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 March 29, 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 May
      9, 2008, there were 2,939,581 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
                StatementsConsolidated
                Statements of Operations and Comprehensive Income (Loss)for
                the Quarters Ended March 29, 2008and
                March 31, 2007 (Unaudited)
            1Consolidated
                Balance Sheets-March 29, 2008 (Unaudited) andDecember
                29, 2007
            2Consolidated
                Statement of Stockholders’ Equity for the QuarterEnded
                March 29, 2008 (Unaudited)
            3Consolidated
                Statements of Cash Flows for the QuartersEnded
                March 29, 2008 and March 31, 2007 (Unaudited)
            4Notes
                to Consolidated Financial Statements
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            14Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            23Item
                4.
            Controls
                and Procedures
            23PART
                II.
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            23Item
                1A.
            Risk
                Factors
            23Item
                5.
            Other
                Information
            24Item
                6.
            Exhibits
            24Signatures
            25











PART
      I.
      FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS





MERRIMAC
      INDUSTRIES, INC.





CONSOLIDATED
      STATEMENTS OF OPERATIONS


AND
      COMPREHENSIVE INCOME (LOSS)


(UNAUDITED)





Quarters
                EndedMarch
                29,
            
            March
                31,2008
            
            2007CONTINUING
                OPERATIONSNet
                sales
            
            $
            5,757,686
            
            $
            4,511,446Costs
                and expenses:Cost
                of sales
            
            
            3,451,960
            
            
            2,814,120Selling,
                general and administrative
            
            
            2,244,570
            
            
            2,217,002Research
                and development
            
            
            372,818
            
            
            484,2456,069,348
            
            
            5,515,367Operating
                loss
            
            
            (311,662
            )
            
            (1,003,921
            )Interest
                and other (expense) income, net
            
            
            (60,573
            )
            
            20,632Loss
                from continuing operations before income taxes
            
            
            (372,235
            )
            
            (983,289
            )Provision
                for income taxes
            
            
            -
            
            
            -Loss
                from continuing operations
            
            
            (372,235
            )
            
            (983,289
            )DISCONTINUED
                OPERATIONSLoss
                from discontinued operations
            
            
            -
            
            
            (280,513
            )Net
                loss
            
            $
            (372,235
            )
            $
            (1,263,802
            )Loss
                per common share from continuing operations-basic and
                diluted
            
            $
            (.13
            )
            $
            (.32
            )Loss
                per common share from discontinued operations-basic and
                diluted
            
            $
            -
            
            $
            (.09
            )Net
                loss per common share-basic and diluted
            
            $
            (.13
            )
            $
            (.41
            )Weighted
                average number of shares outstanding-basic and diluted
            
            
            2,932,521
            
            
            3,096,315COMPREHENSIVE
                INCOME (LOSS)Net
                loss
            
            $
            (372,235
            )
            $
            (1,263,802
            )Other
                comprehensive income:Foreign
                currency translation adjustment
            
            
            -
            
            
            61,383Comprehensive
                loss
            
            $
            (372,235
            )
            $
            (1,202,419
            )





See
      accompanying notes.




1




MERRIMAC
      INDUSTRIES, INC.


CONSOLIDATED
      BALANCE SHEETS





March 29,
            
            December 29,2008
            
            2007(UNAUDITED)
            
            (Note
                1)ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            626,882
            
            $
            2,004,471Accounts
                receivable, net
            
            
            5,796,735
            
            
            5,299,753Inventories,
                net
            
            
            6,074,147
            
            
            5,039,770Other
                current assets
            
            
            741,803
            
            
            774,007Due
                from assets sale contract
            
            
            -
            
            
            664,282Total
                current assets
            
            
            13,239,567
            
            
            13,782,283Property,
                plant and equipment
            
            
            37,863,621
            
            
            37,556,672Less
                accumulated depreciation and amortization
            
            
            27,173,685
            
            
            26,600,240Property,
                plant and equipment, net
            
            
            10,689,936
            
            
            10,956,432Restricted
                cash
            
            
            -
            
            
            250,000Other
                assets
            
            
            539,117
            
            
            531,633Deferred
                tax assets
            
            
            52,000
            
            
            52,000Total
                Assets
            
            $
            24,520,620
            
            $
            25,572,348LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Current
                portion of long-term debt
            
            $
            550,000
            
            $
            550,000Accounts
                payable
            
            
            976,371
            
            
            943,381Accrued
                liabilities
            
            
            1,461,746
            
            
            1,965,403Customer
                deposits
            
            
            346,272
            
            
            363,296Deferred
                income taxes
            
            
            52,000
            
            
            52,000Total
                current liabilities
            
            
            3,386,389
            
            
            3,874,180Long-term
                debt, net of current portion
            
            
            3,375,000
            
            
            3,762,500Deferred
                liabilities
            
            
            62,038
            
            
            61,300Total
                liabilities
            
            
            6,823,427
            
            
            7,697,980Commitments
                    and contingencies Stockholders' equity:Preferred
                stock, par value $.01 per share: Authorized: 1,000,000 shares No
                shares
                issuedCommon
                stock, par value $.01 per share: 20,000,000 shares authorized; 3,300,289
                and 3,289,103 shares issued; and 2,937,384 and 2,926,198 shares
                outstanding, respectively
            
            
            33,003
            
            
            32,891Additional
                paid-in capital
            
            
            19,984,665
            
            
            19,789,717Retained
                earnings
            
            
            801,689
            
            
            1,173,92420,819,357
            
            
            20,996,532Less
                treasury stock, at cost – 362,905 shares at March 29, 2008 and
                December 29, 2007
            
            
            (3,122,164
            )
            
            (3,122,164
            )Total
                stockholders' equity
            
            
            17,697,193
            
            
            17,874,368Total
                Liabilities and Stockholders' Equity
            
            $
            24,520,620
            
            $
            25,572,348





See
      accompanying notes.




2





MERRIMAC
      INDUSTRIES, INC.


CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY


QUARTER
      ENDED MARCH 29, 2008


(UNAUDITED)




AdditionalCommon Stock
            
            Paid-in
            
            Retained
            
            Treasury StockShares
            
            Amount
            
            Capital(A)
            
            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
                loss
            
            
            
            
            
            
            
            
            
            
            
            (372,235
            )
            
            
            
            
            
            
            
            (372,235
            )Share-based
                compensation
            
            
            
            
            
            
            
            
            120,346
            
            
            
            
            
            
            
            
            
            
            
            120,346Stock
                Purchase Plan sales
            
            
            7,104
            
            
            71
            
            
            46,312
            
            
            
            
            
            
            
            
            
            
            
            46,383Exercise
                of stock options
            
            
            4,082
            
            
            41
            
            
            28,290
            
            
            
            
            
            
            
            
            
            
            
            28,331Balance,
                March 29, 2008
            
            
            3,300,289
            
            $
            33,003
            
            $
            19,984,665
            
            $
            801,689
            
            
            362,905
            
            $
            (3,122,164
            )
            $
            17,697,193





(A)
      Tax
      benefits associated with the exercise of employee stock options are recorded
      to
      additional paid-in capital when such benefits are realized.




See
      accompanying notes.




3


MERRIMAC
      INDUSTRIES, INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(UNAUDITED)




Quarters EndedMarch 29, 2008
            
            March 31, 2007Cash
                flows from operating activities:Net
                loss
            
            $
            (372,235
            )
            $
            (1,263,802
            )Less
                loss from discontinued operations
            
            
            -
            
            
            (280,513
            )Loss
                from continuing operations
            
            
            (372,235
            )
            
            (983,289
            )Adjustments
                to reconcile net loss from continuing operations to net cash provided
                by
                (used in) operating activities:Depreciation
                and amortization
            
            
            618,341
            
            
            571,361Amortization
                of deferred financing costs
            
            
            8,040
            
            
            7,196Share-based
                compensation
            
            
            120,346
            
            
            51,461Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (496,982
            )
            
            1,023,611Inventories
            
            
            (1,034,377
            )
            
            (174,565
            )Other
                current assets
            
            
            32,203
            
            
            246,076Other
                assets
            
            
            (15,524
            )
            
            17,297Accounts
                payable
            
            
            32,890
            
            
            (131,595
            )Accrued
                liabilities
            
            
            (503,656
            )
            
            47,631Customer
                deposits
            
            
            (17,024
            )
            
            (14,229
            )Deferred
                liabilities
            
            
            738
            
            
            5,865Net
                cash provided by (used in) operating activities of continuing
                operations
            
            
            (1,627,240
            )
            
            666,820Net
                  cash used in operating activities of discontinued
                  operations
            
            
            -
            
            
            (151,911
            )Net
                cash provided by (used in) operating activities
            
            
            (1,627,240
            )
            
            514,909Cash
                flows from investing activities:Purchases
                of capital assets
            
            
            (351,845
            )
            
            (400,524
            )Cash
                proceeds from sale of discontinued operations
            
            
            664,282
            
            
            -Net
                cash provided by (used in) investing activities of continuing
                operations
            
            
            312,437
            
            
            (400,524
            )Net
                  cash used in investing activities of discontinued
                  operations
            
            
            -
            
            
            (98,202
            )Net
                cash provided by (used in) investing activities
            
            
            312,437
            
            
            (498,726
            )Cash
                flows from financing activities:Repurchase
                of common stock for the treasury
            
            
            -
            
            
            (2,148,300
            )Repayment
                of borrowings
            
            
            (387,500
            )
            
            (137,500
            )Restricted
                cash returned
            
            
            250,000
            
            
            -Proceeds
                from the exercise of stock options
            
            
            28,331
            
            
            43,750Proceeds
                from Stock Purchase Plan sales
            
            
            46,383
            
            
            7,495Net
                cash used in financing activities of continuing
                operations
            
            
            (62,786
            )
            
            (2,234,555
            )Net
                cash used in financing activities of discontinued
                operations
            
            
            -
            
            
            (43,010
            )Net
                cash used in financing activities
            
            
            (62,786
            )
            
            (2,277,565
            )Effect
                of exchange rate changes on cash
            
            
            -
            
            
            2,327Net
                decrease in cash and cash equivalents
            
            
            (1,377,589
            )
            
            (2,259,055
            )Cash
                and cash equivalents at beginning of period, including $0 and $562,205
                reported under assets held for sale
            
            
            2,004,471
            
            
            5,961,538Cash
                and cash equivalents at end of period including $0 and $271,409 reported
                under assets held for sale
            
            $
            626,882
            
            $
            3,702,483Supplemental
                disclosures of cash flow information:Cash
                paid during the period forinterest
                on credit facilities
            
            $
            62,044
            
            $
            91,341





See
      accompanying notes .




4





MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





1.
      BASIS
      OF PRESENTATION





The
      accompanying unaudited 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 March 29, 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 first quarter of 2007 have been reported as discontinued
      operations.





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





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





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





Quarter ended
              March 31,
              2007Net
                sales
            
            $
            925,674Net
                loss
            
            $
            (280,513
            )





5


MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





3.
      CONTRACT REVENUE RECOGNITION


The
        Company recognizes revenue in accordance with the provisions of Staff Accounting
        Bulletin No. 104. Contract revenue and related costs on fixed-price and
        cost-reimbursement contracts that require customization of products to customer
        specifications are recorded when title transfers to the customer, which is
        generally on the date of shipment, collection of the related receivable is
        probable, persuasive evidence of an arrangement exists and the sales price
        is
        fixed or determinable. Prior to shipment, accumulated manufacturing costs
        incurred on such contracts are recorded as work-in-process inventory. The
        Company currently has one contract for the engineering design, development
        and
        production of space electronics products. The Company accounts for this contract
        in accordance with AICPA Statement of Position No. 81-1, “Accounting for
        Performance of Construction-Type and Certain Production-Type Contracts”. Sales
        and related contract costs for design and development services under this
        contract are recognized based on the cost-to-cost method. Sales and related
        contract costs for products delivered under this contract are recognized
        on a
        units-of-delivery basis. Revenue related to non-recurring engineering charges
        is
        generally recognized upon shipment of the related initial units produced
        or
        based upon contractually established stages of completion. Anticipated losses
        on
        contracts are charged to operations in the period when the loss becomes known.
        The reserve for cost overruns is shown as a reduction of the accumulated
        costs
        recorded as work-in-process inventory.


The
      cost
      rates utilized for cost-reimbursement contracts are subject to review by third
      parties and can be revised, which can result in additions to or reductions
      from
      revenue. Revisions which result in reductions to revenue are recognized in
      the
      period that the rates are reviewed and finalized; additions to revenue are
      recognized in the period that the rates are reviewed, finalized, accepted by
      the
      customer, and collectability from the customer is reasonably assured. The
      Company submits financial information regarding the cost rates on
      cost-reimbursement contracts for each fiscal year in which the Company performed
      work on cost-reimbursement contracts. The Company does not record any estimates
      on a regular basis for potential revenue adjustments, as there currently is
      no
      reasonable basis on which to estimate such adjustments given the Company’s very
      limited experience with these contracts. No revenue was recognized related
      to
      cost-reimbursement contracts during the first quarters of 2008 or 2007.





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 March 31, 2007 was attributable solely
      to the effects of foreign currency translation.  Following
      the sale of the Company’s discontinued operations, there is no foreign currency
      translation adjustment at March 29, 2008.




6.
      RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 “Fair Value Measurements” (“SFAS No. 157”). 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 Company
      has no financial assets or liabilities subject to the requirements of SFAS
      No.
      157. The adoption of SFAS No. 157 did not have an impact on its financial
      position or 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”). 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 or results
      of
      operations.




6




MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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 of 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 ended March 29, 2008 and March 31, 2007, share-based compensation
      expense related to the various stock option plans and the 2001 Employee Stock
      Purchase Plan was allocated as follows:





Quarters EndedMarch 29, 2008
            
            March 31, 2007Cost
                of sales
            
            $
            45,000
            
            $
            8,000Selling,
                general and administrative
            
            
            75,000
            
            
            43,000Total
                share-based compensation
            
            $
            120,000
            
            $
            51,000




The
      fair
      value of the options granted was estimated on the date of grant using the
      Black-Scholes option valuation model. There were no options granted in either
      of
      the quarters ended March
      29,
      2008 or March 31, 2007, respectively.





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.





7


MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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
      March
      29, 2008, there were 315,900 options outstanding under the 2006 Stock Option
      Plan of which 25,167 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 184,100 at March 29,
      2008.





At
      March
      29, 2008, the Company also maintains share-based compensation arrangements
      under
      the following plans: (i) 1993 Stock Option Plan; (ii) 1997 Long Term Incentive
      Plan; and (iii) 2001 Stock Option Plan.





At
      March
      29, 2008, there were 192,480 options outstanding under the 1993 Stock Option
      Plan, the 1997 Long Term Incentive Plan and the 2001 Stock Option Plan, of
      which
      all were exercisable. No options are available for future grant under the 1993
      Stock Option Plan, the 1997 Long Term Incentive Plan or the 2001 Stock Option
      Plan.





A
      summary
      of all stock option activity and information related to all options outstanding
      for the quarter ended March 29, 2008 follows:




2008Weightedaverage
            
            Sharesexercise
            
            or
                priceprice
            
            per
                shareOutstanding
                at beginning of year
            
            $
            9.30
            
            
            594,747Granted
            
            
            -
            
            
            -Exercised
            
            
            6.94
            
            
            (4,082
            )Expired
            
            
            8.46
            
            
            (23,785
            )Forfeited
            
            
            11.29
            
            
            (58,500
            )Outstanding
                at end of period
            
            
            9.32
            
            
            508,380Exercisable
                at end of period
            
            $
            9.20
            
            
            222,647Option
                price range at end of period
            
            
            $3.10-$17.00Weighted
                average estimated fair value of options granted during the
                year
            
            
            
            
            $
            -




8





MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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





Aggregate
                intrinsic value of all options at March 29, 2008
            
            $
            65,000Aggregate
                intrinsic value of exercisable options at March 29, 2008
            
            $
            65,000Intrinsic
                value of options exercised during 2008
            
            $
            9,000





The
      aggregate intrinsic value represents the total pre-tax intrinsic value (the
      difference between the Company’s closing stock price on the last trading day of
      the period and the exercise price, multiplied by the number of in-the-money
      options) that would have been received by the option holders had all option
      holders exercised their options on March 29, 2008.





As
      of
      March 29, 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 $731,000. Of that total, $283,000, $332,000 and $116,000
      are
      expected to be recognized in 2008, 2009 and 2010, 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
      20, 2007, the Company issued a grant of 10,500 shares of restricted stock to
      its
      non-employee directors. The per share price of the grant was $9.78 (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 quarters ended
      March
      29, 2008 and March 31, 2007 related to the grants of restricted stock was
      approximately $16,000 and $7,000, which was based on a straight-line
      amortization. Restricted shares of common stock available for grant under the
      2006 Non-Employee Directors’ Stock Plan were 80,500 at March 29,
      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
            
            
            -
            
            
            -Vested
            
            
            -
            
            
            -Outstanding
                at March 29, 2008
            
            $
            9.69
            
            
            16,500




9


MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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:





March 29,
              2008
            
            December 29,
              2007Finished
                goods
            
            $
            278,096
            
            $
            239,503Work
                in process
            
            
            3,684,579
            
            
            2,979,632Raw
                materials and purchased parts
            
            
            2,111,472
            
            
            1,820,635Total
            
            $
            6,074,147
            
            $
            5,039,770





Total
      inventories are net of valuation allowances for obsolescence and cost overruns
      of $1,469,000 at March 29, 2008 and $1,623,000 at December 29, 2007  of
      which
      $127,000 and $202,000,  respectively,
      represented cost overruns related to work-in-process inventory. The Company
      recorded provisions for obsolescence and cost overruns of $(75,000) and $23,000
      for the quarters ended March 29, 2008 and March 31, 2007,
      respectively.





9. LONG-LIVED
      ASSETS





The
      Company accounts for long-lived assets under SFAS No. 144, “Accounting for the
      Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). The Company’s
      fixed assets and intangible assets related to its 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 the Company
      has
      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.





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.





10.
      CURRENT AND LONG-TERM DEBT





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




2008
            
            2007Capital
                One, N.A.:Revolving
                line of credit, 2.00% above LIBOR or 0.50% below prime
            
            $
            -
            
            $
            -Term
                    loan, due October 1, 2011, 2.25% above LIBOR or 0.50% below
                    prime
            
            
            1,400,000
            
            
            1,500,000Mortgage
                    loan, due October 1, 2016, 2.25% above LIBOR or 0.50% below
                    prime
            
            
            2,525,000
            
            
            2,812,5003,925,000
            
            
            4,312,500Less
                current portion
            
            
            550,000
            
            
            550,000Long-term
                portion
            
            $
            3,375,000
            
            $
            3,762,500




10





MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




On
      October 18, 2006, the Company entered into a financing agreement with Capital
      One, N.A. (previously North Fork Bank) (“Capital One”) 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”). 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
      renewed. At March 29, 2008, the Company had available borrowing capacity under
      its revolving line of credit of $3,660,000. The revolving line of credit bears
      interest at the prime rate less 0.50% (4.75% at March 29, 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%
      (4.75% at March 29, 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% (4.75% at March 29, 2008 and
      currently 4.50%) or LIBOR plus 2.25%. At March 29, 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 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 March 29, 2008.





On
      August
      9, 2007, Capital One and Merrimac entered into a Pledge and Security Agreement,
      under which Capital One 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
      providing such consent, Merrimac deposited $250,000 into a controlled collateral
      account with Capital One and also agreed to prepay the mortgage loan portion
      of
      the credit facility with Capital One 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.





At
      March
      29, 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
      $50,000 and $51,000 for the quarters ended March 29, 2008 and March 31, 2007,
      respectively. The warranty reserve at March 29, 2008 and December 29, 2007
      was
      $200,000.





12.
      INCOME TAXES





As
      of
      March 29, 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
      quarter of 2008.





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
      March 29, 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
      within the provision for income taxes.




11




MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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





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.





Because
      of the net loss for the quarters ended March 29, 2008 and March 31, 2007
      approximately 508,000 and 386,000 shares, respectively, 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 first quarter of 2008, the Company's outside general counsel Katten Muchin
      Rosenman LLP was paid $73,000 for providing legal services to the Company.
      During the first quarter of 2007, Katten Muchin Rosenman LLP was paid $88,000.
      A
      director of the Company is counsel to Katten Muchin Rosenman LLP but does not
      share in the fees that the Company pays to such law firm and his compensation
      is
      not based on such fees.




During
      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 $1,000 to these companies during the first quarter
      of 2008. The Company paid an aggregate of $16,000 to these companies during
      the
      first quarter of 2007. A director of the Company is the chairman and chief
      executive officer of these companies.





During
      each of the first quarters of 2008 and 2007, a director of the Company was
      paid
      $9,000 for providing technology-related consulting services to the Company.





The
      Company has an agreement with DuPont Electronic Technologies (“DuPont”), a
      stockholder and the employer of a director, for providing technological and
      marketing-related personnel and services on a cost-sharing basis to the Company
      under the Technology Agreement dated February 28, 2002. No payments were made
      to
      DuPont during the first quarters of 2008 and 2007. A director of the Company
      is
      an officer of DuPont, but does not share in any of these payments.





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




12




MERRIMAC
      INDUSTRIES, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





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. 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.





15.
      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.





16.
      LEGAL
      PROCEEDINGS





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 agreed to settle 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.





The
      Company believes it has been improperly named in this claim and is petitioning
      the Court to be removed as a defendant.





The
      Company 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. The Company 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, The Company cannot presently determine
      if
      the likelihood of an unfavorable outcome is probable, reasonably possible or
      remote. In addition, The Company cannot reasonably estimate the amount of a
      probable loss, other than the minimal deductible amount under the insurance
      policy. The Company and its insurance carrier intend to defend these claims
      vigorously.




13




ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





FORWARD-LOOKING
      STATEMENTS




This
      Quarterly Report on Form 10-Q contains statements relating to future results
      of
      Merrimac (including certain projections and business trends) that are
      "forward-looking statements" as defined in the Private Securities Litigation
      Reform Act of 1995. In this report, the words “we”, “us” and “our” refer to
      Merrimac and its subsidiaries. Actual results may differ materially from those
      projected as a result of certain risks and uncertainties. These risks and
      uncertainties include, but are not limited to: risks associated with demand
      for
      and market acceptance of existing and newly developed products as to which
      the
      Company has made significant investments, particularly its Multi-Mix® products;
      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.





The
      Company continued to experience losses from continuing operations in the first
      quarter of 2008 despite increased orders and backlog as such increased orders
      and backlog required
      additional hiring resulting in increased personnel costs. Improved orders and
      the increased opening backlog from 2007 provided the increase in sales during
      the first quarter of 2008 compared to the first quarter of 2007, particularly
      sales of Multi-Mix® products to the defense industry. The increased gross profit
      from the higher sales level, along with lower research and development expenses
      resulted in a lower operating loss for the first quarter of 2008 as compared
      to
      the first quarter of 2007. 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
      March 29, 2008 backlog is the highest quarter-end backlog the Company has
      achieved.





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.




14




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
      capital expenditures in fiscal year 2008 by approximately $900,000. The Company
      intends to issue commitments to purchase $1,300,000 of capital equipment from
      various vendors for the remainder of 2008. The Company anticipates that such
      equipment will be purchased and become operational during 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. The Company anticipates the revolving
      credit facility will be renewed.





Selling,
      general and administrative expenses consist of personnel costs for
      administrative, selling and marketing groups, sales commissions to employees
      and
      manufacturing representatives, travel, product marketing and promotion costs,
      as
      well as legal, accounting, information technology and other administrative
      costs. 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 the Board of Directors approved on August 9, 2007,
      that the Company should divest its FMI operations with the view to 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.





15


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





March 31,
              2007Net
                sales
            
            $
            926,000Net
                loss
            
            $
            (281,000
            )





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





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





The
      following is a summary of the carrying amounts of the Multi-Mix® Microtechnology
      net assets included in the Company's consolidated financial statements at March
      29, 2008 and the related future planned purchases and lease obligation
      commitments through January 2011.





Net
                assets:Property,
                plant and equipment, at cost
            
            $
            14,851,000Less
                accumulated depreciation and amortization
            
            
            9,706,000Property,
                plant and equipment, net
            
            
            5,145,000Inventories
            
            
            488,000Other
                assets, net
            
            
            144,000Total
                net assets at March 29, 2008
            
            
            5,777,000Commitments:Planned
                equipment purchases for the remainder of 2008
            
            
            625,000Lease
                obligations through January 2011
            
            
            550,000Total
                commitments
            
            
            1,175,000Total
                net assets and commitments
            
            $
            6,952,000





Approximately
      35% 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 was required at that time. Management will continue
      to monitor the recoverability of the Multi-Mix® assets.




16




Contract
      Revenue Recognition


The
        Company recognizes revenue in accordance with the provisions of Staff Accounting
        Bulletin No. 104. Contract revenue and related costs on fixed-price and
        cost-reimbursement contracts that require customization of products to customer
        specifications are recorded when title transfers to the customer, which is
        generally on the date of shipment, collection of the related receivable is
        probable, persuasive evidence of an arrangement exists and the sales price
        is
        fixed or determinable. Prior to shipment, accumulated manufacturing costs
        incurred on such contracts are recorded as work-in-process inventory. The
        Company currently has one contract for the engineering design, development
        and
        production of space electronics products. The Company accounts for this contract
        in accordance with AICPA Statement of Position No. 81-1, “Accounting for
        Performance of Construction-Type and Certain Production-Type Contracts”. Sales
        and related contract costs for design and development services under this
        contract are recognized based on the cost-to-cost method. Sales and related
        contract costs for products delivered under this contract are recognized
        on a
        units-of-delivery basis. Revenue related to non-recurring engineering charges
        is
        generally recognized upon shipment of the related initial units produced
        or
        based upon contractually established stages of completion. Anticipated losses
        on
        contracts are charged to operations in the period when the loss becomes known.
        The reserve for cost overruns is shown as a reduction of the accumulated
        costs
        recorded as work-in-process inventory.





The
      cost
      rates utilized for cost-reimbursement contracts are subject to review by third
      parties and can be revised, which can result in additions to or reductions
      from
      revenue. Revisions which result in reductions to revenue are recognized in
      the
      period that the rates are reviewed and finalized; additions to revenue are
      recognized in the period that the rates are reviewed, finalized, accepted by
      the
      customer, and collectability from the customer is reasonably assured. The
      Company submits financial information regarding the cost rates on
      cost-reimbursement contracts for each fiscal year in which the Company performed
      work on cost-reimbursement contracts. The Company does not record any estimates
      on a regular basis for potential revenue adjustments, as there currently is
      no
      reasonable basis on which to estimate such adjustments given the Company’s very
      limited experience with these contracts. No revenue was recognized related
      to
      cost-reimbursement contracts during the first quarters of 2008 or 2007.





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. Total inventories are net of valuation
      allowances for obsolescence and cost overruns of $1,469,000 at March 29, 2008
      and $1,623,000 at December 29, 2007. The Company recorded provisions for
      obsolescence and cost overruns of $(75,000) and $23,000 for the quarters ended
      March 29, 2008 and March 31, 2007, respectively.





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.




Valuation
      of Deferred Tax Assets





As
      of
      March 29, 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
      quarter of 2008.




17


CONSOLIDATED
      STATEMENTS OF OPERATIONS SUMMARY


(UNAUDITED)





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





Percentage of Net SalesQuarters
                EndedMarch 29,
            
            March 31,Continuing
                operations
            
            2008
            
            2007Net
                sales
            
            
            100.0
            %
            
            100.0
            %Costs
                and expenses:Cost
                of sales
            
            
            60.0
            
            
            62.4Selling,
                general and administrative
            
            
            39.0
            
            
            49.2Research
                and development
            
            
            6.4
            
            
            10.7105.4
            
            
            122.3Operating
                loss
            
            
            (5.4
            )
            
            (22.3
            )Interest
                and other (expense) income, net
            
            
            (1.1
            )
            
            0.5Loss
                    from continuing operations before income taxes
            
            
            (6.5
            )
            
            (21.8
            )Provision
                for income taxes
            
            
            -
            
            
            -Loss
                from continuing operations
            
            
            (6.5
            )
            
            (21.8
            )Loss
                from discontinued operations
            
            
            -
            
            
            (6.2
            )Net
                loss
            
            
            (6.5
            )%
            
            (28.0
            )%





**FIRST
      QUARTER OF 2008 COMPARED TO THE FIRST QUARTER OF 2007-CONTINUING
      OPERATIONS**





*Net
      sales.*





Net
      sales
      from continuing operations for the first quarter of 2008 were $5,758,000, an
      increase of $1,247,000 or 27.6 percent compared to the first quarter of 2007
      net
      sales of $4,511,000. Net sales from continuing operations increased due to
      the
      higher level of orders received during 2007 and the resultant higher backlog
      at
      the beginning of the 2008 fiscal year, including
      higher sales of Multi-Mix® products to defense industry related customers.





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, indicating the backlog is being
      replenished by new orders at a higher rate than the sales being removed from
      the
      backlog.





The
      following table presents key performance measures that we use to monitor our
      operating results for the quarters ended March 29, 2008 and March 31,
      2007:





2008
            
            2007Beginning
                backlog
            
            $
            17,991,000
            
            $
            11,490,000Plus
                orders
            
            
            8,155,000
            
            
            5,969,000Less
                net sales
            
            
            5,758,000
            
            
            4,511,000Ending
                backlog
            
            $
            20,388,000
            
            $
            12,948,000Book-to-bill
                ratio
            
            
            1.42
            
            
            1.32





Orders
      of
      $8,155,000 were received during the first quarter of 2008, an increase of
      $2,186,000 or 36.6% compared to $5,969,000 in orders received during the first
      quarter of 2007. Backlog increased by $2,397,000 or 13.3% to $20,388,000 at
      the
      end of the first quarter of 2007 compared to $17,991,000 at year-end 2007,
      due
      to the increased orders received during the first three months from defense
      industry related customers that are scheduled for shipment later in 2008 and
      2009. The book-to-bill ratio for the first quarter of 2008 was 1.42 to 1 and
      for
      the first quarter of 2007 was 1.32 to 1. The orders, backlog and book-to-bill
      data for the first quarter of 2007 exclude FMI information.





18


*Cost
      of sales and Gross profit.*





The
      following table provides comparative gross profit information between the
      quarters ended March 29, 2008 and March 31, 2007.





Quarter ended March 29, 2008
            
            Quarter ended March 31, 2007$
            
            Increase/
              (Decrease)
              from prior
              period
            
            % of
              Net Sales
            
            $
            
            Increase/
              (Decrease)
              from prior
              period
            
            % of
              Net SalesConsolidated
                gross profit
            
            $
            2,306,000
            
            $
            609,000
            
            
            40.0
            %
            $
            1,697,000
            
            $
            (171,000
            )
            
            37.6
            %





The
      increase in consolidated gross profit and consolidated gross profit percentage
      for the first quarter of 2008 was due to the impact of the higher level of
      sales
      allowing the Company to better absorb fixed manufacturing costs.





Depreciation
      expense included in consolidated cost of sales for the first quarter of 2008
      was
      $572,000, an increase of $45,000 compared to the first quarter of 2007. For
      the
      first quarter of 2008, approximately $398,000 of depreciation expense was
      associated with Multi-Mix® Microtechnology capital assets. For the first quarter
      of 2007, approximately $375,000 of depreciation expense was associated with
      Multi-Mix® Microtechnology capital assets.





*Selling,
      general and administrative expenses.*





Selling,
      general and administrative expenses of $2,245,000 for the first quarter of
      2008
      increased by $28,000 or 1.2%, and when expressed as a percentage of net sales,
      decreased by 10.2 percentage points to 39.0% compared to the first quarter
      of
      2007. The increase in such expenses for the first quarter of 2008 was due to
      higher commissions and selling costs related to additional sales personnel
      hired and
      higher professional fees.





*Research
      and development expenses.*





Research
      and development expenses for new products were $373,000 for the first quarter
      of
      2008, a decrease of $111,000 or 23.0%, and when expressed as a percentage of
      net
      sales, decreased by 4.3 percentage points to 6.4% compared to the first quarter
      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
      loss from continuing operations.*





Operating
      loss from continuing operations for the first quarter of 2008 was $312,000,
      compared to an operating loss from continuing operations of $1,004,000 for
      the
      first quarter of 2007. T he
      decrease in operating loss from continuing operations for the first quarter
      of
      2008 as compared to the first quarter of 2007 was due to the improved gross
      profit caused by the increase in sales and lower research and development costs
      as compared to the first quarter of 2007.





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





Interest
      and other (expense) income, net was $(61,000) for the first quarter of 2008
      compared to interest and other (expense) income, net of $21,000 for the first
      quarter of 2007. Interest expense for the first quarter of 2008 and 2007 was
      principally incurred on borrowings under the term loans which the Company
      entered into during the fourth quarter of 2003 and refinanced in October 2006.
      Interest expense for the first quarter of 2008 was higher than the first quarter
      of 2007 due to the lower levels of investable cash that provided less interest
      income as compared to the first quarter of 2007.





*Income
      taxes.*





As
      of
      March 29, 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 three
      months of 2008.




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
        March 29, 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
        within the provision for income taxes.


19




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.





*Loss
      from continuing operations.*





For
      the
      reasons set forth above, loss from continuing operations for the first quarter
      of 2008 was $372,000 compared to a loss from continuing operations of $983,000
      for the first quarter of 2007. Loss from continuing operations for the first
      quarter of 2008 was $.13 per share compared to a loss from continuing operations
      of $.32 per share for the first quarter of 2007.





*Discontinued
      operations* .





There
      was
      no loss from discontinued operations in the first quarter of 2008. Loss from
      discontinued operations for the first quarter of 2007 was $281,000. Loss from
      discontinued operations for the first quarter of 2007 was $.09 per
      share.





*Net
      loss.*





For
      the
      reasons set forth above, net loss for the first quarter of 2008 was $372,000
      compared to a net loss of $1,264,000 for the first quarter of 2007. Net loss
      for
      the first quarter of 2008 was $.13 per share compared to a net loss of $.41
      per
      share for the first quarter of 2007.





LIQUIDITY
      AND CAPITAL RESOURCES





The
      Company had liquid resources comprised of cash and cash equivalents totaling
      approximately $627,000 at the end of the first quarter of 2008 compared to
      approximately $2,000,000 at the end of 2007. The principal reasons for the
      reduction in cash at March 29, 2008 were capital expenditures of $352,000,
      operating cash used of $1,627,000 as described below, and repayments of
      borrowings of $388,000 offset, in part, by restricted cash returned of $250,000
      and the proceeds of the sale of FMI’s assets of $664,000. The Company's working
      capital was approximately $9,800,000 and its current ratio was 3.9 to 1 at
      the
      end of the first quarter of 2008 compared to $9,900,000 and 3.5 to 1,
      respectively, at the end of 2007. At March 29, 2008, the Company had available
      borrowing capacity under its revolving line of credit of
      $3,660,000.





The
      Company's activities from continuing operations used operating cash flows of
      $1,627,000 during the first quarter of 2008 compared to generating $667,000
      of
      operating cash flows during the first quarter of 2007. The primary uses of
      operating cash flows from continuing operations for the first quarter of 2008
      were the quarterly loss from continuing operations of $372,000 which was reduced
      by depreciation and amortization of $618,000 and share-based compensation of
      $120,000, an increase in accounts receivable of $497,000 as a result of the
      higher first quarter sales level, an increase in inventories of $1,034,000
      to
      meet the production associated with the increase in backlog
      and an aggregate decrease in accounts payable, customer deposits and accrued
      liabilities of $488,000. The primary sources of operating cash flows from
      continuing operations for the first quarter of 2007 were a decrease in accounts
      receivable of $1,024,000 and a decrease in other current assets of $246,000,
      offset by the loss from continuing operations of $983,000 which was reduced
      by
      depreciation and amortization of $571,000 and share-based compensation of
      $51,000, an increase in inventory of $175,000 and an aggregate decrease in
      accounts payable, customer deposits and accrued liabilities of $98,000.





The
      Company made net cash investments in property, plant and equipment of $352,000
      during the first quarter of 2008 compared to net cash investments made in
      property, plant and equipment of $401,000 during the first quarter 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 $5,145,000 at the end of the
      first quarter of 2008, a decrease of $336,000 compared to $5,481,000 at the
      end
      of fiscal year 2007.





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.




20




On
      October 18, 2006, the Company entered into a financing agreement with Capital
      One, N.A. (previously North Fork Bank) (“Capital One”) 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”). 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 renewed. At March
      29,
      2008, the Company had available borrowing capacity under its revolving line
      of
      credit of $3,660,000. The revolving line of credit bears interest at the prime
      rate less 0.50% (4.75% at March 29, 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% (4.75% at
      March 29, 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% (4.75% at March 29, 2008 and currently
      4.50%) or LIBOR plus 2.25%. At March 29, 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 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 March 29, 2008.





On
      August
      9, 2007, Capital One and Merrimac entered into a Pledge and Security Agreement,
      under which Capital One 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
      providing such consent, Merrimac deposited $250,000 into a controlled collateral
      account with Capital One and also agreed to prepay the mortgage loan portion
      of
      the credit facility with Capital One 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.





Depreciation
      and amortization expenses exceeded capital expenditures for production equipment
      during the first three months of 2008 by approximately $266,000, and the Company
      anticipates that depreciation and amortization expenses will exceed capital
      expenditures in fiscal year 2008 by approximately $900,000. The Company intends
      to issue commitments to purchase $1,300,000 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.





RECENT
      ACCOUNTING PRONOUNCEMENTS




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 “Fair Value Measurements” (“SFAS No. 157”). 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 Company
      has no financial assets or liabilities subject to the requirements of SFAS
      No.
      157. The adoption of SFAS No. 157 did not have an impact on its financial
      position or 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”). 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 or results
      of
      operations.





21





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 of 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.





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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
      March 29, 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 March
      29, 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 first quarter that has materially affected, or is
      reasonably likely to materially affect, the Company's internal controls over
      financial reporting.





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 Merrimac's management 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
      Merrimac.





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 agreed to settle 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.





The
      Company believes it has been improperly named in this claim and is petitioning
      the Court to be removed as a defendant.





The
      Company 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. The Company 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, The Company cannot presently determine
      if
      the likelihood of an unfavorable outcome is probable, reasonably possible or
      remote. In addition, The Company cannot reasonably estimate the amount of a
      probable loss, other than the minimal deductible amount under the insurance
      policy. The Company and its insurance carrier intend to defend these claims
      vigorously.





ITEM
      1A.
      RISK FACTORS.





There
      have been no material changes to our Risk Factors from those presented in our
      Form 10-K for fiscal year 2007.





23


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.





24


SIGNATURES




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




MERRIMAC
      INDUSTRIES, INC.


Date:
                  May 13, 2008
              By:
              /s/
                  Mason N. CarterMason
                  N. CarterChairman,
                  President andChief
                  Executive Officer


Date:
                  May 13, 2008
              By:
              /s/
                  Robert V. CondonRobert
                  V. CondonVice
                  President, Finance andChief
                  Financial Officer




25