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 June 28, 2008




o  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
o




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  o
            Accelerated
                filer   oNon-accelerated
                filer    o
            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
o  No
x





As
      of
      August 11, 2008, there were 2,948,037 shares of Common Stock, par value $.01
      per
      share, outstanding.








MERRIMAC
      INDUSTRIES, INC.


41
      Fairfield Place


West
      Caldwell, NJ 07006





INDEX





PagePART
                I.
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                StatementsCondensed
                Consolidated Statements of Operations and Comprehensive Income (Loss)for
                the Quarters and Six Months Ended June 28, 2008and
                June 30, 2007 (Unaudited)
            1Condensed
                Consolidated Balance Sheets-June 28, 2008 (Unaudited) andDecember
                29, 2007
            2Condensed
                Consolidated Statement of Stockholders’ Equity for the Six
                MonthsEnded
                June 28, 2008 (Unaudited)
            3Condensed
                Consolidated Statements of Cash Flows for the Six MonthsEnded
                June 28, 2008 and June 30, 2007 (Unaudited)
            4Notes
                to Condensed Consolidated Financial Statements
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            15Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            26Item
                4.
            Controls
                and Procedures
            26PART
                II.
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            27Item
                1A.
            Risk
                Factors
            27Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            28Item
                5.
            Other
                Information
            28Item
                6.
            Exhibits
            28Signatures
            
            29










PART
      I.
      FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS





MERRIMAC
      INDUSTRIES, INC.





CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


AND
      COMPREHENSIVE INCOME (LOSS)


(UNAUDITED)





Quarters
                Ended
            
            Six
                Months EndedJune
                28,
            
            June
                30,
            
            June
                28,
            
            June
                30,2008
            
            2007
            
            2008
            
            2007CONTINUING
                OPERATIONSNet
                sales
            
            $
            7,524,203
            
            $
            5,371,471
            
            $
            13,281,889
            
            $
            9,882,917Costs
                and expenses:Cost
                of sales
            
            
            4,308,912
            
            
            3,004,761
            
            
            7,760,872
            
            
            5,818,881Selling,
                general and administrative
            
            
            2,353,395
            
            
            1,976,729
            
            
            4,597,965
            
            
            4,193,731Research
                and development
            
            
            374,581
            
            
            335,262
            
            
            747,399
            
            
            819,5077,036,888
            
            
            5,316,752
            
            
            13,106,236
            
            
            10,832,119Operating
                income (loss)
            
            
            487,315
            
            
            54,719
            
            
            175,653
            
            
            (949,202
            )Interest
                and other (expense) income, net
            
            
            (48,607
            )
            
            (4,231
            )
            
            (109,180
            )
            
            16,401Income
                (loss) from continuing operations beforeincome
                taxes
            
            
            438,708
            
            
            50,488
            
            
            66,473
            
            
            (932,801
            )Provision
                (benefit) for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Income
                (loss) from continuing operations
            
            
            438,708
            
            
            50,488
            
            
            66,473
            
            
            (932,801
            )DISCONTINUED
                OPERATIONSLoss
                from discontinued operations, afterincome
                taxes in 2007
            
            
            (55,036
            )
            
            (3,519,411
            )
            
            (55,036
            )
            
            (3,799,924
            )Net
                income (loss)
            
            $
            383,672
            
            $
            (3,468,923
            )
            $
            11,437
            
            $
            (4,732,725
            )Income
                (loss) per common share from continuingoperations-basic
            
            $
            .15
            
            $
            .02
            
            $
            .02
            
            $
            (.31
            )Loss
                per common share from discontinuedoperations-basic
            
            $
            (.02
            )
            $
            (1.21
            )
            $
            (.02
            )
            $
            (1.27
            )Net
                income (loss) per common share-basic
            
            $
            .13
            
            $
            (1.19
            )
            $
            -
            
            $
            (1.58
            )Income
                (loss) per common share from continuingoperations-diluted
            
            $
            .15
            
            $
            .02
            
            $
            .02
            
            $
            (.31
            )Loss
                per common share from discontinuedoperations-diluted
            
            $
            (.02
            )
            $
            (1.20
            )
            $
            (.02
            )
            $
            (1.27
            )Net
                income (loss) per common share-diluted
            
            $
            .13
            
            $
            (1.18
            )
            $
            -
            
            $
            (1.58
            )Weighted
                average number of sharesoutstanding-basic
            
            
            2,939,788
            
            
            2,910,711
            
            
            2,936,155
            
            
            3,003,513Weighted
                average number of sharesoutstanding-diluted
            
            
            2,945,203
            
            
            2,947,464
            
            
            2,948,287
            
            
            3,003,513COMPREHENSIVE
                INCOME (LOSS)Net
                income (loss)
            
            $
            383,672
            
            $
            (3,468,923
            )
            $
            11,437
            
            $
            (4,732,725
            )Comprehensive
                income (loss):Foreign
                currency translation adjustment
            
            
            -
            
            
            307,131
            
            
            -
            
            
            368,514Comprehensive
                income (loss)
            
            $
            383,672
            
            $
            (3,161,792
            )
            $
            11,437
            
            $
            (4,364,211
            )





See
      accompanying notes.




1




MERRIMAC
      INDUSTRIES, INC.


CONDENSED
      CONSOLIDATED BALANCE SHEETS





June 28,
              2008
            
            December 29,
              2007(UNAUDITED)
            
            (Note
                1)ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            409,374
            
            $
            2,004,471Accounts
                receivable, net
            
            
            7,609,252
            
            
            5,299,753Inventories,
                net
            
            
            6,462,065
            
            
            5,039,770Other
                current assets
            
            
            542,981
            
            
            774,007Due
                from assets sale contract
            
            
            -
            
            
            664,282Total
                current assets
            
            
            15,023,672
            
            
            13,782,283Property,
                plant and equipment
            
            
            37,949,701
            
            
            37,556,672Less
                accumulated depreciation and amortization
            
            
            27,650,605
            
            
            26,600,240Property,
                plant and equipment, net
            
            
            10,299,096
            
            
            10,956,432Restricted
                cash
            
            
            -
            
            
            250,000Other
                assets
            
            
            470,390
            
            
            531,633Deferred
                tax assets
            
            
            52,000
            
            
            52,000Total
                Assets
            
            $
            25,845,158
            
            $
            25,572,348LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Current
                portion of long-term debt
            
            $
            1,050,000
            
            $
            550,000Accounts
                payable
            
            
            1,085,015
            
            
            943,481Accrued
                liabilities
            
            
            1,645,339
            
            
            1,965,403Customer
                deposits
            
            
            483,393
            
            
            363,296Deferred
                income taxes
            
            
            52,000
            
            
            52,000Total
                current liabilities
            
            
            4,315,747
            
            
            3,874,180Long-term
                debt, net of current portion
            
            
            3,237,500
            
            
            3,762,500Deferred
                liabilities
            
            
            62,778
            
            
            61,300Total
                liabilities
            
            
            7,616,025
            
            
            7,697,980Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock, par value $.01 per share:Authorized:
                1,000,000 sharesNo
                shares issuedCommon
                stock, par value $.01 per share:20,000,000
                shares authorized; 3,310,486 and 3,289,103 shares
                issued;and
                2,947,581 and 2,926,198 shares outstanding, respectively
            
            
            33,105
            
            
            32,891Additional
                paid-in capital
            
            
            20,132,831
            
            
            19,789,717Retained
                earnings
            
            
            1,185,361
            
            
            1,173,92421,351,297
            
            
            20,996,532Less
                treasury stock, at cost - 362,905 shares at June 28, 2008 andDecember
                29, 2007
            
            
            (3,122,164
            )
            
            (3,122,164
            )Total
                stockholders' equity
            
            
            18,229,133
            
            
            17,874,368Total
                Liabilities and Stockholders' Equity
            
            $
            25,845,158
            
            $
            25,572,348





See
      accompanying notes.




2





MERRIMAC
      INDUSTRIES, INC.


CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


SIX
      MONTHS ENDED JUNE 28, 2008


(UNAUDITED)





AdditionalCommon Stock
            
            Paid-in
            
            Retained
            
            Treasury StockShares
            
            Amount
            
            Capital
            
            Earnings
            
            Shares
            
            Amount
            
            TotalBalance,
                December 29, 2007
            
            
            3,289,103
            
            $
            32,891
            
            $
            19,789,717
            
            $
            1,173,924
            
            
            362,905
            
            $
            (3,122,164
            )
            $
            17,874,368Net
                income
            
            
            
            
            
            
            
            
            
            
            
            11,437
            
            
            
            
            
            
            
            
            11,437Share-based
                compensation
            
            
            
            
            
            
            
            
            257,480
            
            
            
            
            
            
            
            
            
            
            
            257,480Stock
                Purchase Plan sales
            
            
            9,301
            
            
            93
            
            
            57,344
            
            
            
            
            
            
            
            
            
            
            
            57,437Exercise
                of stock options
            
            
            4,082
            
            
            41
            
            
            28,290
            
            
            
            
            
            
            
            
            
            
            
            28,331Vesting
                of restricted stock
            
            
            8,000
            
            
            80
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            80Balance,
                June 28, 2008
            
            
            3,310,486
            
            $
            33,105
            
            $
            20,132,831
            
            $
            1,185,361
            
            
            362,905
            
            $
            (3,122,164
            )
            $
            18,229,133





See
      accompanying notes.


3


MERRIMAC
      INDUSTRIES, INC.


CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)




Six
                Months EndedJune
                28, 2008
            
            June
                30, 2007Cash
                flows from operating activities:Net
                income (loss)
            
            $
            11,437
            
            $
            (4,732,725
            )Less,
                loss from discontinued operations
            
            
            (55,036
            )
            
            (3,799,924
            )Income
                (loss) from continuing operations
            
            
            66,473
            
            
            (932,801
            )Adjustments
                to reconcile net income (loss) from continuing operations to net
                cash
                provided by (used in) operating activities:Depreciation
                and amortization
            
            
            1,270,228
            
            
            1,157,836Amortization
                of deferred financing costs
            
            
            16,080
            
            
            14,716Share-based
                compensation
            
            
            257,560
            
            
            132,496Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (2,309,499
            )
            
            644,552Inventories
            
            
            (1,422,295
            )
            
            (825,915
            )Other
                current assets
            
            
            125,749
            
            
            187,107Other
                assets
            
            
            125,891
            
            
            (198,602
            )Accounts
                payable
            
            
            141,534
            
            
            170,648Accrued
                liabilities
            
            
            (295,515
            )
            
            9,204Customer
                deposits
            
            
            120,097
            
            
            102,000Deferred
                liabilities
            
            
            1,479
            
            
            11,730Net
                cash provided by (used in) operating activities of continuing
                operations
            
            
            (1,902,218
            )
            
            472,971Net
                cash used in operating activities of discontinued
                operations
            
            
            (55,036
            )
            
            (295,948
            )Net
                cash provided by (used in) operating activities
            
            
            (1,957,254
            )
            
            177,023Cash
                flows from investing activities:Purchases
                of capital assets
            
            
            (612,893
            )
            
            (755,796
            )Cash
                proceeds from sale of discontinued operations
            
            
            664,282
            
            
            -Net
                cash provided by (used in) investing activities of continuing
                operations
            
            
            51,389
            
            
            (755,796
            )Net
                cash used in investing activities of discontinued
                operations
            
            
            -
            
            
            (171,265
            )Net
                cash provided by (used in) investing activities
            
            
            51,389
            
            
            (927,061
            )Cash
                flows from financing activities:Repurchase
                of common stock for the treasury
            
            
            -
            
            
            (2,148,300
            )Borrowings
                under revolving credit facility
            
            
            500,000
            
            
            -Repayment
                of long-term debt
            
            
            (525,000
            )
            
            (275,000
            )Restricted
                cash returned
            
            
            250,000
            
            
            -Proceeds
                from the exercise of stock options
            
            
            28,331
            
            
            73,800Proceeds
                from Stock Purchase Plan sales
            
            
            57,437
            
            
            7,495Net
                cash provided by (used in) financing activities of continuing
                operations
            
            
            310,768
            
            
            (2,342,005
            )Net
                cash used in financing activities of discontinued
                operations
            
            
            -
            
            
            (68,496
            )Net
                cash provided by (used in) financing activities
            
            
            310,768
            
            
            (2,410,501
            )Effect
                of exchange rate changes
            
            
            -
            
            
            16,410Net
                decrease in cash and cash equivalents
            
            
            (1,595,097
            )
            
            (3,144,129
            )Cash
                and cash equivalents at beginning of period, including $0 and $562,205
                reported under assets held for sale
            
            
            2,004,471
            
            
            5,961,537Cash
                and cash equivalents at end of period including $0 and $42,905 reported
                under assets held for sale
            
            $
            409,374
            
            $
            2,817,408Supplemental
                disclosures of cash flow information:Cash
                paid during the period for-Interest
                on credit facilities
            
            $
            112,717
            
            $
            182,544




See
      accompanying notes.




4




MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      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 June 28, 2008 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.





In
      accordance with the provisions of Statement of Financial Accounting Standards
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS
      No. 144), the results of operations related to Filtran Microcircuits Inc.
      (“FMI”) for the quarterly and six months of 2007 prior periods have been
      reported as discontinued operations.





The
      condensed consolidated balance sheet at December 29, 2007 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 March 28, 2008 for the year ended December 29, 2007.





2.
      DISCONTINUED OPERATIONS





Company
      management determined, and on August 9, 2007 the Board of Directors approved,
      that the Company should divest its FMI operations. The divestiture should enable
      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 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.





Operating
      results of FMI, which were formerly represented as Merrimac’s microwave
      micro-circuitry  segment,  are
      summarized as follows:





Quarter Ended
            
            Six Months EndedJune 28, 2008
            
            June 30, 2007
            
            June 28, 2008
            
            June 30, 2007Net
                sales
            
            $
            -
            
            $
            854,000
            
            $
            -
            
            $
            1,766,000Loss
                before provision for income taxes
            
            $
            (55,000
            )
            $
            (3,013,000
            )
            $
            (55,000
            )
            $
            (3,294,000
            )Provision
                for income taxes
            
            
            —
            
            
            506,000
            
            
            —
            
            
            506,000Net
                loss
            
            $
            (55,000
            )
            $
            (3,519,000
            )
            $
            (55,000
            )
            $
            (3,800,000
            )





5


MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





3.
      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”).





The
      Company recognizes all amounts billable under short-term contracts 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.





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 the 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.





4.
      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 (fiscal year 2008 will be the next) is added to
      the
      fourth quarter, making such quarter consist of 14 weeks.





5.
      COMPREHENSIVE INCOME (LOSS)





Comprehensive
      income (loss) is defined as the change in equity of a company during a period
      from transactions and other events and circumstances from non-owner sources.
      Accumulated other comprehensive income at June 30, 2007 was attributable solely
      to the effects of foreign currency translation.  Following
      the sale of the Company’s discontinued operations in December 2007, there is no
      foreign currency translation adjustment at June 28, 2008.





6.
      RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 “Fair Value Measurements”. SFAS No. 157 establishes a single authoritative
      definition of fair value, sets out a framework for measuring fair value and
      requires additional disclosures about fair-value measurements. SFAS No. 157
      applies only to fair-value measurements that are already required or permitted
      by other accounting standards and is expected to increase the consistency of
      those measurements. It will also affect current practices by nullifying Emerging
      Issues Task Force guidance that prohibited recognition of gains or losses at
      the
      inception of derivative transactions whose fair value is estimated by applying
      a
      model and by eliminating the use of “blockage” factors by brokers, dealers and
      investment companies that have been applying AICPA Guides. The Company adopted
      SFAS No. 157 on December 30, 2007. The adoption of SFAS No. 157 did not have
      an
      impact on its financial position and results of operations.


6


MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      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. The
      Company adopted SFAS No. 159 on December 30, 2007. The adoption of SFAS No.
      159
      did not have an impact on its financial position and results of operations,
      since the Company did not elect the fair value option for any assets or
      liabilities.





In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R 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 if the acquired company and the goodwill
      acquired. SFAS 141R 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
      Company is currently evaluating the impact that SFAS 141R will have on its
      financial position and results of operations.





In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      160 “Noncontrolling Interests in Consolidated Financial Statements-an amendment
      of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 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
      160
      is effective for fiscal periods beginning after December 15, 2008. The Company
      is currently evaluating the impact that SFAS 160 will have on its financial
      position and results of operations.





7.
      SHARE-BASED COMPENSATION





On
      January 1, 2006, the start of the first quarter of fiscal 2006, the Company
      adopted the provisions of Statement of Financial Accounting Standards 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 SFAS 123R
      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.





For
      the
      quarters and six months ended June 28, 2008 and June 30, 2007, share-based
      compensation expense related to the 2001 Employee Stock Purchase Plan and the
      various stock option plans was allocated as follows:





Quarters Ended
            
            Six Months EndedJune 28, 2008
            
            June 30, 2007
            
            June 28, 2008
            
            June 30, 2007Cost
                of sales
            
            $
            45,000
            
            $
            21,000
            
            $
            90,000
            
            $
            29,000Selling,
                general and administrative
            
            
            93,000
            
            
            60,000
            
            
            168,000
            
            
            103,000Total
                share-based compensation
            
            $
            138,000
            
            $
            81,000
            
            $
            258,000
            
            $
            132,000





The
      fair
      value of the options granted was estimated on the date of grant using the
      Black-Scholes option valuation model.


7


MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The
      following weighted average assumptions for options granted in the quarters
      and
      six months ended June 28, 2008 and June 30, 2007 were utilized:





2008
            
            2007Expected
                option life (years)
            
            
            6.0
            
            
            5.7Expected
                volatility
            
            
            37.56
            %
            
            32.89
            %Risk-free
                interest rate
            
            
            3.14
            %
            
            4.53
            %Expected
                dividend yield
            
            
            0.00
            %
            
            0.00
            %





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.





Share-Based
      Compensation Plans:





On
      June
      22, 2006, the Company’s stockholders approved three share-based compensation
      programs as follows: (i) 2006 Stock Option Plan; (ii) 2006 Key Employee
      Incentive Plan; and (iii) 2006 Non-Employee Directors’ Stock Plan.





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 purposes of the 2006 Stock Option Plan are
      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. The 2006 Stock Option
      Plan replaced the 2001 Stock Option Plan, and the remaining 19,700 unissued
      options under the 2001 Stock Option Plan are no longer available for
      grant.





At
      June
      28, 2008, there were 328,100 options outstanding under the 2006 Stock Option
      Plan of which 124,365 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 171,900 at June 28,
      2008.





At
      June
      28, 2008, the Company also maintains share-based compensation arrangements
      under
      the following plans: (i) 1997 Long-Term Incentive Plan; and (ii) 2001 Stock
      Option Plan.





At
      June
      28, 2008, there were 143,300 options outstanding under 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 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
      follows:




2008Weightedaverage
            
            Sharesexercise
            
            or priceprice
            
            per shareOutstanding
                at beginning of year
            
            $
            9.30
            
            
            594,747Granted
            
            
            5.15
            
            
            17,500Exercised
            
            
            6.94
            
            
            (4,082
            )Expired
            
            
            10.12
            
            
            (72,965
            )Forfeited
            
            
            8.53
            
            
            (63,800
            )Outstanding
                at end of period
            
            $
            9.14
            
            
            471,400Exercisable
                at end of period
            
            $
            9.22
            
            
            267,665Option
                price range at end of period
            
            $5.15
                - $17.00Weighted
                average estimated fair value of options granted during the
                year
            
            
            
            
            $
            2.14




8







MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





A
      summary
      of intrinsic and fair value stock option information follows:





Aggregate
                intrinsic value of outstanding options at June 28, 2008
            
            $
            0Aggregate
                intrinsic value of exercisable options at June 28, 2008
            
            $
            0Intrinsic
                value of options exercised during 2008
            
            $
            9,000Fair
                value of options vested during 2008
            
            $
            343,000





As
      of
      June 28, 2008, 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 $674,000. Of that total, $197,000, $344,000, $128,000 and
      $5,000 are expected to be recognized in 2008, 2009, 2010 and 2011,
      respectively.





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 the anniversary of the grant date over a
      three-year period. Share-based compensation expense for the quarter and six
      months ended June 28, 2008 related to the grants of restricted stock was
      approximately $32,000 and $47,000, respectively, which was based on a
      straight-line amortization. Share-based compensation expense for the quarter
      and
      six months ended June 30, 2007 related to the grants of restricted
      stock was approximately $7,000 and $14,000, respectively. Restricted shares
      of
      common stock available for grant under the 2006 Non-Employee Directors’ Stock
      Plan were 71,500 at June 28, 2008.





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




Weighted-AverageGrant-DayFair Value
            
            SharesOutstanding
                at December 29, 2007.
            
            $
            9.69
            
            
            16,500Granted
            
            
            5.15
            
            
            9,000Vested
            
            
            9.67
            
            
            (8,000
            )Outstanding
                at June 28, 2008
            
            $
            7.36
            
            
            17,500





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:





June 28,
              2008
            
            December 29,
              2007Finished
                goods
            
            $
            538,857
            
            $
            239,503Work
                in process
            
            
            3,297,259
            
            
            2,979,632Raw
                materials and purchased parts
            
            
            2,625,949
            
            
            1,820,635Total
            
            $
            6,462,065
            
            $
            5,039,770


9





MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





9.
      LONG-LIVED ASSETS





The
      Company accounts for long-lived assets under SFAS 144, “Accounting for the
      impairment or disposal of long-lived assets” (“SFAS NO. 144”). Management
      assesses the recoverability of its long-lived assets, which consist primarily
      of
      fixed assets and intangible assets with finite useful lives, whenever events
      or
      changes in circumstances as described in SFAS No. 144 indicate that the carrying
      value may not be recoverable. Impairment charges would be included with costs
      and expenses in the Company's consolidated statements of operations, and would
      result in reduced carrying amounts of the related assets on the Company's
      consolidated balance sheets.





Fixed
      assets and intangible assets related to the Multi-Mix® product line have been
      tested for recoverability at least annually since 2002 following the guidance
      of
      SFAS No. 144. Based on the results of this testing, we have concluded that
      the
      undiscounted cash flows expected to result from the use of these assets exceeds
      its carrying amount and, therefore, there is no impairment loss.





10.
      CURRENT AND LONG-TERM DEBT





The
      Company was obligated under the following debt instruments at June 28, 2008
      and
      December 29, 2007:





2008
            
            2007Capital
                One, N.A. (formerly North Fork Bank):Revolving
                line of credit, 2.00% above LIBOR or 0.50% below prime
            
            $
            500,000
            
            $
            -Term
                loan, due October 1, 2011, 2.25% above LIBOR or 0.50% below
                prime
            
            
            1,300,000
            
            
            1,500,000Mortgage
                loan, due October 1, 2016, 2.25% above LIBOR or 0.50% below
                prime
            
            
            2,487,500
            
            
            2,812,5004,287,500
            
            
            4,312,500Less
                current portion
            
            
            1,050,000
            
            
            550,000Long-term
                portion
            
            $
            3,237,500
            
            $
            3,762,500





On
      October 18, 2006, the Company entered into a financing agreement with Capital
      One, N.A. (formerly North Fork Bank) which consists of a two-year $5,000,000
      revolving line of credit, a five-year $2,000,000 machinery and equipment term
      loan due October 1, 2011 (“Term Loan”) and a ten-year $3,000,000 real estate
      term loan due October 1, 2016 (“Mortgage Loan”). This financing agreement
      replaced the prior financing agreement with CIT. Completion of the financing
      agreement resulted in additional cash loan proceeds of approximately $2,900,000
      plus the release of previously restricted cash of $1,500,000. The revolving
      line
      of credit is subject to an availability limit under a borrowing base calculation
      (85% of eligible accounts receivable plus up to 50% of eligible raw materials
      inventory plus up to 25% of eligible electronic components, with an inventory
      advance sublimit not to exceed $1,500,000, as defined in the financing
      agreement).





Our
      revolving line of credit with Capital One, N.A. expires in October 2008. Capital
      One, N.A. has indicated to us that it does not intend to renew the line of
      credit. We believe that we will be able to refinance the line of credit with
      another financial institution, but such refinancing likely will be on less
      favorable terms to us. The Company borrowed $500,000 under its revolving line
      of
      credit on May 1, 2008. At June 28, 2008, the Company had available borrowing
      capacity under its revolving line of credit of $4,500,000. Subsequent to the
      end
      of the second quarter of 2008, the Company borrowed an additional $500,000
      under
      its revolving line of credit on July 1, 2008. The revolving line of credit
      bears
      interest at the prime rate less 0.50% (4.50% at June 28, 2008 and currently
      4.50%) or LIBOR plus 2.00%. The principal amount of the Term Loan is payable
      in
      59 equal monthly installments of $33,333 and one final payment of the remaining
      principal balance. The Term Loan bears interest at the prime rate less 0.50%
      (4.50% at June 28, 2008 and currently 4.50%) or LIBOR plus 2.25%. The principal
      amount of the Mortgage Loan is payable in 119 equal monthly installments of
      $12,500 and one final payment of the remaining principal balance. The Mortgage
      Loan bears interest at the prime rate less 0.50% (4.50% at June 28, 2008 and
      currently 4.50%) or LIBOR plus 2.25%. At June 28, 2008, the Company had no
      portion of its borrowings under LIBOR-based interest rates. The revolving line
      of credit, the Term Loan and the Mortgage Loan are secured by substantially
      all
      assets located within the United States and the pledge of 65% of the stock
      of
      the Company's subsidiaries located in Costa Rica and Canada.


10





MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Capital
      One, N.A. and the Company amended the financing agreement, as of May 15, 2007,
      which (i) eliminated the fixed charge coverage ratio covenant for the quarter
      ended June 30, 2007, (ii) added a covenant related to earnings before interest,
      taxes, depreciation and amortization (“EBITDA”) for the four quarters ended June
      30, 2007 to require the Company to achieve a minimum level of EBITDA, and (iii)
      modified the fixed charge coverage ratio covenant for periods after the quarter
      ending September 29, 2007. The Company was in compliance with these amended
      covenants at June 28, 2008.





On
      August
      9, 2007, Capital One, N.A. and Merrimac entered into a Pledge and Security
      Agreement, under which Capital One, N.A. consented to the guaranty by Merrimac
      of FMI's borrowings under the revolving credit agreement with The Bank of Nova
      Scotia in the amount of up to $250,000 (Canadian). In consideration for Capital
      One, N.A. providing such consent, Merrimac deposited $250,000 into a controlled
      collateral account with Capital One, N.A. and also agreed to prepay the mortgage
      loan portion of the credit facility with Capital One, N.A. with fifty percent
      of
      the net proceeds from a sale of FMI, up to a maximum amount of $500,000. This
      agreement terminated in November 2007 when The Bank of Nova Scotia terminated
      FMI’s revolving credit agreement. Upon the termination of such agreement, the
      Company agreed to repay a portion of its Mortgage Loan with the funds in the
      controlled collateral account upon the expiration of the LIBOR contracts in
      January 2008. On January 18, 2008, Merrimac repaid $250,000 of the Mortgage
      Loan
      using the funds previously deposited into the controlled collateral
      account.





At
      June
      28, 2008 and December 29, 2007, 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.





11.
      WARRANTIES





The
      Company's products sold under contracts have warranty obligations. 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
      $15,000 and $28,000 for the quarters ended June 28, 2008 and June 30, 2007,
      respectively, and $65,000 and $79,000 for the six months ended June 28, 2008
      and
      June 30, 2007, respectively. The warranty reserve at June 28, 2008 and December
      29, 2007 was $200,000.





12.
      INCOME TAXES





The
      Company’s effective tax rate for the quarter and six months ended June 28, 2008,
      (which effective tax rate was zero percent), reflects U.S. Federal Alternative
      Minimum Tax and State income taxes that are due based on certain statutory
      limitations on the use of the Company’s net operating loss carryforwards. No
      provision or benefit for income taxes was recorded based on management’s
      estimate of the minimal projected taxable income and the availability of net
      operating loss carryforwards that can be utilized.





As
      of
      June 28, 2008, the Company has 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 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 second
      quarter of 2008.





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 2008 depending on the extent of the
      changes in its ownership.





13.
      BUSINESS SEGMENT DATA





The
      Company's continuing operations are conducted 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, 85% are located
      in the United States and 15% are located in Costa Rica.


11





MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





14.
      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.





The
      following table summarizes the calculation of basic and diluted net income
      (loss) per share:





Quarters Ended
            
            Six Months EndedJune 28,
              2008
            
            June 30,
              2007
            
            June 28,
              2008
            
            June 30,
              2007Net
                income (loss)
            
            $
            383,672
            
            $
            (3,468,923
            )
            $
            11,437
            
            $
            (4,732,725
            )Basic
                net income (loss) per shareWeighted
                average number of shares outstanding for basic net income (loss)
                per
                share- Common stock
            
            
            2,939,788
            
            
            2,910,711
            
            
            2,936,155
            
            
            3,003,513Net
                income (loss) per common share - basic
            
            $
            .13
            
            $
            (1.19
            )
            $
            -
            
            $
            (1.58
            )Diluted
                net income (loss) per shareWeighted
                average number of shares outstanding for diluted net income (loss)
                per
                share:Common
                stock
            
            
            2,939,788
            
            
            2,910,711
            
            
            2,936,155
            
            
            3,003,513Effect
                of dilutive securities:Stock
                options (1)
            
            
            5,415
            
            
            36,753
            
            
            12,132
            
            
            -Weighted
                average number of shares outstanding for diluted net income (loss)
                per
                share
            
            
            2,945,203
            
            
            2,947,464
            
            
            2,948,287
            
            
            3,003,513Net
                income (loss) per common share - diluted
            
            $
            .13
            
            $
            (1.18
            )
            $
            -
            
            $
            (1.58
            )





(1)
            Represents
                additional shares resulting from assumed conversion of stock options
                less
                shares purchased with the proceeds
                therefrom.




Diluted
      net income (loss) per share excludes 456,000 and 228,000 shares underlying
      stock
      options for
      the
      quarters ended June 28, 2008 and June 30, 2007, respectively, as the exercise
      price of these options
      was greater than the average market value of the common shares, resulting in
      an
      anti-dilutive effect on net income (loss) per share. Diluted net income (loss)
      per share excludes 425,000 shares underlying stock options for the six-month
      period ended June 28, 2008, as the exercise price of these options was greater
      than the average market value of the common shares, resulting in an
      anti-dilutive effect on net income (loss) per share. Due to the net loss for
      the
      six months ended June 30, 2007, approximately 625,000 shares underlying stock
      options were excluded from the calculation of diluted net income (loss) per
      share as the effect would be anti-dilutive.





15.
      RELATED PARTY TRANSACTIONS





During
      the second quarter and first six months of 2008, the Company's outside general
      counsel Katten Muchin Rosenman LLP was paid $96,000 and $169,000, respectively,
      for providing legal services to the Company. During the second quarter and
      first
      six months of 2007, Katten Muchin Rosenman LLP was paid $108,000 and $196,000,
      respectively. 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
      2008 and 2007 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 $2,000 and $3,000 to these companies during the
      second quarter and first six months of 2008, respectively. The Company paid
      an
      aggregate of $5,000 and $21,000 to these companies during the second quarter
      and
      first six months of 2007, respectively. A director of the Company is the
      chairman and chief executive officer of these companies.





During
      the second quarter and first six months of 2008 and 2007, a director of the
      Company was paid $9,000 and $18,000, respectively, for providing
      technology-related consulting services to the Company.


12





MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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 second quarter and first six months of 2008 or 2007. A
      director of the Company is an officer of DuPont, but would not share in these
      payments, if any.





Compensation
      of Directors: 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.
      On June 26, 2008, non-qualified stock options to purchase an aggregate of 17,500
      shares were issued to seven directors at an exercise price of $5.15 per share.
      Also on June 26, 2008, pursuant to the 2006 Non-Employee Directors’ Stock Plan,
      six directors each received a grant of 1,500 shares of restricted stock at
      a
      fair market value of $5.15 per share. One-third of such restricted stock vests
      on the anniversary of the grant date over a three-year period.





On
      December 13, 2004, Infineon Technologies AG (“Infineon”), at such time the
      beneficial owner of approximately 15% of the Company’s common stock, sold
      475,000 shares of the Company’s common stock to four purchasers in a
      privately-negotiated transaction. Two purchasers in such transaction, K
      Holdings, LLC and Hampshire Investments, Limited, each of which is affiliated
      with Ludwig G. Kuttner, who was President and Chief Executive Officer of
      Hampshire Group, Limited (“Hampshire”), purchased 300,000 shares representing an
      aggregate of approximately 9.6% of the Company’s Common Stock at that time. Mr.
      Kuttner was elected to the Company’s Board of Directors at its 2006 Annual
      Meeting of Stockholders. As a result of an ongoing investigation by Hampshire's
      audit committee, the Securities and Exchange Commission, and the Department
      of
      Justice of allegations of certain improprieties and possibly unlawful conduct
      involving Mr. Kuttner and other Hampshire executives, Mr. Kuttner's employment
      with Hampshire has been terminated and he remains as a director. Mr. Kuttner
      took a leave of absence from his position as a director of Merrimac. During
      his
      leave of absence, Mr. Kuttner was not entitled to any compensation from the
      Company. Mr. Kuttner rescinded his leave of absence from his position as a
      director of Merrimac as of June 20, 2007. Infineon also assigned to each
      purchaser certain registration rights to such shares under the existing
      registration rights agreements Infineon had with the Company. In connection
      with
      the transaction, the Company and Infineon terminated the Stock Purchase and
      Exclusivity Letter Agreement dated April 7, 2000, as amended, which provided
      that the Company would design, develop and produce exclusively for Infineon
      certain Multi-Mix® products that incorporate active RF power transistors for use
      in certain wireless base station applications, television transmitters and
      certain other applications that are intended for Bluetooth
      transceivers.





DuPont
      and two of the purchasers above hold registration rights, which currently give
      them the right in perpetuity to register an aggregate of 828,413 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.





16.
      REPURCHASE OF COMMON STOCK




On
      March
      13, 2007, the Company repurchased in a private transaction 238,700 shares of
      its
      Common Stock for the treasury at $9.00 per share for an aggregate total of
      $2,148,300 from a group of investors.





17.
      LEGAL
      PROCEEDINGS


Merrimac
        is a party to lawsuits, arising in the normal course of business. It is the
        opinion of management of Merrimac that the disposition of these various lawsuits
        will not individually or in the aggregate have a material adverse effect
        on the
        consolidated financial position or the results of operations of the
        Company.
 
 On
        February 22, 2008, a statement of claim in Ontario Superior Court of Justice
        was
        filed by a former FMI employee against FMI seeking damages for approximately
        $77,000 ($75,000 Canadian) for wrongful dismissal following the sale of FMI’s
        assets to FTG. The Company settled this claim in May 2008 for a minimal
        amount.


13




MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




On
        March
        10, 2008, a statement of claim in Ontario Superior Court of Justice was filed
        by
        nineteen (19) 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. Merrimac
        believes it has been improperly named in this claim and is petitioning the
        Court
        to be removed as a defendant.
 
 Merrimac
        has an Employment Practices Liability insurance policy that extends coverage
        to
        its 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. Merrimac made provision for the deductible amount of the insurance
        policy
        which is $25,000. In accordance with the requirements of SFAS No. 5, after
        discussions with counsel, Merrimac cannot presently determine if the likelihood
        of an unfavorable outcome is probable, reasonably possible or remote. In
        addition, Merrimac cannot reasonably estimate the amount of a probable loss,
        other than the minimal deductible amount under the insurance policy. Merrimac
        and its insurance carrier intend to defend this claim
        vigorously.





18.
      SUBSEQUENT EVENT





On
      July
      23, 2008, a Statement of Claim was filed in Ontario Superior Court of Justice
      by
      the lessor of the premises formerly occupied by FMI in Ontario, Canada, against
      FMI, Merrimac, and FTG. The Statement of Claim seeks damages of $150,612 in
      respect of the period from and after which FTG, which purchased the assets
      of
      FMI, removed operations from the premises through the term of the lease. In
      addition, the Statement of Claim seeks damages for $110,319 for repairs to
      the
      premises, and seeks to set aside the transfer of assets from FMI to FTG for
      the
      failure to comply with the Bulk Sales Act Ontario.





In
      accordance with the requirements of SFAS No. 5, after discussions with counsel,
      Merrimac cannot presently determine if the likelihood of an unfavorable outcome
      is probable, reasonably possible or remote. In addition, Merrimac cannot
      reasonably estimate the amount of a probable loss. The Company intends to defend
      this claim vigorously.


14





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;
      the possibilities of impairment charges to the carrying value of our Multi-Mix®
assets, thereby resulting in charges to our earnings; 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. 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. is involved in the design, manufacture and sale of electronic
      component devices offering extremely broad frequency coverage and high
      performance characteristics, and microstrip, bonded stripline and thick
      metal-backed Teflon® (PTFE) and mixed dielectric multilayer circuits for
      communications, defense and aerospace applications. The Company's operations
      are
      conducted primarily through one business segment, electronic components and
      subsystems.





Merrimac
      is a versatile technologically oriented company specializing in radio frequency
      Multi-Mix®, stripline, microstrip and discreet element technologies. Of special
      significance has been the combination of two or more of these technologies
      into
      single components and integrated multifunction subassemblies to achieve superior
      performance and reliability while minimizing package size and weight. Merrimac
      components and integrated assemblies are found in applications as diverse as
      satellites, military and commercial aircraft, radar, cellular radio systems,
      medical and dental diagnostic instruments, personal communications systems
      and
      wireless connectivity. Merrimac maintains ISO 9001:2000 and AS 9100 registered
      quality assurance programs. Merrimac's components range in price from $0.50
      to
      more than $10,000 and its subsystems range from $500 to more than
      $1,500,000.





For
      the
      second quarter and first six months of 2008, the Company returned to profitable
      results from continuing operations. Previously, the Company had experienced
      losses from continuing operations in the first quarter of 2008 and prior
      quarters. Improved orders and the increased opening backlog from 2007 provided
      the catalyst to increase sales for the second quarter of 2008 by $2,153,000
      or
      40.1% and $3,399,000 or 34.4% for the first six months of 2008 compared to
      2007,
      particularly sales of Core and Multi-Mix® products to defense industry-related
      customers. The increased gross profit from the higher sales level coupled with
      most expenses, as a percentage of net sales, being lower than previous periods,
      resulted in income from continuing operations for the second quarter of 2008
      as
      compared to losses in recent prior quarters. Backlog increased by $2,397,000
      or
      13.3% to $20,388,000 at the end of the first quarter of 2008 from the end of
      2007. The June 28, 2008 backlog of $20,102,000, an increase of $2,111,000 or
      11.7% compared to year-end 2007 backlog of $17,991,000, is slightly below the
      highest quarter-end backlog of $20,388,000 that the Company achieved in March
      2008, because of the higher level of second quarter 2008 sales.





The
      Company markets and sells its products domestically and internationally through
      a direct sales force and manufacturers’ representatives. Merrimac has
      traditionally developed and offered for sale products built to specific customer
      needs, as well as standard catalog items.


15





Cost
      of
      sales for the Company 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 the
      Company’s facilities. The Company’s manufacturing and production facilities
      infrastructure overhead are relatively fixed and are based on its expectations
      of future net revenues. Should the Company experience a reduction in net
      revenues in a quarter, it could have difficulty adjusting short-term
      expenditures and absorbing any excess capacity expenses. If this were to occur,
      the Company’s operating results for that quarter would be negatively impacted.
      In order to remain competitive, the Company must continually reduce its
      manufacturing costs through design and engineering innovations and increases
      in
      manufacturing efficiencies. There can be no assurance that the Company will
      be
      able to reduce its manufacturing costs.





The
      Company anticipates that depreciation and amortization expenses will exceed its
      revised capital expenditures for fiscal year 2008 by approximately $1,600,000.
      The Company intends to reduce its commitments to purchase capital equipment
      from
      various vendors to an amount of approximately $400,000 for the remainder of
      2008. The Company anticipates that such equipment will be purchased and become
      operational during the remainder of 2008. The Company’s 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
      the
      Company’s $5,000,000 revolving credit facility, which expires October 18, 2008.
      Capital One, N.A. has indicated to us that it does not intend to renew the
      line
      of credit. We believe that we will be able to refinance the line of credit
      with
      another financial institution, but such refinancing likely will be on less
      favorable terms to us.





Selling,
      general and administrative expenses consist of personnel costs for
      administrative, selling and marketing groups, sales commissions to employees
      and
      manufacturers representatives, travel, product marketing and promotion costs,
      as
      well as legal, accounting, information technology and other administrative
      costs. As discussed below, the Company expects to continue to make significant
      and increasing expenditures for selling, general and administrative expenses,
      especially in connection with implementation of its 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. The Company charges all research and development expenses
      to operations as incurred. The Company believes that continued investment in
      research and development is critical to the Company’s long-term business
      success. The Company intends to continue to invest in research and development
      programs in future periods, and expects that these costs will increase over
      time, in order to develop new products, enhance performance of existing
      products, and reduce the cost of current or new products.





The
      Company anticipates 2008 orders from its defense and satellite customers will
      be
      comparable to fiscal year 2007 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 was acquired by Merrimac
      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.





Merrimac
      management determined, and on August 9, 2007 the Board of Directors approved,
      that Merrimac should divest its FMI operations. The divestiture should enable
      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 financial statements
      to reflect the results of operations, financial position and cash flows of
      FMI
      as discontinued operations.


16





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.





Operating
      results of FMI, which were formerly represented as Merrimac’s microwave
      micro-circuitry  segment,
      are summarized as follows:





Quarter Ended
            
            Six Months EndedJune 28, 2008
            
            June 30, 2007
            
            June 28, 2008
            
            June 30, 2007Net
                sales
            
            $
            -
            
            $
            854,000
            
            $
            -
            
            $
            1,766,000Loss
                before provision for income taxes
            
            $
            (55,000
            )
            $
            (3,013,000
            )
            $
            (55,000
            )
            $
            (3,294,000
            )Provision
                for income taxes
            
            
            —
            
            
            506,000
            
            
            —
            
            
            506,000Net
                loss
            
            $
            (55,000
            )
            $
            (3,519,000
            )
            $
            (55,000
            )
            $
            (3,800,000
            )





CRITICAL
      ACCOUNTING ESTIMATES AND POLICIES





The
      Company's management makes certain assumptions and estimates that impact the
      reported amounts of assets, liabilities and stockholders' equity, and revenues
      and expenses. The management judgments that are currently the most critical
      are
      related to the accounting for the Company's investments in Multi-Mix®
Microtechnology, contract revenue recognition, inventory valuation and valuation
      of deferred tax assets.





Impairment
      of long-lived assets





Following
      is a summary of the carrying amounts of the Multi-Mix® Microtechnology net
      assets included in the Company's consolidated financial statements at June
      28,
      2008 and the related future planned purchases and lease obligation commitments
      through January 2011.





Net
                assets:Property,
                plant and equipment, at cost
            
            $
            14,859,000Less,
                accumulated depreciation and amortization
            
            
            10,117,000Property,
                plant and equipment, net
            
            
            4,742,000Inventories
            
            
            740,000Other
                assets, net
            
            
            128,000Total
                net assets at June 28, 2008
            
            
            5,610,000Commitments:Planned
                equipment purchases for the remainder of 2008
            
            
            200,000Lease
                obligations through January 2011
            
            
            500,000Total
                commitments
            
            
            700,000Total
                net assets and commitments
            
            $
            6,310,000





Approximately
      34% of the property, plant and equipment may be utilized in other areas of
      our
      electronic components and subsystems operations.





Any
      future demand for Multi-Mix® for the wireless market is dependent on various
      third-party programs and is directly related to the timing of our customers’ and
      potential customers’ phase-out of existing programs and their migration, which
      is not assured and has not yet commenced commercially, toward new programs
      to
      meet their customers’ new requirements. While these circumstances have resulted
      in the delay or cancellation of Multi-Mix® Microtechnology product purchases
      that had been anticipated from certain specific customers or programs, the
      Company has implemented a strategic plan utilizing product knowledge and
      customer focus to expand specific sales opportunities. However, continued
      extended delay or reduction from planned levels in new orders expected from
      customers for these products could require the Company to pursue alternatives
      related to the utilization or realization of these assets and commitments,
      the
      net result of which could be materially adverse to the financial results and
      position of the Company. In accordance with the Company’s evaluation of
      Multi-Mix® under SFAS No. 144 at December 29, 2007, the Company has determined
      no provision for impairment is required at this time. Management of the Company
      will continue to monitor the recoverability of the Multi-Mix®
assets.


17





Contract
      Revenue Recognition





The
      Company derives its revenues from sales of the following: customized products,
      which include amounts billable for non-recurring engineering (“NRE”) 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”).





The
      Company recognizes all amounts billable under short-term contracts involving
      non-recurring engineering 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.





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 the 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, a provision for a potential
      loss is made and charged to operations.





Procurement
      of inventory 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 inventory
      previously procured by us and our purchases of inventory beyond customer needs
      may result in excess and obsolete inventory for the related customers. Although
      the Company may be able to use some of these excess components and raw materials
      in other products it manufactures, a portion of the cost of this excess
      inventory may not be recoverable from customers, nor may any excess quantities
      be returned to the vendors. The Company also may not be able to recover the
      cost
      of obsolete inventory from vendors or customers.





Write
      offs or write downs of inventory generally arise from:




·
            declines
                in the market value of inventory;




·
            changes
                in customer demand for inventory, such as cancellation of orders;
                and




·
            our
                purchases of inventory beyond customer needs that result in excess
                quantities on hand that may not be returned to the vendor or charged
                back
                to the customer.


18





Valuation
      of Deferred Tax Assets





As
      of
      June 28, 2008, the Company has 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 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 six
      months of 2008.


19




MERRIMAC
      INDUSTRIES, INC.


CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS SUMMARY


(UNAUDITED)





The
      following table reflects the percentage relationships of items from the
      Condensed Consolidated Statements of Operations as a percentage of net
      sales.





Percentage
                of Net Sales
            
            Percentage
                of Net SalesQuarters
                Ended
            
            Six
                Months EndedJune 28,
            
            June 30,
            
            June 28,
            
            June 30,2008
            
            2007
            
            2008
            
            2007CONTINUING
                  OPERATIONSNet
                sales
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Costs
                and expenses:Cost
                of sales
            
            
            57.3
            
            
            55.9
            
            
            58.4
            
            
            58.9Selling,
                general and administrative
            
            
            31.3
            
            
            36.8
            
            
            34.7
            
            
            42.4Research
                and development
            
            
            5.0
            
            
            6.3
            
            
            5.6
            
            
            8.393.6
            
            
            99.0
            
            
            98.7
            
            
            109.6Operating
                income (loss)
            
            
            6.4
            
            
            1.0
            
            
            1.3
            
            
            (9.6
            )Interest
                and other (expense) income, net
            
            
            (0.6
            )
            
            (0.1
            )
            
            (0.8
            )
            
            0.2Income
                (loss) from continuing operations before income taxes
            
            
            5.8
            
            
            0.9
            
            
            0.5
            
            
            (9.4
            )Provision
                (benefit) for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Income
                (loss) from continuing operations
            
            
            5.8
            
            
            0.9
            
            
            0.5
            
            
            (9.4
            )DISCONTINUED
                OPERATIONSLoss
                  from discontinued operations, after income taxes in
                  2007
            
            
            (0.7
            )
            
            (65.5
            )
            
            (0.4
            )
            
            (38.5
            )Net
                income (loss)
            
            
            5.1
            %
            
            (64.6
            )%
            
            0.1
            %
            
            (47.9
            )%




SECOND
      QUARTER AND FIRST SIX MONTHS OF 2008 COMPARED TO THE SECOND QUARTER AND FIRST
      SIX MONTHS OF 2007-CONTINUING OPERATIONS





*Net
      sales.*





Net
      sales
      from continuing operations for the second quarter of 2008 were $7,524,000,
      an
      increase of $2,153,000 or 40.1 percent compared to the second quarter of 2007
      net sales of $5,371,000. Net sales from continuing operations increased due
      to a
      higher level of orders received throughout fiscal year 2007, which resulted
      in a
      higher opening backlog at the beginning of the 2008 fiscal year, including
      higher sales of Multi-Mix® products to defense industry-related customers, as
      well as a continuation of the favorable trend in orders received during the
      current year that have positively impacted backlog during 2008.





Net
      sales
      from continuing operations for the first six months of 2008 were $13,282,000,
      an
      increase of $3,399,000 or 34.4 percent compared to net sales of $9,883,000
      for
      the first six months of 2007. The increase in net sales for the first six months
      of 2008 is primarily due to the same reasons that benefited the second quarter
      of 2008 increase in net sales.





Backlog
      represents the amount of orders the Company has 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 the Company’s 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. The
      Company looks for this ratio to exceed 1.0 to 1, 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 six months ended June 28, 2008 and June 30,
      2007:





2008
            
            2007Beginning
                backlog
            
            $
            17,991,000
            
            $
            11,490,000Plus
                bookings
            
            
            15,393,000
            
            
            14,738,000Less
                net sales
            
            
            13,282,000
            
            
            9,883,000Ending
                backlog
            
            $
            20,102,000
            
            $
            16,345,000Book-to-bill
                ratio
            
            
            1.16
            
            
            1.49




20





Orders
      of
      $7,238,000 were received during the second quarter of 2008, a decrease of
      $1,531,000 or 17.5 percent compared to $8,769,000 in orders received during
      the
      second quarter of 2007. Orders of $15,393,000 were received during the first
      six
      months of 2008, an increase of $655,000 or 4.4 percent compared to $14,738,000
      in orders received during the first six months of 2007. Backlog increased by
      $2,111,000 or 11.7 percent to $20,102,000 at the end of the second quarter
      of
      2008 compared to $17,991,000 at year-end 2007, due to the increased orders
      received during the first six months of 2008, including orders from defense
      industry-related customers that are scheduled for shipment later in 2008 and
      2009. The book-to-bill ratio for the second quarter of 2008 was 0.96 to 1 and
      for the second quarter of 2007 was 1.63 to 1. The book-to-bill ratio for the
      first six months of 2008 was 1.16 to 1 and for the first six months of 2007
      was
      1.49 to 1. The orders, backlog and book-to-bill data exclude FMI information
      for
      2007.





*Cost
      of sales and gross profit.*





The
      following table provides comparative gross profit information for the quarters
      and six months ended June 28, 2008 and June 30, 2007.




Quarter ended June 28, 2008
            
            Quarter ended June 30, 2007$
            
            Increase/
              (Decrease)
              from prior
              period
            
            % of
              Net Sales
            
            $
            
            Increase/
              (Decrease)
              from prior
              period
            
            % of
              Net SalesConsolidated
                gross profit
            
            $
            3,215,000
            
            $
            848,000
            
            
            42.7
            %
            $
            2,367,000
            
            $
            (1,143,000
            )
            
            44.1
            %




Six Months ended June 28, 2008
            
            Six Months ended June 30, 2007$
            
            Increase/
              (Decrease)
              from prior
              period
            
            % of
              Net Sales
            
            $
            
            Increase/
              (Decrease)
              from
                prior
              period
            
            % of
              Net SalesConsolidatedgross
                profit
            
            $
            5,521,000
            
            $
            1,457,000
            
            
            41.6
            %
            $
            4,064,000
            
            $
            (1,315,000
            )
            
            41.1
            %





The
      increase in consolidated gross profit for the second quarter of 2008 was due
      to
      the impact of the higher level of sales, which improved the absorption of fixed
      manufacturing costs.





The
      increase in consolidated gross profit and consolidated gross profit percentage
      for the six months of 2008 was due to the impact of the higher level of sales
      allowing for a better absorption of fixed manufacturing costs.





Depreciation
      expense included in consolidated cost of sales for the second quarter of 2008
      was $611,000, an increase of $60,000 compared to the second quarter of 2007.
      Depreciation expense included in consolidated cost of sales for the first six
      months of 2008 was $1,193,000, an increase of $125,000 compared to the first
      six
      months of 2007. For the second quarter and first six months of 2008,
      approximately $414,000 and $812,000, respectively, of depreciation expense
      was
      associated with Multi-Mix® Microtechnology capital assets. For the second
      quarter and first six months of 2007, approximately $383,000 and $758,000,
      respectively, of depreciation expense was associated with Multi-Mix®
Microtechnology capital assets.





*Selling,
      general and administrative expenses.*





Selling,
      general and administrative expenses of $2,353,000 for the second quarter of
      2008
      increased by $377,000 or 19.1%, and when expressed as a percentage of net sales,
      decreased by 5.5 percentage points to 31.3% compared to the second quarter
      of
      2007. The increase in such expenses for the second quarter of 2008 was due
      to
      higher sales commissions, increased selling costs from recent sales personnel
      hired to meet the demand of increased sales, higher professional fee costs,
      and
      higher share-based compensation from the grant of stock options in April 2007.
      Selling, general and administrative expenses of $4,598,000 for the first six
      months of 2008 increased by $404,000 or 9.6%, and when expressed as a percentage
      of net sales, decreased by 7.8 percentage points to 34.6% compared to the first
      six months of 2007. The increase in such expenses for the first six months
      of
      2008 was due to higher commissions on the increased sales level, higher selling
      and administrative costs, and higher share-based compensation from the grant
      of
      stock options in April 2007.


21





*Research
      and development expenses.*





Research
      and development expenses for new products were $375,000 for the second quarter
      of 2008, an increase of $39,000 or 11.7%, and when expressed as a percentage
      of
      net sales, decreased by 1.2 percentage points to 5.0% compared to the second
      quarter of 2007. Substantially all of the research and development expenses
      were
      related to Multi-Mix® Microtechnology products. Research and development
      expenses for new products were $747,000 for the first six months of 2008, a
      decrease of $72,000 or 8.8%, and when expressed as a percentage of net sales,
      decreased by 2.7 percentage points to 5.6% compared to the first six months
      of
      2007. Substantially all of the research and development expenses were related
      to
      Multi-Mix® Microtechnology products. The Company anticipates that these expenses
      will increase in future periods in connection with implementation of our
      strategic plan for Multi-Mix®.





*Operating
      income (loss) from continuing operations.*





Operating
      income from continuing operations for the second quarter of 2008 was $487,000,
      compared to operating income from continuing operations of $55,000 for the
      second quarter of 2007. T he
      increase in operating income from continuing operations for the second quarter
      of 2008 as compared to the second quarter of 2007 was due to the improved gross
      profit from the increase in sales, partially offset by higher sales commissions
      and increased selling, general and administrative expenses, and higher research
      and development costs.





Operating
      income from continuing operations for the first six months of 2008 was $176,000
      compared to an operating loss from continuing operations for the first six
      months of 2007 of $(949,000). T he
      increase in operating income from continuing operations for the first six months
      of 2008 as compared to the first six months of 2007 was due to higher gross
      profit from the increase in sales, partially offset by higher sales commissions
      and increased selling, general and administrative expenses.





*Interest
      and other (expense) income, net.*





Interest
      and other (expense) income, net was $(49,000) for the second quarter of 2008
      compared to interest and other (expense) income, net of $(4,000) for the second
      quarter of 2007. Interest and other (expense) income, net was $(109,000) for
      the
      first six months of 2008 compared to interest and other (expense) income, net
      of
      $16,000 for the first six months of 2007. Interest expense for the second
      quarter and first six months of 2008 and 2007 was principally incurred on
      borrowings under the term loans, which the Company refinanced in October 2006.
      Interest expense, net for the second quarter and first six months of 2008 was
      higher than the second quarter and first six months of 2007, due to the lower
      levels of investable cash that generated less interest income to be received
      during 2008 when compared to 2007.





*Income
      (loss) from continuing operations.*





For
      the
      reasons set forth above, income from continuing operations for the second
      quarter of 2008 was $439,000 compared to income from continuing operations
      of
      $50,000 for the second quarter of 2007. Income per diluted share from continuing
      operations for the second quarter of 2008 was $.15 compared to income from
      continuing operations of $.02 per diluted share for the second quarter of
      2007.





For
      the
      reasons set forth above, income from continuing operations for the first six
      months of 2008 was $66,000 compared to a loss from continuing operations of
      $(933,000) for the first six months of 2007. Income from continuing operations
      per diluted share for the first six months of 2008 was $.02 compared to a loss
      from continuing operations of $(.31) per share for the first six months of
      2007.





*Income
      taxes.*





The
      Company’s effective tax rate for the quarter and six months ended June 28, 2008,
      (which effective tax rate was zero percent), reflects U.S. Federal Alternative
      Minimum Tax and State income taxes that are due based on certain statutory
      limitations on the use of the Company’s net operating loss carryforwards. No
      provision or benefit for income taxes was recorded based on management’s
      estimate of the minimal projected taxable income and the availability of net
      operating loss carryforwards that can be utilized.





As
      of
      June 28, 2008, the Company has 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 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 six
      months of 2008.


22





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
      June
      28, 2008 and December 29, 2007, 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
      or liabilities 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 the fair market value of the Company at
      the
      time of such change. The Company may become subject to these limitations in
      2007
      depending on the extent of the changes in its ownership.





*Discontinued
      operations* .





Loss
      from
      discontinued operations for the second quarter and first six months of 2008
      was
      $55,000 or $.02 per share, which consisted of certain ongoing professional
      fees,
      claim defense deductibles and certain other expenses. There was no loss from
      discontinued operations in the first quarter of 2008. Loss from discontinued
      operations for the second quarter of 2007 was $3,519,000 and for the first
      six
      months of 2007 was $3,800,000. Loss from discontinued operations includes a
      partial goodwill impairment charge of $2,630,000 and a charge of $506,000 to
      provide a full valuation allowance for a Canadian net deferred tax asset, for
      a
      total of $3,136,000 of non-cash charges. Loss from discontinued operations
      for
      the second quarter of 2007 was $1.21 per basic share and $1.20 per diluted
      share, and for the first six months of 2007 was $1.27 per basic
      share.





*Net
      income (loss).*





For
      the
      reasons set forth above, net income for the second quarter of 2008 was $384,000
      compared to a net loss of $(3,469,000) for the second quarter of 2007. Net
      income per diluted share for the second quarter of 2008 was $.13 compared to
      a
      net loss of $(1.18) per diluted share for the second quarter of
      2007.





For
      the
      reasons set forth above, net income for the first six months of 2008 was $11,000
      compared to a net loss of $(4,733,000) for the first six months of 2007. Net
      income per diluted share for the first six months of 2008 was nil compared
      to a
      net loss of $(1.58) per share for the first six months of 2007.




LIQUIDITY
      AND CAPITAL RESOURCES





The
      Company had liquid resources comprised of cash and cash equivalents totaling
      approximately $410,000 at the end of the first six months of 2008 compared
      to
      approximately $2,000,000 at the end of 2007. The principal reasons for the
      reduction in cash at June 28, 2008 from December 29, 2007 were capital
      expenditures of $613,000, cash used in operating activities of continuing
      operations of $1,902,000 as described below, and repayments of borrowings of
      $525,000 offset, in part, by the return of restricted cash to repay term debt
      of
      $250,000, the receipt of the remaining proceeds from the sale of FMI’s assets of
      $664,000, proceeds from sales of stock to employees of $86,000, and revolving
      credit borrowings of $500,000 drawn down in the second quarter of 2008. The
      Company's working capital was approximately $10,700,000 and its current ratio
      was 3.5 to 1 at the end of the first six months of 2008 compared to $9,900,000
      and 3.5 to 1, respectively, at the end of 2007. At June 28, 2008, the Company
      had available borrowing capacity under its revolving line of credit of
      $4,500,000, net of the $500,000 outstanding revolving credit
      borrowings.





The
      Company's activities from continuing operations used operating cash flows of
      $1,902,000 during the first six months of 2008 compared to generating $473,000
      of operating cash flows during the first six months of 2007. The primary uses
      of
      operating cash flows from continuing operations for the first six months of
      2008
      were an increase in accounts receivable of $2,309,000 from the higher first
      six
      months sales level, an increase in inventories of $1,422,000 to meet the
      production needs of the increased backlog, and an aggregate decrease in accounts
      payable, customer deposits and accrued liabilities of $34,000. These uses of
      operating cash flows were partly offset by income from continuing operations
      for
      the first six months of 2008 of $66,000 plus depreciation and amortization
      of
      $1,270,000 and share-based compensation of $258,000, coupled with an aggregate
      reduction in current assets and other assets of $252,000.


23





The
      primary sources of operating cash flows from continuing operations for the
      first
      six months of 2007 were a decrease in accounts receivable of $645,000, a
      decrease in other current assets of $187,000, and an aggregate increase in
      accounts payable, customer deposits and accrued liabilities of $282,000, partly
      offset by the loss from continuing operations of $933,000 and an increase in
      inventory of $826,000, which was reduced by depreciation and amortization of
      $1,158,000 and share-based compensation of $132,000.





The
      Company made net cash investments in property, plant and equipment of $613,000
      during the first six months of 2008 compared to net cash investments made in
      property, plant and equipment of $756,000 during the first six months of 2007.
      These capital expenditures are related to new production and test equipment
      capabilities in connection with the introduction of new products and
      enhancements to existing products. The depreciated cost of capital equipment
      associated with Multi-Mix® Microtechnology was $4,742,000 at the end of the
      first six months of 2008, a decrease of $739,000 compared to $5,481,000 at
      the
      end of fiscal year 2007.





The
      primary uses of cash flows from financing activities during the first six months
      of 2007 were the repurchase, in a private transaction on March 14, 2007, of
      238,700 shares of common stock for the treasury at $9.00 per share for an
      aggregate total of $2,148,000 and the repayments of $275,000 of term loan
      borrowings.





The
      Company’s remaining planned equipment purchases for the second-half of 2008 have
      been reduced to approximately $400,000. The reduced capital expenditures and
      other commitments are expected to be funded through cash resources and cash
      flows expected to be generated from operations, and supplemented by the
      Company’s $5,000,000 revolving credit facility, which expires October 18, 2008.
      Capital One, N.A. has indicated to us that it does not intend to renew the
      line
      of credit. We believe that we will be able to refinance the line of credit
      with
      another financial institution, but such refinancing likely will be on less
      favorable terms to us.





On
      October 18, 2006, the Company entered into a financing agreement with Capital
      One, N.A. which consists of a two-year $5,000,000 revolving line of credit,
      a
      five-year $2,000,000 machinery and equipment term loan due October 1, 2011
      (“Term Loan”) and a ten-year $3,000,000 real estate term loan due October 1,
      2016 (“Mortgage Loan”). This financing agreement replaced the prior financing
      agreement with CIT. Completion of the new financing agreement resulted in
      additional cash loan proceeds of approximately $2,900,000 plus the release
      of
      previously restricted cash of $1,500,000. The revolving line of credit is
      subject to an availability limit under a borrowing base calculation (85% of
      eligible accounts receivable plus up to 50% of eligible raw materials inventory
      plus up to 25% of eligible electronic components, with an inventory advance
      sublimit not to exceed $1,500,000, as defined in the financing agreement).
      The
      revolving line of credit expires October 18, 2008. The Company anticipates
      the
      revolving credit facility will be refinanced, under terms less favorable than
      its existing credit facilities. At June 28, 2008, the Company had available
      borrowing capacity under its revolving line of credit of $4,500,000. The
      revolving line of credit bears interest at the prime rate less 0.50% (4.50%
      at
      June 28, 2008 and currently 4.50%) or LIBOR plus 2.00%. The principal amount
      of
      the Term Loan is payable in 59 equal monthly installments of $33,333 and one
      final payment of the remaining principal balance. The Term Loan bears interest
      at the prime rate less 0.50% (4.50% at June 28, 2008 and currently 4.50%) or
      LIBOR plus 2.25%. The principal amount of the Mortgage Loan is payable in 119
      equal monthly installments of $12,500 and one final payment of the remaining
      principal balance. The Mortgage Loan bears interest at the prime rate less
      0.50%
      (4.50% at June 28, 2008 and currently 4.50%) or LIBOR plus 2.25%. At June 28,
      2008, the Company had no portion of its borrowings under LIBOR-based interest
      rates. The revolving line of credit, the Term Loan and the Mortgage Loan are
      secured by substantially all assets located within the United States and the
      pledge of 65% of the stock of the Company's subsidiaries located in Costa Rica
      and Canada.





Capital
      One, N.A. and the Company amended the financing agreement, as of May 15, 2007,
      which (i) eliminated the fixed charge coverage ratio covenant for the quarter
      ended June 30, 2007, (ii) added a covenant related to earnings before interest,
      taxes, depreciation and amortization (“EBITDA”) for the four quarters ended June
      30, 2007 to require the Company to achieve a minimum level of EBITDA, and (iii)
      modified the fixed charge coverage ratio covenant for periods after the quarter
      ending September 29, 2007. The Company was in compliance with these amended
      covenants at June 28, 2008.





On
      August
      9, 2007, Capital One, N.A. and Merrimac entered into a Pledge and Security
      Agreement, under which North Fork Bank consented to the guaranty by Merrimac
      of
      FMI's borrowings under the revolving credit agreement with The Bank of Nova
      Scotia in the amount of up to $250,000 (Canadian). In consideration for Capital
      One, N.A. providing such consent, Merrimac deposited $250,000 into a controlled
      collateral account with Capital One, N.A. and also agreed to prepay the mortgage
      loan portion of the credit facility with Capital One, N.A. with fifty percent
      of
      the net proceeds from a sale of FMI, up to a maximum amount of $500,000. This
      agreement terminated in November 2007 when The Bank of Nova Scotia terminated
      FMI’s revolving credit agreement. Upon the termination of such agreement, the
      Company agreed to repay a portion of its Mortgage Loan with the funds in the
      controlled collateral account upon the expiration of the LIBOR contracts in
      January 2008. On January 18, 2008, Merrimac paid $250,000 of the Mortgage Loan
      using the funds previously deposited into the controlled collateral
      account.


24





Depreciation
      and amortization expenses exceeded capital expenditures for production equipment
      during the first six months of 2008 by approximately $660,000, and the Company
      anticipates that depreciation and amortization expenses will exceed capital
      expenditures in fiscal year 2008 by approximately $1,600,000. The Company
      intends to issue commitments to purchase up to $400,000 of capital equipment
      from various vendors for the remainder of 2008. The Company anticipates that
      such equipment will be purchased and become operational during 2008.





Related
      to the discontinued operations of FMI, there is a remaining lease commitment
      on
      its leased facility of approximately $160,000, however, the Company anticipates
      settling the remaining lease commitment for a reduced amount.





The
      functional currency for the Company’s Costa Rica operations is the United States
      dollar. The functional currency for the Company’s previously wholly-owned
      subsidiary FMI is the Canadian dollar. The change in accumulated other
      comprehensive income for 2007 reflects the changes in the exchange rates between
      the Canadian dollar and the United States dollar for those respective periods.
      Following the sale of the Company’s discontinued operations in December 2007,
      there is no foreign currency translation adjustment at June 28, 2008.





RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 “Fair Value Measurements”. SFAS No. 157 establishes a single authoritative
      definition of fair value, sets out a framework for measuring fair value and
      requires additional disclosures about fair-value measurements. SFAS No. 157
      applies only to fair-value measurements that are already required or permitted
      by other accounting standards and is expected to increase the consistency of
      those measurements. It will also affect current practices by nullifying Emerging
      Issues Task Force guidance that prohibited recognition of gains or losses at
      the
      inception of derivative transactions whose fair value is estimated by applying
      a
      model and by eliminating the use of “blockage” factors by brokers, dealers and
      investment companies that have been applying
      AICPA Guides. The Company adopted SFAS No. 157 On December 30, 2007. The
      adoption of SFAS No. 157 did not have an impact on its financial position and
      results of operations.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      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. The
      Company adopted SFAS No. 159 on December 30, 2007. The adoption of SFAS No.
      159
      did not have an impact on its financial position and results of operations,
      since the Company did not elect the fair value option for any assets or
      liabilities.





In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R 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 if the acquired company and the goodwill
      acquired. SFAS 141R 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
      Company is currently evaluating the impact that SFAS 141R will have on its
      financial position and results of operations.





In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      160 “Noncontrolling Interests in Consolidated Financial Statements-an amendment
      of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 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
      160
      is effective for fiscal periods beginning after December 15, 2008. The Company
      is currently evaluating the impact that SFAS 160 will have on its financial
      position and results of operations.


25





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 December 29, 2007, which is incorporated herein by reference. Our
      exposure to market risk has not changed materially since December 29, 2007.





ITEM
      4.
      CONTROLS AND PROCEDURES





As
      of
      June 28, 2008 (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 June
      28, 2008, the Company's disclosure controls and procedures were 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 provide such reasonable assurance.





No
      change
      occurred in the Company's internal controls concerning financial reporting
      during the Company's most recent fiscal quarter that has materially affected,
      or
      is reasonably likely to materially affect, the Company's internal controls
      over
      financial reporting.


26


PART
      II
      OTHER INFORMATION





ITEM
      1.
      LEGAL PROCEEDINGS.





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





On
      February 22, 2008, a statement of claim in Ontario Superior Court of Justice
      was
      filed by a former FMI employee against FMI seeking damages for approximately
      $77,000 ($75,000 Canadian) for wrongful dismissal following the sale of FMI’s
      assets to FTG. The Company settled this claim in May 2008 for a minimal
      amount.





On
      March
      10, 2008, a statement of claim in Ontario Superior Court of Justice was filed
      by
      nineteen (19) 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. Merrimac
      believes it has been improperly named in this claim and is petitioning the
      Court
      to be removed as a defendant.





Merrimac
      has an Employment Practices Liability insurance policy that extends coverage
      to
      its 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. Merrimac made provision for the deductible amount of the insurance policy
      which is $25,000. In accordance with the requirements of SFAS No. 5, after
      discussions with counsel, Merrimac cannot presently determine if the likelihood
      of an unfavorable outcome is probable, reasonably possible or remote. In
      addition, Merrimac cannot reasonably estimate the amount of a probable loss,
      other than the minimal deductible amount under the insurance policy. Merrimac
      and its insurance carrier intend to defend this claim vigorously.





On
      July
      23, 2008, a Statement of Claim was filed in Ontario Superior Court of Justice
      by
      the lessor of the premises formerly occupied by FMI in Ontario, Canada, against
      FMI, Merrimac, and FTG. The Statement of Claim seeks damages of $150,612 in
      respect of the period from and after which FTG, which purchased the assets
      of
      FMI, removed operations from the premises through the term of the lease. In
      addition, the Statement of Claim seeks damages for $110,319 for repairs to
      the
      premises, and seeks to set aside the transfer of assets from FMI to FTG for
      the
      failure to comply with the Bulk Sales Act Ontario.





In
      accordance with the requirements of SFAS No. 5, after discussions with counsel,
      Merrimac cannot presently determine if the likelihood of an unfavorable outcome
      is probable, reasonably possible or remote. In addition, Merrimac cannot
      reasonably estimate the amount of a probable loss. The Company intends to defend
      this claim 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 2007, except that the Risk Factor captioned “Our
      revolving line of credit expires in October 2008 and the failure to renew the
      revolving line of credit or a renewal on less favorable terms could have a
      material adverse effect on our business operations” is revised to read as
      follows:





Our
      revolving line of credit expires in October 2008 and the failure to refinance
      the revolving line of credit or a refinancing on less favorable terms could
      have
      a material adverse effect on our business operations.





Our
      revolving line of credit with Capital One, N.A. expires in October 2008. Capital
      One, N.A. has indicated to us that it does not intend to renew the line of
      credit. We believe that we will be able to refinance the line of credit with
      another financial institution, but such refinancing likely will be on less
      favorable terms to us. In the event that we are unable to refinance the
      revolving line of credit with another financial institution or if we are
      required to refinance our line of credit on less favorable terms, our business
      operations could suffer a material adverse effect.


27





ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





On
      June
      26, 2008, the Company held its Annual Stockholders Meeting at which the
      stockholders elected two members to the Company's Board of Directors. The
      stockholders of the Company elected Mason N. Carter and Timothy P. McCann as
      Class III Directors whose terms expire at the 2011 Annual Meeting.





The
      following sets forth the number of votes cast for, against or withheld, as
      well
      as the number of abstentions and broker non-votes, voted upon at the Company's
      June 26, 2008 Annual Stockholders Meeting:





Election
      of Directors.





For
            
            Withheld
            
            Abstain
            
            Broker Non-VotesMason
                N. Carter
            
            
            2,302,252
            
            
            216,104
            
            
            -0-
            
            
            -0-Timothy
                P. McCann
            
            
            2,484,169
            
            
            34,187
            
            
            -0-
            
            
            -0-




Ratification of J.H. Cohn LLP as the Company's independent
      registered public accounting firm.




For
            
            
            Against
            
            
            Abstain2,513,691
            
            
            3,572
            
            
            1,093




The
      Company’s three Class I directors, Fernando L. Fernandez, Joel H. Goldberg and
      Ludwig G. Kuttner and three Class II directors, Edward H. Cohen, Arthur A.
      Oliner and Harold J. Raveché, continued as directors after the Annual
      Stockholders Meeting and are serving terms expiring at the time of the Company's
      annual meetings in 2009 and 2010, respectively, and until their respective
      successors have been duly elected and qualified.




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.




28


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:
                  August 18, 2008
              By:
              /s/
                  Mason N. CarterMason
                  N. CarterChairman,
                  President andChief
                  Executive OfficerDate:
                  August 18, 2008
              By:
              /s/
                  Robert V. CondonRobert
                  V. CondonVice
                  President, Finance andChief
                  Financial Officer






29