurance.





A
material weakness is a control deficiency, or combination of control
deficiencies, that results in a reasonably possible likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.





Management
identified the following material weakness in its internal control over
financial reporting as of April 4, 2009:





Control
and Procedure Weaknesses





Management
identified that there was inadequate preparation and review of inventory and
other account analyses, account summaries and account reconciliations during the
financial closing and reporting process. The cause of the weaknesses is largely
due to a lack of personnel with sufficient financial reporting experience to
prepare and review the analyses and reconciliations. The control and procedure
weaknesses primarily affected the valuation of inventory at April 3,
2009.


22





Remediation





While a
material weakness existed at April 4, 2009, during the first quarter of 2009 the
Company made some key changes to improve the internal controls concerning
financial reporting.  The changes were primarily focused on improving
the procedures related to, and training of personnel responsible for, the timely
closing of manufacturing jobs in the enterprise resource planning (“ERP”)
software implemented in 2008.  Additionally, procedures were added to
ensure that job costs were properly analyzed and determined prior the closing of
the jobs and improvements were made to the monthly closing
procedures. No other
changes occurred in the Company’s internal controls concerning financial
reporting during the Company’s first quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal controls over
financial reporting. In the second quarter the Company hired an
experienced cost accountant and recently concluded the process of hiring a new
controller who is scheduled to join the Company in June
2009.  On-going analysis of procedures, key controls, related
reporting and training are continuing in the second quarter.





PART II
OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGS.





We are
party to lawsuits arising in the normal course of business. It is the opinion of
our management that the disposition of these various lawsuits will not
individually or in the aggregate have a material adverse effect on our
consolidated financial position or the results of operations.





On March
10, 2008, a statement of claim in Ontario Superior Court of Justice was filed by
nineteen former FMI employees against Merrimac, FMI and FTG seeking damages for
wrongful dismissal for approximately $1,000,000 (Canadian $977,000) following
the sale of FMI’s assets to FTG. The former FMI employees are alleging that an
employment contract existed between FMI and the plaintiffs and are seeking
additional damages for termination of the alleged contract.  We have
an Employment Practices Liability insurance policy that extends coverage to our
subsidiaries.  The insurance carrier agreed to provide a defense in
this matter on April 24, 2008 and they retained Canadian counsel to defend this
claim.  Thus far we have paid fees and legal costs of $25,000 related
to the matter which is the deductible amount of the insurance policy. In
accordance with the requirements of SFAS No. 5, after discussions with counsel,
we believe an unfavorable outcome is probable and we estimate the amount of the
probable loss to be $50,000 for which we made a provision as of the end of our
fiscal year 2008. We and our insurance carrier intend to defend these claims
vigorously.





ITEM 1A.
RISK FACTORS.





There
have been no material changes to our Risk Factors from those presented in our
Form 10-K for fiscal year 2008.





ITEM 5.
OTHER INFORMATION.





None.




ITEM 6.
EXHIBITS





Exhibits:





EXHIBIT
                      NUMBER
                    
                    DESCRIPTION OF EXHIBIT31.1+
                    
                    Chief
      Executive Officer's Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2+
                    
                    Chief
      Financial Officer's Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1+
                    
                    Chief
      Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2+
                    
                    Chief
      Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





+    Indicates
that exhibit is filed as an exhibit hereto.


23


SIGNATURES





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





MERRIMAC
      INDUSTRIES, INC.Date:
      May 19, 2009
              By:
              /s/ Mason N. CarterMason
      N. CarterChairman,
      President andChief
      Executive OfficerDate:
      May 19, 2009
              By:
              /s/ J. Robert PattersonJ.
      Robert PattersonVice
      President, Finance andChief
      Financial Officer


24