<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

               Quarterly Report Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934


For the quarterly period ended September 28, 2002 Commission file No. 0-11201
                               ------------------                 -----------

                           MERRIMAC INDUSTRIES, INC.
--------------------------------------------------------------------------------
      (Exact name of small business issuer as specified in its charter)


        Delaware                                           22-1642321
-------------------------------                     ----------------------------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                          Identification No.)


41 Fairfield Place, West Caldwell, New Jersey 07006
---------------------------------------------------
 (Address of principal executive offices)


Registrant's telephone number (973) 575-1300
                              --------------

Securities registered pursuant to Section 12(b) of the Exchange Act:

      Title of each class            Name of each exchange on which registered
 ----------------------------        -------------------------------------------
        Common Stock                          American Stock Exchange
 Common Stock Purchase Rights                 American Stock Exchange

Securities registered pursuant to Section 12(g) of the Exchange Act:

             None
             ----

     Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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
      ---    ---

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

           Class                                Outstanding at November 8, 2002
-----------------------------                   -------------------------------
Common Stock ($.01 par value)                             3,129,357


<PAGE>



PART I.     FINANCIAL INFORMATION

ITEM 1.     Financial Statements

                           MERRIMAC INDUSTRIES, INC.
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------


                                                    September 28,  December 29,
                                                       2002            2001
                                                   --------------  ------------
                                                    (Unaudited)     (Audited)
                                                   --------------  ------------
ASSETS
------
Current assets:
  Cash and cash equivalents ......................    $   930,631  $ 1,844,434
  Accounts receivable, net........................      5,426,634    5,632,008
  Income tax refunds receivable...................        102,611      195,323
  Inventories.....................................      4,744,965    4,797,205
  Other current assets ...........................        387,140      691,712
  Deferred tax assets ............................        548,000      548,000
                                                      -----------  -----------
      Total current assets .......................     12,139,981   13,708,682
                                                      -----------  -----------
Property, plant and equipment at cost.............     35,949,530   33,568,651
  Less accumulated depreciation and amortization..     16,415,632   14,605,751
                                                      -----------  -----------
      Property, plant and equipment, net..........     19,533,898   18,962,900

Other assets .....................................        836,595      676,073
Deferred tax assets, non-current..................      1,064,000    1,194,000
Goodwill..........................................      2,473,900    2,451,037
                                                      -----------  -----------
      Total Assets ...............................    $36,048,374  $36,992,692
                                                      ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
  Current portion of long-term debt ..............    $   866,556  $ 4,368,565
  Accounts payable ...............................      2,002,669    3,577,922
  Accrued liabilities ............................      1,168,427    1,620,305
  Income taxes payable............................         26,750      268,274
                                                      -----------  -----------
      Total current liabilities ..................      4,064,402    9,835,066

Long-term debt, net of current portion ...........      3,658,684    3,871,635
Deferred compensation ............................        131,112      155,768
Deferred liabilities..............................        169,129      118,597
Deferred tax liabilities .........................        958,000      958,000
                                                      -----------  -----------
      Total liabilities ..........................      8,981,327   14,939,066
                                                      -----------  -----------
Commitments and contingencies

Stockholders' equity:
  Preferred stock, par value $.01 per share:
    Authorized: 1,000,000 shares
    No shares issued
  Common stock, par value $.01 per share:
    Authorized: 20,000,000 shares
    Issued:  3,200,214 and 2,859,249 shares ......         32,002       28,592
  Common stock warrants...........................        837,200      837,200
  Additional paid-in capital .....................     17,837,699   14,327,586
  Retained earnings ..............................      9,677,137    9,531,445
  Accumulated comprehensive loss..................       (291,551)    (327,066)
                                                      -----------  -----------
                                                       28,092,487   24,397,757
  Less treasury stock, at cost:
    61,400 and 208,904 shares.....................       (457,440)  (1,760,131)
  Less loan to officer-stockholder ...............       (568,000)    (584,000)
                                                      -----------  -----------
      Total stockholders' equity .................     27,067,047   22,053,626
                                                      -----------  -----------
      Total Liabilities and Stockholders' Equity .    $36,048,374  $36,992,692
                                                      ===========  ===========

See accompanying notes.


                                     - 1 -

<PAGE>

                              MERRIMAC INDUSTRIES, INC.
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE INCOME (LOSS)
                       -------------------------------------
                                   (Unaudited)
                                   -----------
<TABLE>
<CAPTION>
                                                          Quarters Ended             Nine Months Ended
                                                    ---------------------------  ----------------------------
                                                    September 28, September 29,  September 28,  September 29,
                                                         2002         2001           2002          2001
OPERATIONS                                          ---------------------------  ----------------------------
<S>                                                  <C>           <C>             <C>           <C>
Net sales ...................................         $5,938,929   $5,812,301      $19,251,844   $18,668,833
                                                      ----------   ----------      -----------   -----------
Costs and expenses:
  Cost of sales .............................          3,323,334    2,889,186       10,456,362     8,994,440
  Selling, general and administrative .......          1,820,659    2,281,120        6,451,326     7,013,810
  Research and development ..................            723,337      954,076        1,910,988     2,501,924
  Amortization of goodwill...................                 -        36,948               -        111,492
  Reincorporation charge.....................                 -            -                -        330,000
  Restructuring charge.......................                 -            -           240,000            -
                                                      ----------   ----------      -----------   -----------
                                                       5,867,330    6,161,330       19,058,676    18,951,666
                                                      ----------   ----------      -----------   -----------

Operating income (loss)......................             71,599     (349,029)         193,168      (282,833)
Interest and other expense (income), net ....             24,545      (19,690)         127,476       (69,249)
                                                      ----------   ----------      -----------   -----------
Income (loss) before income taxes............             47,054     (329,339)          65,692      (213,584)
Benefit for income taxes ....................            (10,000)    (120,000)         (80,000)     (110,000)
                                                      ----------   ----------      -----------   -----------
Net income (loss)............................         $   57,054   $ (209,339)     $   145,692   $  (103,584)
                                                      ==========   ==========      ===========   ===========

Net income (loss) per common share:

  Basic and diluted..........................              $ .02        $(.08)           $ .05         $(.04)
                                                          ======        =====            =====         =====

Weighted average number of
  shares outstanding:
  Basic .....................................          3,145,370    2,622,573        3,055,713     2,615,551
                                                       =========    =========        =========     =========
  Diluted....................................          3,147,634    2,622,573        3,098,894     2,615,551
                                                       =========    =========        =========     =========

COMPREHENSIVE INCOME (LOSS)

Net income (loss)............................         $   57,054   $ (209,339)     $   145,692   $  (103,584)
Comprehensive income:
  Foreign currency translation adjustment....           (174,775)    (194,504)          35,515      (248,766)
                                                      ----------   ----------      -----------   -----------
Comprehensive income (loss)..................         $ (117,721)  $ (403,843)     $   181,207   $  (352,350)
                                                      ==========   ==========      ===========   ===========
</TABLE>
See accompanying notes.



                                      -2-

<PAGE>

                           MERRIMAC INDUSTRIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                  (Unaudited)
                                  -----------

                                                         Nine Months Ended
                                                    ---------------------------
                                                    September 28, September 29,
                                                         2002           2001
                                                    ------------- -------------
Cash flows from operating activities:
  Net income (loss).................................. $  145,692    $ (103,584)
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
      Depreciation and amortization..................  1,938,138     1,673,277
      Amortization of goodwill ......................         -        111,492
      Amortization of deferred income................    (65,466)      (65,474)
      Deferred and other compensation................     62,568        63,925
      Deferred income taxes..........................         -        (60,000)
      Changes in operating assets and liabilities:
        Accounts receivable..........................    205,374       900,323
        Income tax refunds receivable................     92,712       (95,568)
        Inventories..................................     52,239    (1,301,255)
        Other current assets.........................    264,573      (262,743)
        Other assets.................................   (160,522)       72,311
        Accounts payable............................. (1,881,560)     (604,443)
        Accrued liabilities..........................   (451,878)     (300,869)
        Income taxes payable.........................   (111,524)     (173,000)
        Deferred compensation........................    (31,224)      (40,126)
        Other liabilities............................    115,998       130,643
                                                      ----------    ----------
Net cash provided by (used in) operating activities..    175,120       (55,091)
                                                      ----------    ----------
Cash flows from investing activities:
  Purchase of capital assets......................... (2,193,192)   (7,390,777)
                                                      ----------    ----------
Net cash used in investing activities................ (2,193,192)   (7,390,777)
                                                      ----------    ----------
Cash flows from financing activities:
  Borrowing under revolving credit facility..........    500,000     4,500,000
  Borrowing under lease facility.....................         -        419,192
  Borrowing under mortgage facility..................  2,500,000            -
  Repayment of borrowings............................ (6,721,484)     (110,216)
  Repurchase of common stock.........................   (457,440)           -
  Proceeds from the issuance of common stock, net....  5,110,347            -
  Proceeds from the exercise of stock options........    163,307       198,521
                                                       ----------    ----------
Net cash provided by financing activities............  1,094,730     5,007,497
                                                      ----------     ----------
Effect of exchange rate changes......................      9,539       (56,331)
                                                      ----------     ---------
Net decrease in cash and cash equivalents............   (913,803)   (2,494,702)
Cash and cash equivalents at beginning of year.......  1,844,434     3,425,390
                                                      ----------    ----------
Cash and cash equivalents at end of period........... $  930,631    $  930,688
                                                      ==========    ==========

Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Income taxes..................................... $   24,645    $  302,253
                                                      ==========    ==========
    Loan interest.................................... $  185,860    $  126,070
                                                      ==========    ==========

  Unpaid purchases of capital assets................. $  306,000    $1,673,592
                                                      ==========    ==========

See accompanying notes.


                                      -3-

<PAGE>

                           MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.   Basis of presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with the instructions to Form 10-QSB and therefore do not
include  all  information  and  footnote   disclosures   otherwise  required  by
Regulation S-B. The financial  statements do,  however,  reflect all adjustments
which are, in the opinion of management,  necessary for a fair  presentation  of
the  financial  position of the Company as of September 28, 2002 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. These
financial statements should be read in conjunction with the audited consolidated
financial  statements in the Company's Annual Report on Form 10-KSB for December
29,  2001.  Certain  prior year  amounts  have been  reclassified  to conform to
current year presentation.

B.   Contract revenue recognition

     Sales and  related  cost of sales on  fixed-price  contracts  that  require
customization  of products to customer  specifications  are recorded as title to
these  products  transfers  to the  customer,  which is generally on the date of
shipment. Prior to shipment,  manufacturing costs incurred on such contracts are
recorded as  work-in-process  inventory.  Anticipated  losses on  contracts  are
charged  to  operations  when  identified.   Revenue  related  to  non-recurring
engineering  charges is generally  recognized upon shipment of the initial units
produced or based upon contractually established stages of completion.

C.   Private placement of common stock

     On February 28, 2002,  the Company sold to DuPont  Electronic  Technologies
528,400  shares  of  Common  Stock,  representing  approximately  16.6%  of  the
Company's  outstanding  Common  Stock after  giving  effect to the sale,  for an
aggregate  purchase  price of  $5,284,000.  The  Company  and DuPont  Electronic
Technologies have also agreed to work together to better understand the dynamics
of the markets for high-frequency  electronic  components and modules.  David B.
Miller,  Vice President and General Manager of DuPont  Electronic  Technologies,
was  appointed to the Company's  Board of  Directors.  As a result of this sale,
pursuant to the anti-dilution provisions of the Warrants issued in October 2000,
the  exercise  price of the  Warrants  was  reduced  to $17.80 and the number of
shares subject to the Warrants was increased to 429,775.

D.   New accounting standards

     Statement of Financial  Accounting  Standards  ("SFAS") No. 141,  "Business
Combinations"  requires all business combinations  initiated after June 30, 2001
to be accounted for using the purchase  method of accounting  and eliminates the
pooling  method  of  accounting.  SFAS No.  141 will not have an  impact  on the
Company's  business  since the Company  has  accounted  for all of its  business
combinations using the purchase method of accounting.


                                       -4-

<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     With the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" by
the Company on December 30, 2001,  goodwill is no longer subject to amortization
over its estimated useful life. However,  goodwill will be tested for impairment
annually under a two-step approach, or more frequently,  if events or changes in
circumstances indicate that the asset might be impaired.  Impairment is assessed
at the "reporting unit" level by applying a fair  value-based  test. A reporting
unit is defined as the same as or one level below the operating segment level as
described in SFAS No. 131,  "Disclosures  about  Segments of an  Enterprise  and
Related  Information".  Under the two-step approach,  the carrying amount of the
reporting  unit is compared with its fair value.  If the carrying  amount of the
reporting  unit exceeds its fair value,  the "implied" fair value (as defined in
SFAS No. 142) of the  reporting  unit's  goodwill is compared  with its carrying
amount to measure the amount of the  impairment  loss, if any. When the carrying
amount of the reporting  unit's  goodwill  exceeds the implied fair value of the
goodwill,  an impairment loss is recognized in an amount equal to the excess. In
addition,  under SFAS No. 142, an acquired intangible asset should be separately
recognized if the benefit of the intangible is obtained  through  contractual or
other  legal  rights,  or if the  intangible  asset  can be  sold,  transferred,
licensed,  rented, or exchanged.  Intangible assets will be amortized over their
estimated useful lives.

     On an  annualized  basis,  the Company  expects  that the  adoption of this
accounting  standard will reduce the amortization of goodwill and intangibles by
approximately  $150,000  commencing in 2002. In connection  with the adoption of
SFAS No. 142, the Company has  completed  the first of the  impairment  tests of
goodwill as of December 30, 2001 required by the standard, which indicated there
was no  impairment  of goodwill.  The Company  will perform the required  annual
assessment during the fourth quarter of 2002.

     Goodwill:

     The changes in the carrying  amount of goodwill for the nine month  periods
ended September 28, 2002 and September 29, 2001 are as follows:

                                           2002           2001
                                        ----------     ----------
Balance, beginning of year              $2,451,037     $2,774,248
Goodwill amortized                              -        (111,492)
Foreign currency adjustment                 22,863       (156,726)
                                        ----------     ----------
Balance, end of period                  $2,473,900     $2,506,030
                                        ==========     ==========


     The  current  impact  that the  adoption  of SFAS No. 142 had on net income
(loss) and net income (loss) per share for the periods presented is as follows:

<TABLE>
<CAPTION>
                                                           Quarters Ended           Nine Months Ended
                                                    ---------------------------  ---------------------------
                                                    September 28, September 29,  September 28, September 29,
                                                        2002          2001           2002          2001
                                                    ---------------------------  ---------------------------
<S>                                                       <C>        <C>          <C>           <C>
Reported net income (loss) for the period              $57,054      $(209,339)    $145,692       $(103,584)
Add back: Amortization of goodwill                          -          36,948           -          111,492
                                                       -------      ---------      -------       ---------
Adjusted net income (loss) for the period              $57,054      $(172,391)    $145,692       $   7,908
                                                       =======      =========      =======       =========

Basic and diluted net income (loss) per share:
   Reported net income (loss)                            $ .02         $(.08)        $ .05           $(.04)
   Amortization of goodwill                                 -            .01            -              .04
                                                         -----         -----         -----           -----
   Adjusted net income (loss)                            $ .02         $(.07)        $ .05           $  -
                                                         =====         =====         =====           =====

</TABLE>

                                       -5-

<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     SFAS No. 143, "Accounting for Asset Retirement  Obligations"  requires that
asset  retirement   obligations  that  are  identifiable  upon  acquisition  and
construction, and during the operating life of a long-lived asset be recorded as
a liability using the present value of the estimated cash flows. A corresponding
amount would be capitalized as part of the asset's carrying amount and amortized
to expense over the asset's  useful  life.  The Company is required to adopt the
provisions of SFAS No. 143 effective  January 5, 2003.  The Company is currently
evaluating the impact of adoption of this statement. The Company does not expect
that the adoption of SFAS No. 143 will have a material  impact on the  Company's
financial position or results of operations.

     SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets" is effective for fiscal periods beginning after December 15, 2001. SFAS
No. 144 establishes an accounting model for impairment or disposal of long-lived
assets to be disposed of by sale.  The Company does not expect that the adoption
of SFAS No. 144 will have a material impact on the Company's  financial position
or results of operations.

     SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of
FASB Statement No. 13 and Technical Corrections",  will require gains and losses
on  extinguishments  of debt to be classified as income or loss from  continuing
operations rather than as extraordinary  items as previously required under SFAS
No. 4. Extraordinary  treatment will be required for certain  extinguishments as
provided in APB  Opinion  No. 30. The  statement  also  amended  SFAS No. 13 for
certain sale-leaseback and sublease accounting. The Company is required to adopt
the  provisions  of SFAS No.  145  effective  January 5,  2003.  The  Company is
currently  evaluating  the impact of adoption of this  statement,  however,  the
Company  does not expect that the  adoption of SFAS No. 145 will have a material
impact on the Company's financial position or results of operations.

     SFAS No.  146,  "Accounting  for Costs  Associated  with  Exit or  Disposal
Activities"  nullifies  EITF  Issue  No.  94-3.  SFAS No.  146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
when the  liability  is  incurred,  whereas  EITF No.  94-3 had  recognized  the
liability  at the  commitment  date to an exit plan.  The Company is required to
adopt the  provisions of SFAS No. 146 effective for exit or disposal  activities
initiated after January 4, 2003. The Company is currently  evaluating the impact
of adoption of this  statement to determine if the adoption of SFAS No. 146 will
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

E.   Delaware reincorporation

     On February 22, 2001, the Company (previously  incorporated in the State of
New Jersey) was reincorporated in the State of Delaware.  In connection with the
reincorporation,  each share of Common Stock,  par value $.50 per share,  of the
Company  prior to the  reincorporation  was  converted  into one share of Common
Stock, par value $.01 per share, of the Company,  as reincorporated in Delaware.
As a result of the reincorporation,  the authorized capital stock of the Company
was  increased to 20 million  shares of common  stock,  par value $.01 per share
(from 5 million  shares of Common Stock prior to the  reincorporation),  and one
million shares of preferred  stock,  par value $.01 per share.

     The   Company   incurred   $330,000  of  costs  in   connection   with  the
reincorporation  in Delaware.  Such expense was  reflected as a  reincorporation
charge in the accompanying  statement of operations in 2001. The reincorporation
charge, net of tax benefits, was $198,000 or $.08 per share in the first quarter
of 2001.

     The Board of Directors has the authority to issue up to one million  shares
of Preferred Stock and to fix the number of shares  constituting  any series and
the  designation of such series,  and to determine the  preferences,  rights and
qualifications  or  limitations of such series of Preferred  Stock,  without any
further vote or action by the Company's stockholders.



                                       -6-

<PAGE>
                           MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F.   Inventories

     Inventories consist of the following:
                                               September 28,     December 29,
                                                  2002               2001
                                               ------------      -----------
     Finished goods ......................      $  418,840        $  490,135
     Work in process .....................       2,270,573         2,057,036
     Raw materials and purchased parts ...       2,055,552         2,250,034
                                                ----------        ----------
     Total                                      $4,744,965        $4,797,205
                                                ==========        ==========

     Total  inventories  are net of valuation  allowances  for  obsolescence  of
$967,000 at September 28, 2002 and $991,000 at December 29, 2001.

G.   Net income (loss) per common share

     SFAS No.  128,  "Earnings  per  Share,"  establishes  the  computation  and
presentation of net income per common share. Under the standard,  both basic and
diluted net income per common share are presented.

     Basic net income per common  share is  calculated  by dividing  net income,
less dividends on preferred stock, if any, by the weighted average common shares
outstanding during the period.

     The  calculation  of diluted net income per common share is similar to that
of basic net income 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.

     Stock  options and warrants are excluded  from the  computation  of diluted
loss per share in the periods where their effects were antidilutive.

H.   Comprehensive income

     SFAS  No.  130,  "Reporting  Comprehensive  Income"  defines  comprehensive
income,  which  includes items in addition to those reported in the statement of
operations,  and requires  disclosures  about the  components  of  comprehensive
income. Comprehensive income includes all changes in stockholders' equity during
a  period  except  those  resulting  from  investments  by or  distributions  to
stockholders.  The Company has determined  that the components of  comprehensive
income (loss) impacting the Company consist primarily of cumulative  translation
adjustments.

I.   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. Every fifth year, the additional week to
make a 53-week  year (fiscal year 1997 was the last and fiscal year 2002 will be
the next) is added to the fourth  quarter,  making  such  quarter  consist of 14
weeks.

J.   Transactions with management and loans to officer-stockholder

     In May 1998,  the Company  sold 22,000  shares of Common  Stock to Mason N.
Carter,  Chairman,  President and Chief Executive  Officer of the Company,  at a
price of $11.60 per share,  which  approximated the average closing price of the
Company's  Common Stock during the second  quarter of 1998. The Company lent Mr.
Carter  $255,000 in  connection  with the  purchase of these shares and combined
that  loan  with a prior  loan to Mr.  Carter in the  amount  of  $105,000.  The
resulting  total  principal  amount of $360,000 was payable May 4, 2003 and bore
interest at a variable  interest  rate based on the prime rate of the  Company's
lending bank. This loan was further amended on July 29, 2002.  Accrued  interest
of $40,000 was added to the principal,  bringing the new principal amount of the
loan to $400,000, the due date was extended to May 4, 2006, and interest (at the
same rate as was previously  applicable) is now payable monthly.  Mr. Carter has
pledged  33,000  shares of Common  Stock as  security  for this loan  which is a
full-recourse loan.

     On August  31,  2000,  in  connection  with an  amendment  of Mr.  Carter's
employment  agreement,  the Company  loaned Mr. Carter an  additional  $280,000.
Interest on the loan will be calculated at a variable interest rate based on the
prime  rate of the  Company's  lending  bank,  payable  in  accordance  with Mr.
Carter's  employment  agreement.  Each year the Company  will forgive 20% of the
amount  due under  this loan and the  accrued  interest  thereon.  During  2002,
$56,000 of principal and $12,000 of accrued  interest was  forgiven.  For fiscal
year 2003, the Company  projects that $56,000 of principal and $8,000 of accrued
interest will be forgiven.


                                      -7-

<PAGE>

                           MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


K.   Current and long-term debt

     The Company was obligated under the following debt instruments at September
28, 2002 and December 29, 2001:

<TABLE>
<CAPTION>

                                                                   September 28,  December 29,
                                                                       2002          2001
                                                                   -------------  ------------
<S>                                                                 <C>           <C>
  Fleet Bank (A):
     Revolving credit facility, interest 1/2% below prime ........  $  500,000    $4,000,000
     Mortgage loan, callable March 2007, interest 1/2% below prime   3,412,500     3,500,000

  The Bank of Nova Scotia (B):
     Capital leases, interest 7.0%, due October 2002..............      78,440       131,662
     Capital leases, interest 8.7%, due May 2005..................     213,859       248,191
     Capital leases, interest 7.3%, due April 2006................     174,705       197,033
     Capital leases, interest 7.9%, due June 2006.................     145,736       163,314
                                                                    ----------    ----------
                                                                     4,525,240     8,240,200
     Less current portion.........................................     866,556     4,368,565
                                                                    ----------    ----------
     Long-term portion............................................  $3,658,684    $3,871,635
                                                                    ==========    ==========

</TABLE>

     (A) The  Company  commenced  borrowing  in April  2001  under its  existing
revolving  credit  facility  with Fleet Bank,  at an  interest  rate of one-half
percent  below the  bank's  floating  prime  rate,  which was 7.0% at that time.
During 2001, the Company  borrowed an aggregate  amount of $7,500,000 under this
facility.  The  weighted  average  interest  rate on the  borrowings  under this
facility during 2002 was 4.25% and the current interest rate is 3.75%.

     During the first  quarter  of 2002,  the  Company  obtained  an  additional
increase of $2,500,000  in the  Company's  lines of credit with Fleet Bank which
were  increased to a total of  $10,000,000,  $3,500,000  of which  consists of a
first mortgage callable in March 2007 on the Company's West Caldwell, New Jersey
manufacturing  facility.  The  $6,500,000  revolving  line of  credit  has  been
extended for one year to June 30, 2003.

     The Company successfully completed a private placement of 528,400 shares of
Company Common Stock on February 28, 2002 that raised $5,284,000 before offering
expenses.  The Company repaid the Fleet Bank revolving  credit facility from the
proceeds of that offering.  The Company borrowed  $500,000 on July 29, 2002 from
its line of credit with Fleet Bank and currently has $6,000,000  available under
its existing revolving credit facility.

     The   revolving   credit   facility  and  mortgage   loan  are  secured  by
substantially all Company assets located within the United States.

     (B) Capital leases included in property,  plant and equipment,  net, have a
depreciated cost of approximately $574,000 at September 28, 2002 and $632,000 at
December 29, 2001.


                                       -8-

<PAGE>

                           MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


L.   Private placements of Common Stock and Warrants to purchase Common Stock

     On April 7, 2000, the Company entered into a stock purchase and exclusivity
agreement with Ericsson Microelectronics, A.B. ("Ericsson") and Ericsson Holding
International,  B.V.  ("EHI")  pursuant to which the Company sold to EHI 375,000
shares  of  Common  Stock,  representing  approximately  17.5% of the  Company's
outstanding  Common  Stock after  giving  effect to the sale,  for an  aggregate
purchase price of $3,375,000.  The stock purchase and exclusivity agreement also
provides  that the Company  will  design,  develop and produce  exclusively  for
Ericsson  Multi-Mix(R) products that incorporate active RF power transistors for
use in wireless base station applications,  television  transmitters and certain
other  applications  that are intended for Bluetooth  transceivers.  The Company
also agreed that it will generally be the priority supplier for such products.

     On October 26, 2000, the Company entered into  subscription  agreements for
common  stock and  three-year  warrants  to  purchase  shares  of  Common  Stock
("Warrants")  with a group of investors led by Adam Smith  Investment  Partners,
L.P. and certain of its affiliates (the "Adam Smith Investors"),  EHI, and three
members of the board of directors of the Company (the "Director Investors"). The
Company  sold to the  investors  units at a price of $12.80 per unit,  each unit
consisting  of one share of Common Stock and one Warrant with an exercise  price
of $21.25, which expire on October 26, 2003 ("Units").  The Adam Smith Investors
purchased 240,000 Units, EHI purchased 100,000 Units and the Director  Investors
purchased 20,000 Units for an aggregate purchase price of $4,608,000. The Common
Stock portion of the Units  represented an aggregate of approximately 14% of the
outstanding  Common Stock of the Company after giving  effect to the sales.  The
Warrants contain certain anti-dilution provisions.

     On October 1, 2002, EHI completed the sale of its microelectronics business
(excluding  optosemiconductors  and power  modules,  but  including the RF power
business) to Infineon Technologies AG ("Infineon"). As part of this transaction,
EHI  transferred  to  Infineon  475,000  shares of the  Company and the right to
acquire  119,381 shares of the Company's  common stock pursuant to the Warrants,
and EHI assigned to Infineon its rights in the following  agreements between EHI
and the Company: (i) the Stock Purchase and Exclusivity Letter Agreement,  dated
April 7, 2000, as amended by the letter  agreement  dated February 1, 2002; (ii)
the Registration  Rights Agreement,  dated April 7, 2000; (iii) the Subscription
Agreement,  dated as of  October  26,  2000;  and (iv) the  Registration  Rights
Agreement, dated October 26, 2000 (collectively,  the "Agreements"). The Company
also agreed to make certain  modifications  to the  Agreements and the Warrants.
These changes are reflected in the Modification Agreement, dated as of September
27, 2002, between the Company and Infineon.

     The Warrants were valued using the  Black-Scholes  option  valuation  model
with  a  resulting   allocation  of  the  aggregate   proceeds  from  the  Units
attributable  to the Warrants of $837,200,  net of issue  costs.  The  following
assumptions were utilized to value the Warrants: price per share of common stock
of $15.25; expected life of three years; expected volatility of 40%; a risk free
interest rate of 6%; an expected yield of 0.0%; and a liquidity discount of 33%.

     As a result of the sale of  528,400  shares of common  stock at $10.00  per
share on  February  28,  2002 (See Note C Private  placement  of common  stock),
certain  contractual  anti-dilution  provisions affected both the exercise price
and the number of shares  subject to the Warrants  issued in October  2000.  The
exercise  price of the  Warrants  was reduced to $17.80 and the number of shares
subject to the Warrants was increased to 429,775.


                                       -9-


<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


M.   Lease modification and facility sharing agreement

     The Company  entered  into an  agreement  effective  January  2001,  with a
customer to  relinquish  to this  customer  approximately  half of the Company's
17,000 square-foot leased manufacturing  facility in Costa Rica. Associated with
the transaction, the Company entered into a new four-year lease agreement with a
five-year  renewal option with its Costa Rica landlord for the reduced space. In
addition,  the Company transferred certain employees to its customer,  agreed to
share certain  personnel  resources  and common costs,  and committed to provide
certain management, administrative and other services to its customer.

     In connection with the transaction,  the Company received $200,000 from its
customer and will receive further  payments of $250,000 over a two-year  period.
The Company will reduce its facility occupancy expenses by approximately $87,000
during each of the next four years that  commenced  January 2000 to an aggregate
amount of approximately $348,000.

     The Company deferred  approximately  $102,000 of costs at December 30, 2000
incurred in connection  with entering into this agreement and other  incremental
costs,  for the purpose of providing  this customer  with trained  personnel and
certain other services  required for their dedicated  manufacturing  capability.
Such costs  classified in the balance sheet as other assets at December 30, 2000
were  recovered  through  the  $200,000  payment  received  in  January  2001 as
described  above.  In January 2002,  the Company  received the second payment of
$150,000 and the final payment of $100,000 is due January 2003. At September 28,
2002,  the  unamortized  amount of $96,000 in  payments  received is included in
deferred liabilities.

N.   Pro forma weighted average number of common shares outstanding

     Had the sale of  528,400  shares  of  common  stock on  February  28,  2002
referred  to in Note C,  Private  placement  of common  stock,  occurred  at the
beginning of the year, the pro forma basic and diluted  weighted  average number
of common shares outstanding would have been:

                                              Nine Months Ended
                                             ------------------
                                             September 28, 2002
                                             ------------------

Basic and diluted:
Actual                                           3,055,713
Adjustment for sale of
Common Stock on February 28, 2002                  119,134
                                                 ---------
Basic - pro forma                                3,174,847
Effect of dilutive securities-
Stock options                                       43,181
                                                 ---------
Diluted - pro forma                              3,218,028
                                                 =========


                                      -10-

<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


O. Business segment data

   The  Company's  operations  are  conducted  primarily  through two business
segments:  (1) electronic  components and (2) microwave  micro-circuitry.  These
segments, and the principal operations of each, are as follows:

     Electronic components: 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, 80% are located in the United States and 20% are located in
Costa Rica.

     Microwave  micro-circuitry:  Design,  manufacture  and sale of  microstrip,
bonded  stripline and thick  metal-backed  Teflon(R) (PTFE) and mixed dielectric
multilayer circuits for communications,  defense and aerospace applications.  Of
the identifiable assets all are located in Canada.

     Information about the Company's operations in different industries follows.
Operating  income is net  sales  less  operating  expenses.  Operating  expenses
exclude interest expense,  other income and income taxes.  Assets are identified
with the appropriate  operating segment and are substantially all located in the
North America  geographic area.  Corporate  assets consist  principally of cash.
Corporate expenses and inter-segment sales are immaterial.
<TABLE>
<CAPTION>
                                                   Quarters Ended                    Nine Months Ended
                                             ----------------------------        ----------------------------

                                             September 28,  September 29,        September 28,  September 29,
                                                2002            2001                 2002            2001
                                             ----------------------------        ----------------------------
                                               (In thousands of dollars)           (In thousands of dollars)
<S>                                            <C>             <C>                 <C>             <C>
Industry segments:
    Sales to unaffiliated customers:
             Electronic components              $ 5,065         $ 4,973             $16,825         $15,291
             Microwave micro-circuitry              874             839               2,427           3,378
                                                -------         -------             -------         -------
             Consolidated                       $ 5,939         $ 5,812             $19,252         $18,669
                                                =======         =======             =======         =======

    Income (loss) before provision
      for income taxes:
      Operating income (loss):
             Electronic components              $  (100)        $  (264)            $    98         $  (360)
             Microwave micro-circuitry              172             (85)                 95              77
      Interest and other (expense)
        income, net                                 (25)             20                (127)             69
                                                -------         -------             -------         -------
             Consolidated                       $    47         $  (329)            $    66         $  (214)
                                                =======         =======             =======         =======

      Identifiable assets:
             Electronic components                                                  $30,270         $27,185
             Microwave micro-circuitry                                                4,847           4,694
             Corporate                                                                  931             931
                                                                                    -------         -------
             Consolidated                                                           $36,048         $32,810
                                                                                    =======         =======
      Depreciation and amortization:
             Electronic components              $   654         $   509             $ 1,764         $ 1,432
             Microwave micro-circuitry               53             102                 174             353
                                                -------         -------             -------         -------
             Consolidated                       $   707         $   611             $ 1,938         $ 1,785
                                                =======         =======             =======         =======
      Capital expenditures, net:
             Electronic components              $   535         $ 2,473             $ 2,076         $ 6,989
             Microwave micro-circuitry               24              -                  117             402
                                                -------         -------             -------         -------
             Consolidated                       $   559         $ 2,473             $ 2,193         $ 7,391
                                                =======         =======             =======         =======
</TABLE>


                                       -11-
<PAGE>

P. Restructuring and related charges

     As a result of a decline in orders  received from its customers  during the
first  six  months  of 2002,  the  Company  reduced  head  count by 23  persons,
principally involved in production, manufacturing support and sales. We recorded
a personnel restructuring charge of $240,000 consisting of severance and certain
other  personnel  costs,  during the second  quarter of 2002.  The company  paid
substantially  all of the accrued  restructuring  charge of $240,000  during the
third quarter of 2002.

Q. Subsequent event: reorganization and restructuring

     The Company  reorganized  its  operations,  effective  November 1, 2002, to
reflect a more market-driven  focus and to better support its customer base. The
Company  believes this will be accomplished by combining all of its technologies
into a single cohesive unit. This reorganization  allows the Company to increase
its breadth of product offerings and offer more integrated solutions.

     Concurrent  with the  reorganization,  the Company  reduced  its  personnel
complement  by   approximately   5%.  The  Company  will  make   provisions  for
restructuring  and  potentially   other  charges,   which  amount  is  presently
undetermined,  in the fourth quarter of 2002 for the costs  associated  with the
reorganization and restructuring.




                                      -12-


<PAGE>

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


                  CONSOLIDATED STATEMENTS OF OPERATIONS SUMMARY
                  ---------------------------------------------
                                   (Unaudited)
                                   -----------


The following table displays line items in the Consolidated Statements of
Operations as a percentage of net sales.

<TABLE>
<CAPTION>



                                                     Percentage of Net Sales       Percentage of Net Sales
                                                  ----------------------------   ----------------------------
                                                        Quarters Ended               Nine Months Ended
                                                  ----------------------------   ----------------------------
                                                  September 28,  September 29,   September 28,  September 29,
                                                       2002           2001            2002           2001
                                                  -------------  -------------   -------------  -------------
<S>                                                   <C>            <C>             <C>            <C>
Net sales....................................          100.0%         100.0%          100.0%         100.0%
                                                       ------         ------          ------         ------
Costs and expenses:
  Cost of sales..............................           56.0           49.7            54.3           48.2
  Selling, general and administrative........           30.6           39.2            33.5           37.5
  Research and development...................           12.2           16.4             9.9           13.4
  Amortization of goodwill...................             -              .7              -              .6
  Reincorporation charge.....................             -              -               -             1.8
  Restructuring charge.......................             -              -              1.3             -
                                                       ------         ------          ------         ------
                                                        98.8          106.0            99.0          101.5
                                                       ------         ------          ------         ------

Operating income (loss)......................            1.2           (6.0)            1.0           (1.5)
Interest and other expense (income), net.....             .4            (.3)             .6            (.4)
                                                       ------         ------          ------         ------

Income (loss) before income taxes............             .8           (5.7)             .4           (1.1)
Benefit for income taxes.....................            (.2)          (2.1)            (.4)           (.6)
                                                       ------         ------          ------         ------
Net income (loss)............................            1.0%          (3.6)%            .8%           (.5)%
                                                       ======         ======          ======         ======
</TABLE>



                                       -13-

<PAGE>

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


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. These assumptions and estimates are inherently uncertain.
The management judgments that are currently the most critical are related to the
accounting  for  the  Company's  investments  in  Multi-Mix(R)  Microtechnology,
contract  revenue  recognition,  inventory  valuation and valuation of goodwill.
Below we describe these  policies  further as well as the estimates and policies
involved.

     The  following  is a summary of the  carrying  amounts of the  Multi-Mix(R)
Microtechnology  net assets  included in the  Company's  consolidated  financial
statements at September 28, 2002 and the related  future  planned  purchases and
lease obligation commitments through January 2006.

         Net assets:
         Property, plant and equipment, at cost              $14,318,000
         Less accumulated depreciation and amortization        1,949,000
                                                             -----------
         Property, plant and equipment, net                   12,369,000
         Inventories                                           1,184,000
         Other assets, net                                       812,000
                                                             -----------
         Total net assets at September 28, 2002              $14,365,000
                                                             ===========
         Commitments:
         Planned equipment purchases for 2002                   $800,000
         Lease obligations through January 2006                  963,000
                                                             -----------
         Total commitments                                   $ 1,763,000
                                                             -----------
         Total net assets and commitments                    $16,128,000
                                                             ===========

     Due to economic and market  conditions  in the wireless  telecommunications
industry,  the system service providers have significantly reduced their capital
equipment  purchases from our  customers.  These  circumstances  have caused the
Company's  customers  to delay or cancel  Multi-Mix(R)  Microtechnology  product
purchases that had been  anticipated  for 2002.  While the Company  continues to
pursue  new  business  opportunities,   a  continued  delay  or  reduction  from
anticipated levels in new orders for these products would require the Company to
reassess the carrying value of such assets or pursue  alternatives  (including a
potential  write-off)  related to the utilization or realization of these assets
and  commitments,  the  result  of which  could  be  materially  adverse  to the
financial  results  and  position of the  Company.  The Company has made no such
determination at this time.

     The  Company's  planned  equipment  purchases  and  other  commitments  are
expected to be funded through a $6,500,000 revolving credit facility,  which has
been  extended to June 30, 2003,  and  supplemented  by cash  resources and cash
flows that are expected to be provided by operations.

     Contract  revenue  recognition  and related costs on fixed-price  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. Prior to shipment,  manufacturing costs incurred on such contracts are
recorded as  work-in-process  inventory.  Anticipated  losses on  contracts  are
charged  to  operations  when  identified.   Revenue  related  to  non-recurring
engineering  charges is generally  recognized upon shipment of the initial units
produced or based upon contractually established stages of completion.


                                      -14-
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

     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.  As of September 28, 2002, the
Company  held  inventories  valued  at  $4,745,000  which  is net of a  $967,000
valuation  allowance  for  obsolescence,  which  is  based  upon an  established
inventory turnover model.

     With the  adoption  of SFAS No. 142 by the Company on  December  30,  2001,
goodwill is no longer subject to  amortization  over its estimated  useful life.
However,  goodwill  will  be  subject  to at  least  an  annual  assessment  for
impairment and more frequently if circumstances  indicate a possible impairment.
Based on an appraisal conducted by an independent appraisal firm, we believe the
estimated  fair  value  of  the  Company's   wholly-owned   subsidiary   Filtran
Microcircuits  Inc.  ("FMI") at December 30, 2001 exceeds the carrying  value of
the  net  assets  of  the  microwave   micro-circuitry  reporting  segment  and,
therefore,  there was no  impairment  of goodwill.  The Company will perform the
required annual assessment during the fourth quarter of 2002.


     Third  quarter  and the first  nine  months of 2002  compared  to the third
quarter and the first nine months of 2001

     Consolidated results of operations for the third quarter of 2002 reflect an
increase  in net sales  from the third  quarter of 2001 of  $127,000  or 2.2% to
$5,939,000.  This  increase  was  attributable  to  increases  in net  sales  of
electronic  components  of $92,000  and  microwave  micro-circuitry  products of
$35,000 from FMI.  Consolidated  results of operations for the first nine months
of 2002  reflect an increase  in net sales  compared to the first nine months of
the prior year of $583,000 or 3.1% to  $19,252,000.  This increase was primarily
attributable to a $1,535,000 increase in the net sales of electronic components,
which  was  partially  offset  by a  $952,000  decrease  in sales  of  microwave
micro-circuitry  products from FMI. The decrease during the first nine months of
2002 in FMI sales was due to softness in the telecommunications  sector that FMI
serves,   principally   millimeter  wave  applications  for  wireless  broadband
solutions.

     Orders of  $5,773,000  were  received  during the third  quarter of 2002, a
decrease of $522,000 or 8.3%,  compared to $6,295,000 in orders  received during
the third quarter of 2001. Orders received during the third quarter of 2002 were
approximately  2.8% below third  quarter 2002 net sales.  Orders of  $18,309,000
were  received  for the first nine months of 2002, a decrease of  $2,455,000  or
11.8%,  compared to $20,764,000 in orders  received for the first nine months of
2001. Orders received for the first nine months of 2002 were  approximately 4.9%
below net sales recorded in the first nine months of 2002. As a result,  backlog
decreased by $943,000 or 8.0% to  $10,913,000 at the end of the third quarter of
2002,  compared to  $11,856,000  at year-end  2001. The reductions in orders and
backlog reflected  significant weakness in certain  communications  markets that
are served by the Company.

                                      -15-
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


     The Company  believes  that the current  economic  downturn,  resulting  in
reduced  spending  by  wireless  service  providers,  has caused  many  wireless
companies  to delay or  forego  purchases  of the  Company's  products.  This is
reflected in the decrease in the Company's backlog. However, the Company expects
that its  satellite  and defense  customers  should  continue to maintain  their
approximate  current  levels of orders during the remainder of fiscal year 2002,
although there are no assurances  they will do so. The Company also  anticipates
increasing  levels of orders  during the  remainder  of fiscal year 2002 and for
fiscal year 2003 for its new Multi-Mix(R)  Microtechnology  products,  for which
the Company has made a significant  capital investment and incurred  substantial
research  and  development  costs.  The  Company  expects  that  weakness in the
telecommunications  sector that FMI serves will continue into the fourth quarter
of fiscal year 2002.

     Consolidated cost of sales increased $434,000 or 15.0%, and as a percentage
of net sales increased 6.3 percentage  points to 56.0%, for the third quarter of
2002 compared to the third quarter of 2001. Consolidated cost of sales increased
$1,462,000 or 16.3%,  and as a percentage of net sales  increased 6.1 percentage
points to 54.3%,  for the first  nine  months of 2002.  Cost of sales  increased
$590,000 and $2,274,000 for the third quarter and the first nine months of 2002,
respectively,  in the electronic components segment, resulting from higher sales
levels and  manufacturing  cost increases that were attributable to increases in
insurance  expense,   depreciation,   rent  and  other  occupancy  expenses  and
underabsorbed  manufacturing  overhead expenses related to the expansions of the
Company's  West  Caldwell,  New Jersey and Costa Rica  manufacturing  production
facilities.  Cost of sales declined  $156,000 and $812,000 for the third quarter
and  the  first   nine   months  of  2002,   respectively,   in  the   microwave
micro-circuitry  segment,  resulting  from the  decline in segment  sales in the
third quarter and the first nine months of 2002 of approximately 4.1% and 28.2%,
respectively, compared to the third quarter and the first nine months of 2001.

     Depreciation  expense  included  in cost of sales for the third  quarter of
2002 was $529,000, an increase of $66,000 compared to the third quarter of 2001.
For the third quarter of 2002,  approximately  $263,000 of depreciation  expense
was associated with Multi-Mix(R)  Microtechnology  capital assets.  Depreciation
expense  included  in the cost of sales  for the first  nine  months of 2002 was
$1,561,000,  an increase of $209,000 compared to the first nine months of 2001.
For the  first  nine  months of 2002,  approximately  $814,000  of  depreciation
expense was associated with Multi-Mix(R)  Microtechnology  capital assets. Other
increases  in  depreciation  expense were a result of higher  capital  equipment
purchases in the current and prior years and the  commencement  of  depreciation
expense  associated  with the  West  Caldwell,  New  Jersey  19,200  square-foot
building  expansion,  which was placed into service  during the first quarter of
2002.  During the third quarter of 2002,  depreciation and amortization  expense
commenced   on  the   recently   completed   36,200   square-foot   Multi-Mix(R)
manufacturing facility in San Jose, Costa Rica.


                                      -16-
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

     Consolidated  gross profit for the third  quarter and the first nine months
of 2002 were  impacted  by the items  referred  to in the  above  discussion  of
consolidated cost of sales.  Consolidated  gross profit for the third quarter of
2002 was $2,616,000 or 44.0% of net sales compared to consolidated  gross profit
of $2,923,000 or 50.3% of net sales for the third quarter of 2001.  Gross profit
for the third quarter of 2002 for the electronic components segment decreased by
$498,000 or 19.2% to $2,090,000 which  represented 41.3% of segment net sales of
$5,065,000,  compared to a gross  profit of  $2,588,000  or 52.0% of segment net
sales of  $4,973,000  in the third  quarter of 2001.  Gross profit for the third
quarter of 2002 for the microwave  micro-circuitry segment increased by $190,000
to $526,000 which represented  60.2% of segment net sales of $874,000,  compared
to $336,000  or 40.0% of segment  net sales of $840,000 in the third  quarter of
2001. Consolidated gross profit for the first nine months of 2002 was $8,795,000
or 45.7% of net sales  compared to  consolidated  gross profit of  $9,674,000 or
51.8% of net sales for the first nine months of 2001. Gross profit for the first
nine months of 2002 for the electronic  components segment decreased by $740,000
or  8.9%  to  $7,531,000  which  represented  44.8%  of  segment  net  sales  of
$16,825,000 compared to gross profit of $8,271,000 or 54.1% of segment net sales
of  $15,291,000  for the first nine months of 2001.  Gross  profit for the first
nine  months of 2002 for the  microwave  micro-circuitry  segment  decreased  by
$139,000 or 9.9% to $1,264,000 which  represented  52.1% of segment net sales of
$2,427,000,  compared to  $1,404,000 or 41.5% of segment net sales of $3,378,000
for the first nine months of 2001.

     Consolidated selling, general and administrative expenses of $1,821,000 for
the third quarter of 2002 decreased by $460,000 or 20.2%,  and when expressed as
a percentage of net sales,  decreased by 8.6 percentage points to 30.7% compared
to the third  quarter of 2001.  The dollar  decreases  resulted from lower sales
commission  expenses  due to a reduction in  commissionable  sales for the third
quarter of 2002 and lower personnel  recruitment  costs and  professional  fees.
Selling,  general and  administrative  expenses of $6,451,000 for the first nine
months of 2002 decreased by $563,000 or 8.0%, and when expressed as a percentage
of net sales,  decreased by 4.0 percentage points to 33.5% compared to the first
nine months of 2001.  The dollar  decreases  resulted  from  decreases  in sales
commission expenses,  personnel recruitment costs,  marketing expenses and other
administrative expenses for the first nine months of 2002.

     Research and  development  expenses for new products  were $723,000 for the
third quarter of 2002, a planned  decrease of $231,000 or 24.2%  compared to the
third quarter of 2001. Except for $126,000 of research and development  expenses
at FMI, an increase of $51,000 over the third quarter of 2001, substantially all
of  the  research  and   development   expenses  were  related  to  Multi-Mix(R)
Microtechnology  and  Multi-Mix  PICO(TM)  products.  Research  and  development
expenses for new products were  $1,911,000  for the first nine months of 2002, a
planned decrease of $591,000 or 23.6% compared to the first nine months of 2001.
Except for $380,000 of research and development  expenses at FMI, an increase of
$155,000 over the first nine months of 2001,  substantially  all of the research
and  development  expenses  were  related to  Multi-Mix(R)  Microtechnology  and
Multi-Mix  PICO(TM)  products.  We  anticipate  maintaining  current  levels  of
research and development expenses for the remainder of the year.


                                      -17-
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

     Consolidated operating income for the third quarter of 2002 was $72,000. We
reported a  consolidated  operating  loss of $349,000  for the third  quarter of
2001. As a result of a decline in orders received from its customers  during the
first  six  months  of 2002,  the  Company  reduced  head  count by 23  persons,
principally involved in production, manufacturing support and sales. We recorded
a personnel  restructuring  charge of  $240,000,  consisting  of  severance  and
certain other  personnel  costs,  during the second quarter of 2002. The Company
paid  substantially all of the accrued  restructuring  charge of $240,000 during
the third  quarter  of 2002.  For the first  nine  months of 2002,  consolidated
operating  income was  $433,000,  before  giving  effect to the $240,000  second
quarter  of  2002  personnel  restructuring  charge  and,  after  including  the
personnel restructuring charge, was $193,000.  Consolidated operating income for
the  first  nine  months  of 2001 was  $47,000  before  the  effect  of  charges
associated  with the  reincorporation  in Delaware  of $330,000  recorded in the
first quarter of 2001 and, after  including the  reincorporation  charge,  was a
consolidated operating loss of $283,000.

     Operating loss for the electronic  components segment for the third quarter
of 2002 was  $100,000  compared  to an  operating  loss of $264,000 in the third
quarter of 2001. Operating income for the microwave  micro-circuitry segment was
$172,000 for the third quarter of 2002 compared to an operating  loss of $85,000
for the third quarter of 2001.  For the first nine months of 2002, the Company's
operating income for its electronic  components  segment was $296,000 before the
effect of charges associated with the personnel  restructuring charge and, after
inclusion of the $198,000 second quarter  personnel  restructuring  charge,  was
$98,000.  Before the effect of charges  associated with the  reincorporation  in
Delaware of $330,000  recorded in the first quarter of 2001,  operating loss for
the electronic  components segment for the first nine months of 2001 was $30,000
and, after the inclusion of the  reincorporation  charge, the operating loss was
$360,000.  For the first nine months of 2002, the Company's operating income for
its microwave  micro-circuitry segment was $137,000 before the effect of charges
associated with the personnel  restructuring  charge and, after inclusion of the
$42,000 second quarter personnel restructuring charge, was $95,000.

     Net  interest  expense  was $25,000  for the third  quarter of 2002,  which
compares to net interest  income of $20,000 for the third  quarter of 2001.  Net
interest  expense was $127,000 for the first nine months of 2002 compared to net
interest income of $69,000 for the first nine months of 2001.  Interest  expense
of $58,000 was capitalized to property, plant and equipment in the third quarter
of 2001 and $81,000 for the first nine months of 2001.  Interest expense for the
third quarter of 2002 was principally incurred on borrowings under our revolving
credit  facility  and a  mortgage  loan in  connection  with  capital  equipment
purchases  and the  building  expansion  constructed  during  fiscal  year 2001.
Interest  income for the third  quarter of 2001 was  primarily  due to  interest
earned on the  proceeds  received  from the  issuance of common stock in private
placements  in fiscal year 2000 and interest  capitalized  to certain  long-term
construction fixed asset projects that offset interest expense.

     An income tax benefit of $10,000 was recorded for the third quarter of 2002
compared to an income tax benefit of $120,000 for the third quarter of 2001 with
an effective  tax rate of 36.5%.  The  principal  adjustments  to the  statutory
Federal  income tax rate of 34% for the third quarter of 2002 relates to $12,000
in tax credits associated with research and development expenditures.  An income
tax benefit of $80,000 was recorded  for the first nine months of 2002  compared
to an income tax  benefit of  $110,000  for the first nine  months of 2001.  The
principal  adjustments  to the statutory  Federal income tax rate of 34% for the
first nine  months of 2002  relates to $75,000 in tax  credits  associated  with
research and development expenditures.


                                      -18-
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

     During the period ended June 29, 2002,  the Company  completed the first of
the required  impairment  tests  required  under SFAS No. 142, which was adopted
effective December 30, 2001, related to goodwill.  Under the new rules, goodwill
is no longer subject to amortization but it is reviewed for potential impairment
upon adoption and  thereafter  annually or upon the  occurrence of an impairment
indicator.  The annual  amortization of goodwill,  which would have approximated
$150,000,  is no longer required.  Goodwill of approximately  $3,100,000,  which
arose  from  the   acquisition  of  FMI  in  1999,  was  being  amortized  on  a
straight-line  basis over twenty years.  Amortization of goodwill of $37,000 and
$111,000  were recorded for the third quarter and the first nine months of 2001,
respectively.

     The Company  recorded  net income for the third  quarter of 2002 of $57,000
compared to a net loss of $209,000 for the third quarter of 2001. On a per share
basis,  we recorded  net income of $.02 per share for the third  quarter of 2002
compared to a net loss of $.08 per share reported for the third quarter of 2001.

     Net income  for the first nine  months of 2002 was  $146,000  after  giving
effect to the  personnel  restructuring  charge of $150,000.  For the first nine
months of 2001, we reported a net loss of $104,000,  after the after-tax effects
of the first  quarter 2001  reincorporation  charge of $198,000.  Net income was
$.05 per share for the first nine  months of 2002 after  deducting  the $.05 per
share  personnel  restructuring  charge.  For the first nine months of 2001, net
loss per share of $.04 per share was reported,  after the after-tax effects of a
$.08 per share reincorporation charge reported in the first quarter of 2001.

     The  weighted  average  number of basic  shares  outstanding  increased  by
approximately  522,000 shares or 19.9% for the third quarter of 2002 compared to
the third  quarter of 2001,  and  increased  by 440,000  shares or 16.8% for the
first  nine  months of 2002  compared  to the  first  nine  months of 2001.  The
increase in shares  outstanding  was  primarily  due to the  issuance of 528,000
shares to DuPont Electronic Technologies during the first quarter of 2002.


Liquidity and Capital Resources

     The Company had liquid  resources  comprised  of cash and cash  equivalents
totaling approximately $900,000 at the end of the third quarter of 2002 compared
to  approximately  $1,800,000 at the end of 2001. The Company's  working capital
was  approximately  $8,100,000  and its current ratio was 3.0 to 1 at the end of
the third quarter of 2002 compared to $4,000,000 and 1.4 to 1, respectively,  at
the end of 2001.

     Our  operating  activities  provided  net  positive  cash flows of $175,000
during the first nine months of 2002  compared to negative cash flows of $55,000
during the first  nine  months of 2001.  The  primary  reason  for the  positive
operating  cash flows resulted from  depreciation  and  amortization  charges of
$1,938,000 and decreases in accounts  receivable,  inventories and other current
assets.  These positive cash flows were offset primarily by payments made during
the first nine months of 2002 that reduced  year-end 2001  accounts  payable and
accrued liabilities.


                                      -19-
<PAGE>

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

     The Company made net capital  investments in property,  plant and equipment
of  $2,193,000  during  the first nine  months of 2002  (which  excludes  unpaid
invoices for additional capital  investments of $306,000 at September 28, 2002),
compared to net capital  investments  made in property,  plant and  equipment of
$7,391,000 during the first nine months of 2001. These capital  expenditures are
related to new production  facilities and processing  equipment  capabilities in
connection with the  manufacturing  of new products and enhancements to existing
products. The depreciated cost of capital equipment associated with Multi-Mix(R)
Microtechnology  was  $12,369,000  at the end of the third  quarter of 2002,  an
increase of $1,017,000 compared to $11,352,000 at the end of fiscal year 2001.

     In April  2001,  the  Company  commenced  borrowing  under  its  $7,500,000
revolving  credit  facility  with Fleet Bank,  at an  interest  rate of one-half
percent  below the bank's  floating  prime rate.  During  fiscal year 2001,  the
Company  borrowed an aggregate  amount of $7,500,000  under this  facility.  The
weighted  average interest rate on the borrowings under this facility during the
third  quarter  and the first  nine  months of 2002 was 4.25%,  and the  current
interest rate is 3.75%.

     During the first  quarter of 2002,  the  Company  obtained  an  increase of
$2,500,000  in the  Company's  lines of  credit  with  Fleet  Bank to a total of
$10,000,000,  $3,500,000 of which consists of a first mortgage callable in March
2007 on the Company's  West Caldwell,  New Jersey  manufacturing  facility.  The
$6,500,000  revolving  line of credit has been extended for one year to June 30,
2003. The Company  successfully  completed a private placement of 528,400 shares
of common  stock on February  28, 2002 that raised  $5,284,000  before  offering
expenses.  The Company repaid $5,000,000,  all of its then revolving borrowings,
to Fleet Bank from the proceeds of that offering.  The Company borrowed $500,000
during  the third  quarter  of 2002 from its line of credit  with Fleet Bank and
currently has $6,000,000 available under this line of credit.

     Management   believes   that  its   current   revolving   credit   facility
availability, together with its present liquid resources and cash flows that are
expected to be provided by operations,  should provide sufficient  resources for
currently contemplated operations during the next twelve months.

     Capital  expenditures  for new projects and production  equipment  exceeded
depreciation and  amortization  expenses during the first nine months of 2002 by
approximately  $561,000, and we anticipate that capital expenditures will exceed
depreciation and amortization  expenses in fiscal year 2002. The Company intends
to issue up to $800,000 of purchase order commitments for building modifications
and for capital  equipment from various  vendors.  The Company  anticipates that
such   equipment  will  be  purchased  and  become   operational   and  building
modifications  will be completed during the remainder of 2002 and through fiscal
year 2003.

     In February 2001, the Company  entered into a new five-year  lease in Costa
Rica  for a 36,200  square-foot  facility  for  manufacturing  new  Multi-Mix(R)
Microtechnology  products.  The leasehold improvements and capital equipment for
this  manufacturing  facility were recently completed at a cost of approximately
$4,800,000  and this  facility was opened for  production  in August  2002.  The
Company  also leases an 8,200  square-foot  facility in Costa Rica and the lease
ends December  2004.  The Company has recently  initiated  discussions  with its
co-tenant to relinquish the 8,200 square feet of space it presently occupies and
to move its currently conducted operations into the larger facility.

     The Company has been  authorized  by its Board of Directors  to  repurchase
shares of its Common Stock,  from time to time,  depending on market  conditions
and availability of resources. During the first nine months of 2002, the Company
repurchased  61,400 shares of Common Stock at a cost of approximately  $457,000.
Subsequent  to the end of the third  quarter of 2002,  the  Company  repurchased
10,000  additional  shares at a cost of  approximately  $61,000.  No shares were
repurchased during fiscal 2001 or fiscal 2000.


                                      -20-
<PAGE>

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

Related Party Transactions

     In May 1998,  the Company  sold 22,000  shares of Common  Stock to Mason N.
Carter,  Chairman,  President and Chief Executive  Officer of the Company,  at a
price of $11.60 per share,  which  approximated the average closing price of the
Company's  Common Stock during the second  quarter of 1998. The Company lent Mr.
Carter  $255,000 in  connection  with the  purchase of these shares and combined
that  loan  with a prior  loan to Mr.  Carter in the  amount  of  $105,000.  The
resulting  total  principal  amount of $360,000 was payable May 4, 2003 and bore
interest at a variable  interest  rate based on the prime rate of the  Company's
lending bank. This loan was further amended on July 29, 2002.  Accrued  interest
of $40,000 was added to the principal,  bringing the new principal amount of the
loan to $400,000, the due date was extended to May 4, 2006, and interest (at the
same rate as was previously  applicable) is now payable monthly.  Mr. Carter has
pledged  33,000  shares of Common  Stock as  security  for this loan  which is a
full-recourse loan.

     On August  31,  2000,  in  connection  with an  amendment  of Mr.  Carter's
employment  agreement,  the Company  loaned Mr. Carter an  additional  $280,000.
Interest  on the loan  varies  and is based on the prime  rate of the  Company's
lending bank, payable in accordance with Mr. Carter's employment agreement. Each
year the  Company  will  forgive  20% of the  amount due under this loan and the
accrued interest thereon.  During 2002, the Company forgave $56,000 of principal
and $12,000 of accrued  interest  and projects  that  $56,000 of  principal  and
$8,000 of accrued interest will be forgiven in fiscal year 2003.

     The Company is a party to a  stockholder's  agreement,  dated as of October
30, 1998,  with a former  director and Chairman of the Company.  Pursuant to the
stockholder's agreement,  this former director is required to vote his shares of
Common  Stock as  directed  by the Board of  Directors  or the  Chief  Executive
Officer of the Company.  There are no other  obligations of the Company pursuant
to this agreement.

     During the third  quarter and the first nine months of 2002,  the Company's
General Counsel, KMZ Rosenman, was paid $98,000 and $324,000,  respectively, for
providing legal services to the Company. A director of the Company is Counsel to
the firm of KMZ Rosenman.

     During  2002,  the  Company  retained  Career  Consultants,   Inc.  and  SK
Associates to perform executive searches and to provide outplacement services to
the Company. The Company paid an aggregate of $3,000 and $20,500,  respectively,
to these companies during the third quarter and the first nine months of 2002. A
director of the Company is the Chairman and Chief  Executive  Officer of each of
these companies.

     During the third  quarter and the first nine months of 2002,  a director of
the  Company  was  paid  $9,000  and  $27,000,   respectively,   for   providing
financial-related consulting services to the Company.

     During the third  quarter and the first nine months of 2002,  a director of
the  Company  was  paid  $9,000  and  $27,000,   respectively,   for   providing
technology-related consulting services to the Company.

     During the third quarter of 2002, DuPont  Electronic  Technologies was paid
$11,000  for  providing  technological  and  marketing  related  services  on  a
cost-sharing  basis to the Company.  The Company  expects to be charged  $25,000
during  the  remainder  of fiscal  year 2002 for  similar  services  under  this
cost-sharing agreement.

     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.  The directors are also reimbursed
for  reasonable  travel  expenses  incurred  in  attending  Board and  Committee
meetings. In addition, pursuant to the 2001 Stock Option Plan, each non-employee
director is granted an immediately  exercisable  option to purchase 2,500 shares
of the  Common  Stock of the  Company  on the  date of each  Annual  Meeting  of
Stockholders.  Each such grant is priced at the fair market  value of the Common
Stock on the date of such grant. On June 12, 2002,  non-qualified  stock options
to purchase an aggregate of 17,500  shares were issued to seven  directors at an
exercise price of $9.90 per share.


                                      -21-
<page>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


     On April 7, 2000, the Company entered into a stock purchase and exclusivity
agreement with Ericsson Microelectronics, A.B. ("Ericsson") and Ericsson Holding
International,  B.V.  ("EHI")  pursuant to which the Company sold to EHI 375,000
shares  of  Common  Stock,  representing  approximately  17.5% of the  Company's
outstanding  Common  Stock after  giving  effect to the sale,  for an  aggregate
purchase price of $3,375,000.  The stock purchase and exclusivity agreement also
provides  that the Company  will  design,  develop and produce  exclusively  for
Ericsson  Multi-Mix(R) products that incorporate active RF power transistors for
use in wireless basestation  applications,  television  transmitters and certain
other  applications  that are intended for Bluetooth  transceivers.  The Company
also agreed that it will  generally  be  Ericsson's  priority  supplier for such
products.

     On October 26, 2000, the Company entered into  subscription  agreements for
Common  Stock and  three-year  warrants  to  purchase  shares  of  Common  Stock
("Warrants")  with a group of investors led by Adam Smith  Investment  Partners,
L.P. and certain of its affiliates (the "Adam Smith Investors"), EHI and Messrs.
E. Cohen, Goldberg and Fuller,  members of the Board (the "Director Investors").
The Company sold to the investors units at a price of $12.80 per unit, each unit
consisting  of one share of Common Stock and one Warrant with an exercise  price
of $21.25 which expire on October 26, 2003  ("Units").  The Adam Smith Investors
purchased  240,000  Units,  EHI purchased  100,000  Units and Messrs.  E. Cohen,
Goldberg and Fuller purchased 5,000, 11,000 and 4,000 Units,  respectively,  for
an aggregate purchase price of $4,608,000. The Common Stock portion of the Units
represented an aggregate of approximately 14% of the outstanding Common Stock of
the Company  after  giving  effect to the sales.  The Warrants  contain  certain
anti-dilution provisions.

     On February 28, 2002,  the Company sold to DuPont  Electronic  Technologies
pursuant to which the Company sold 528,400 shares of Common Stock,  representing
approximately  16.6% of the  Company's  outstanding  Common  Stock after  giving
effect to the sale, for an aggregate  purchase price of $5,284,000.  The Company
and DuPont  Electronic  Technologies have also agreed to work together to better
understand the dynamics of the markets for high-frequency  electronic components
and  modules.  David B. Miller,  Vice  President  and General  Manager of DuPont
Electronic Technologies, was appointed to the Company's Board of Directors. As a
result of this sale,  pursuant to the  anti-dilution  provisions of the Warrants
issued in October 2000, the exercise price of the Warrants was reduced to $17.80
and the number of shares subject to the Warrants was increased to 429,775.

     On October 1, 2002, EHI completed the sale of its microelectronics business
(excluding  optosemiconductors  and power  modules,  but  including the RF power
business) to Infineon Technologies AG ("Infineon"). As part of this transaction,
EHI  transferred  to  Infineon  475,000  shares of the  Company and the right to
acquire  119,381 shares of the Company's  common stock pursuant to the Warrants,
and EHI assigned to Infineon its rights in the following  agreements between EHI
and the Company: (i) the Stock Purchase and Exclusivity Letter Agreement,  dated
April 7, 2000, as amended by the letter  agreement  dated February 1, 2002; (ii)
the Registration  Rights Agreement,  dated April 7, 2000; (iii) the Subscription
Agreement,  dated as of  October  26,  2000;  and (iv) the  Registration  Rights
Agreement, dated October 26, 2000 (collectively,  the "Agreements"). The Company
also agreed to make certain  modifications  to the  Agreements and the Warrants.
These changes are reflected in the Modification Agreement, dated as of September
27, 2002, between the Company and Infineon.


                                      -22-

<page>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


Recent Accounting Pronouncements

     Statement of Financial  Accounting  Standards  ("SFAS") No. 141,  "Business
Combinations"  requires all business combinations  initiated after June 30, 2001
to be accounted for using the purchase  method of accounting  and eliminates the
pooling  method  of  accounting.  SFAS No.  141 will not have an  impact  on the
Company's  business  since the Company  has  accounted  for all of its  business
combinations using the purchase method of accounting.

     With the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" by
the Company on December 30, 2001,  goodwill is no longer subject to amortization
over its estimated useful life. However,  goodwill will be tested for impairment
annually under a two-step approach, or more frequently,  if events or changes in
circumstances indicate that the asset might be impaired.  Impairment is assessed
at the "reporting unit" level by applying a fair  value-based  test. A reporting
unit is defined as the same as or one level below the operating segment level as
described in SFAS No. 131,  "Disclosures  about  Segments of an  Enterprise  and
Related  Information".  Under the two-step approach,  the carrying amount of the
reporting  unit is compared with its fair value.  If the carrying  amount of the
reporting  unit exceeds its fair value,  the "implied" fair value (as defined in
SFAS No. 142) of the  reporting  unit's  goodwill is compared  with its carrying
amount to measure the amount of the  impairment  loss, if any. When the carrying
amount of the reporting  unit's  goodwill  exceeds the implied fair value of the
goodwill,  an impairment loss is recognized in an amount equal to the excess. In
addition,  under SFAS No. 142, an acquired intangible asset should be separately
recognized if the benefit of the intangible is obtained  through  contractual or
other  legal  rights,  or if the  intangible  asset  can be  sold,  transferred,
licensed,  rented, or exchanged.  Intangible assets will be amortized over their
estimated useful lives.

     On an  annualized  basis,  the Company  expects  that the  adoption of this
accounting  standard will reduce the amortization of goodwill and intangibles by
approximately  $150,000  commencing in 2002. In connection  with the adoption of
SFAS No. 142, the Company has  completed  the first of the  impairment  tests of
goodwill as of December 30, 2001 required by the standard, which indicated there
was no  impairment  of goodwill.  The Company  will perform the required  annual
assessment during the fourth quarter of 2002.

     SFAS No. 143, "Accounting for Asset Retirement  Obligations"  requires that
asset  retirement   obligations  that  are  identifiable  upon  acquisition  and
construction, and during the operating life of a long-lived asset be recorded as
a liability using the present value of the estimated cash flows. A corresponding
amount would be capitalized as part of the asset's carrying amount and amortized
to expense over the asset's  useful  life.  The Company is required to adopt the
provisions of SFAS No. 143 effective  January 5, 2003.  The Company is currently
evaluating the impact of adoption of this statement. The Company does not expect
that the adoption of SFAS No. 143 will have a material  impact on the  Company's
financial position or results of operations.

     SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets" is effective for fiscal periods  beginning after December 15, 2001. SFAS
No. 144 establishes an accounting model for impairment or disposal of long-lived
assets to be disposed of by sale.  The Company does not expect that the adoption
of SFAS No. 144 will have a material impact on the Company's  financial position
or results of operations.


                                      -23-
<page>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


     SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of
FASB Statement No. 13 and Technical Corrections",  will require gains and losses
on  extinguishments  of debt to be classified as income or loss from  continuing
operations rather than as extraordinary  items as previously required under SFAS
No. 4. Extraordinary  treatment will be required for certain  extinguishments as
provided in APB  Opinion  No. 30. The  statement  also  amended  SFAS No. 13 for
certain sale-leaseback and sublease accounting. The Company is required to adopt
the  provisions  of SFAS No.  145  effective  January 5,  2003.  The  Company is
currently  evaluating  the impact of adoption of this  statement,  however,  the
Company  does not expect that the  adoption of SFAS No. 145 will have a material
impact on the Company's financial position or results of operations.

     SFAS No.  146,  "Accounting  for Costs  Associated  with  Exit or  Disposal
Activities"  nullifies  EITF  Issue  No.  94-3.  SFAS No.  146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
when the  liability  is  incurred,  whereas  EITF No.  94-3 had  recognized  the
liability  at the  commitment  date to an exit plan.  The Company is required to
adopt the  provisions of SFAS No. 146 effective for exit or disposal  activities
initiated after January 4, 2003. The Company is currently  evaluating the impact
of adoption of this  statement to determine if the adoption of SFAS No. 146 will
have a  material  impact on the  Company's  financial  position  or  results  of
operations.


Forward-Looking Statements

     This quarterly report on Form 10-QSB contains statements relating to future
results of the Company (including certain  projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. 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:  general  economic  and  industry  conditions;
slower than anticipated penetration into the satellite  communications,  defense
and wireless  markets;  the risk that the benefits expected from the acquisition
of  Filtran  Microcircuits  Inc.  are  not  realized;  the  ability  to  protect
proprietary  information  and  technology;   competitive  products  and  pricing
pressures;  the risk  that the  Company  will not be able to  continue  to raise
sufficient  capital to expand its  operations as currently  contemplated  by its
business  strategy;   risks  relating  to  governmental  regulatory  actions  in
communications and defense programs; risks associated with demand for and market
acceptance of existing and newly developed products;  and inventory risks due to
technological  innovation and product  obsolescence,  as well as other risks and
uncertainties,  including but not limited to those 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 hereof,  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.

Item 3. Controls and Procedures

     Mason N. Carter,  the  Company's  Chief  Executive  Officer,  and Robert V.
Condon, the Company's Chief Financial Officer,  have evaluated the effectiveness
of the Company's  disclosure controls and procedures as of a date within 90 days
of the filing of this report. Based on such evaluation, each of Mason Carter and
Robert Condon  concluded that the Company's  disclosure  controls and procedures
were  effective to ensure that the  information  required to be disclosed by the
Company in the reports that it files or submits  under the  Securities  Exchange
Act of 1934 is recorded,  processed,  summarized  and  reported  within the time
periods specified in the rules and forms of the SEC. No significant changes were
made  in  the  Company's  internal  controls  or in  other  factors  that  could
significantly  affect these controls subsequent to the date of the evaluation by
Mr. Carter and Mr. Condon.


                                      -24-

<PAGE>

PART II. OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

       EXHIBIT NO.   DESCRIPTION
       -----------   -----------

       3(a)           By-laws of Merrimac are hereby incorporated by reference
                      to Exhibit 3(ii)(b) to Post-Effective Amendment No. 2 to
                      the Registration Statement on Form S-8 (No. 33-68862) of
                      Merrimac dated February 23, 2001.

       3(b)           Certificate of Incorporation of Merrimac is hereby
                      incorporated by reference to Exhibit 3(i)(b) to
                      Post-Effective Amendment No. 2 to the Registration
                      Statement on Form S-8 (No. 33-68862) of Merrimac dated
                      February 23, 2001.

       4(a)           Stockholder Rights Agreement dated as of March 9, 1999,
                      between Merrimac and ChaseMellon Stockholder Services,
                      L.L.C., as Rights Agent, is hereby incorporated by
                      reference to Exhibit 1 to Merrimac's Current Report on
                      Form 8-K for the period ending March 9, 1999.

       4(b)           Amendment No. 1 dated as of June 9, 1999, to the
                      Stockholder Rights Agreement dated as of March 9, 1999,
                      between Merrimac and ChaseMellon Stockholder Services,
                      L.L.C., as Rights Agent, is hereby incorporated by
                      reference to Exhibit 1 to Merrimac's Current Report on
                      Form 8-K for the period ending June 9, 1999.

       4(c)           Amendment No. 2 dated as of April 7, 2000, to the
                      Stockholder Rights Agreement dated as of March 9, 1999,
                      between Merrimac and ChaseMellon Stockholder Services,
                      L.L.C., as Rights Agent, is hereby incorporated by
                      reference to Exhibit 2 to Merrimac's Current Report on
                      Form 8-K for the period ending April 10, 2000.

       4(d)           Amendment No. 3 dated as of October 26, 2000, to the
                      Stockholder Rights Agreement dated as of March 9, 1999,
                      between Merrimac and ChaseMellon Stockholder Services,
                      L.L.C., as Rights Agent, is hereby incorporated by
                      reference to Exhibit 2 to Merrimac's Current Report on
                      Form 8-K for the period ending October 27, 2000.

       4(e)           Amendment No. 4 dated as of February 21, 2001, to the
                      Stockholder Rights Agreement dated as of March 9, 1999,
                      between Merrimac and Mellon Investor Services, L.L.C.
                      (formerly known as ChaseMellon Stockholder Services,
                      L.L.C.), as Rights Agent, is hereby incorporated by
                      reference to Exhibit 1(d) to Merrimac's Current Report on
                      Form 8-K for the period ending February 21, 2001.

       4(f)           Amendment No. 5, dated February 28, 2002, to the Rights
                      Agreement, between Merrimac and Mellon Investor Services
                      LLC (f.k.a. ChaseMellon Shareholder Services, L.L.C.), as
                      Rights Agent is hereby incorporated by reference to
                      Exhibit 99.4 to Merrimac's Form 8-K for the period ending
                      March 6, 2002.

       4(g)           Amendment No. 6, dated September 18, 2002, to the Rights
                      Agreement, between Merrimac and Mellon Investor
                      Services LLC, as Rights Agent is hereby incorporated
                      by reference to Exhibit 99.3 to Merrimac's Form 8-K for
                      the period ending September 18, 2002.


                                       -25-
<PAGE>

       EXHIBIT NO.    DESCRIPTION
       -----------    -----------


       10(a)          Stock Purchase and Exclusivity Letter Agreement dated
                      April 7, 2000, among Ericsson Microelectronics, A.B.,
                      Ericsson Holdings International, B.V. and Merrimac is
                      hereby incorporated by reference to Exhibit 10(a) to
                      Merrimac's Quarterly Report on Form 10-QSB for the period
                      ending August 15, 2000.

       10(b)          Registration Rights Agreement dated as of April 7, 2000,
                      between Merrimac and Ericsson Holding International, B.V.
                      is hereby incorporated by reference to Exhibit 10(b) to
                      Merrimac's Quarterly Report on Form 10-QSB for the period
                      ending August 15, 2000.

       10(c)          Profit Sharing Plan of Merrimac is hereby incorporated by
                      reference to Exhibit 10(n) to Merrimac's Registration
                      Statement on Form S-1 (No. 2-79455).*

       10(d)          1983 Key Employees Stock Option Plan of Merrimac effective
                      March 21, 1983, is hereby incorporated by reference to
                      Exhibit 10(m) to Merrimac's Annual Report on Form 10-KSB
                      for the year ending March 31, 1983.*

       10(e)          1993 Stock Option Plan of Merrimac effective March 31,
                      1993, is hereby incorporated by reference to Exhibit 4(c)
                      to Merrimac's Registration Statement on Form S-8 (No.
                      33-68862) dated September 14, 1993.*

       10(f)          1997 Long-Term Incentive Plan of Merrimac is hereby
                      incorporated by reference to Exhibit A to Merrimac's Proxy
                      Statement for the period ending April 11, 1997.*

       10(g)          Resolutions of the Stock Option Committee of the Board of
                      Directors of Merrimac adopted June 3, 1998, amending the
                      1983 Key Employees Stock Option Plan of Merrimac, the 1993
                      Stock Option Plan of Merrimac and the 1997 Long-Term
                      Incentive Plan of Merrimac and adjusting outstanding
                      awards thereunder to give effect to Merrimac's 10% stock
                      dividend paid June 5, 1998, are hereby incorporated by
                      reference to Exhibit 10(f) to Merrimac's Annual Report on
                      Form 10-KSB for the year ending March 30, 1999.*

       10(h)(1)       1995 Stock Purchase Plan of Merrimac is hereby
                      incorporated by reference to Exhibit A to the Proxy
                      Statement of Merrimac for the period ending December 31,
                      1994.*

       10(h)(2)       Resolutions of the Stock Purchase Plan Committee of the
                      Board of Directors of Merrimac adopted June 3, 1998,
                      amending the 1995 Stock Purchase Plan of Merrimac and
                      adjusting outstanding awards thereunder to give effect to
                      Merrimac's 10% stock dividend paid June 5, 1998, are
                      hereby incorporated by reference to Exhibit 10(g)(2) to
                      Merrimac's Annual Report on Form 10-KSB for the year
                      ending January 2, 1999.*

       10(i)(1)       1996 Stock Option Plan for Non-Employee Directors of
                      Merrimac is hereby incorporated by reference to Exhibit
                      10(d) to Merrimac's Annual Report on Form 10-KSB for the
                      year ending December 28, 1996.*




                                       -26-
<PAGE>


       EXHIBIT NO.    DESCRIPTION
       -----------    -----------


       10(i)(2)       Resolutions of the Board of Directors of Merrimac, adopted
                      June 3, 1998, amending the 1996 Stock Option Plan for
                      Non-Employee Directors of Merrimac and adjusting
                      outstanding awards thereunder to give effect to Merrimac's
                      10% stock dividend paid June 5, 1998, are hereby
                      incorporated by reference to Exhibit 10(h)(2) to
                      Merrimac's Annual Report on Form 10-KSB for the year
                      ending January 2, 1999.*

       10(j)          Amended and Restated Employment Agreement dated as of
                      January 1, 1998, between Merrimac and Mason N. Carter is
                      hereby incorporated by reference to Exhibit 10(a) to
                      Merrimac's Quarterly Report on Form 10-QSB for the year
                      ending July 4, 1998.*

       10(k)          Amendment dated August 31, 2000 to the Amended and
                      Restated Employment Agreement dated January 1, 1998,
                      between Merrimac and Mason N. Carter is hereby
                      incorporated by reference to Exhibit 10(a) to Merrimac's
                      Quarterly Report on Form 10-QSB for the period ending
                      September 30, 2000.*

       10(l)          Amended and Restated Pledge Agreement dated as of July 29,
                      2002, between Merrimac and Mason N. Carter.*

       10(m)          Amended and Restated Promissory Note dated as of July 29,
                      2002, executed by Mason N. Carter in favor of Merrimac.*

       10(n)          Registration Rights Agreement dated as of May 4, 1998,
                      between Merrimac and Mason N. Carter is hereby
                      incorporated by reference to Exhibit 10(e) to Merrimac's
                      Quarterly Report on Form 10-QSB for the period ending
                      July 4, 1998.*

       10(o)(1)       Form of Severance Agreement entered into with certain
                      officers of Merrimac is hereby incorporated by reference
                      to Exhibit 10(i) to Merrimac's Annual Report on Form
                      10-KSB for the year ending January 3, 1998.*

       10(o)(2)       Schedule of officers with substantially identical
                      agreements to the form filed as Exhibit 10(o)(1) hereto is
                      hereby incorporated by reference to Exhibit 10(j) to
                      Merrimac's Annual Report on Form 10-KSB for the year
                      ending January 3, 1998.*

       10(p)          Consulting Agreement dated as of January 1, 1998, between
                      Merrimac and Arthur A. Oliner is hereby incorporated by
                      reference to Exhibit 10 to Merrimac's Quarterly Report on
                      Form 10-QSB for the period ending April 4, 1998.*

       10(q)          Separation Agreement dated as of December 31, 1998,
                      between Merrimac and Eugene W. Niemiec is hereby
                      incorporated by reference to



                                       -27-
<PAGE>


       EXHIBIT NO.    DESCRIPTION
       -----------    -----------

                      Exhibit 10(p) to Merrimac's Annual Report on Form 10-KSB
                      for the year ending January 2, 1999.*

       10(r)          Stockholder's Agreement dated as of October 30, 1998,
                      between Merrimac and Charles F. Huber II is hereby
                      incorporated by reference to Exhibit 10 to Merrimac's
                      Quarterly Report on Form 10-QSB for the year ending
                      October 3, 1998.

       10(s)          Stockholder's Agreement dated as of June 3, 1999, among
                      Merrimac, William D. Witter, Inc. and William D. Witter is
                      hereby incorporated by reference to Exhibit 10 to
                      Merrimac's Quarterly Report on Form 10-QSB for the period
                      ending July 3, 1999.

       10(t)          Subscription Agreement for Common Stock and Warrants dated
                      October 26, 2000, between Merrimac and Ericsson Holding
                      International, B.V. (with a form of Warrant attached) is
                      hereby incorporated by reference to Exhibit 10(t) to
                      Merrimac's Annual Report on Form 10-KSB for the year
                      ending December 30, 2000.

       10(u)          Registration Rights Agreement dated October 26, 2000,
                      between Merrimac and Ericsson Holding International, B.V.
                      is hereby incorporated by reference to Exhibit 10(u) to
                      Merrimac's Annual Report on Form 10-KSB for the year
                      ending December 30, 2000.

       10(v)          Subscription Agreement for Common Stock and Warrants
                      dated October 26, 2000, between Merrimac and certain
                      entities and individuals related to Adam Smith Investment
                      Partners, L.P. (with a form of Warrant attached) is
                      hereby incorporated by reference to Exhibit 10(v) to
                      Merrimac's Annual Report on Form 10-KSB for the year
                      ending December 30, 2000.

       10(w)          Registration Rights Agreement dated October 26, 2000,
                      between


                                       -28-
<PAGE>


       EXHIBIT NO.    DESCRIPTION
       -----------    -----------

                      Merrimac and certain entities and individuals related to
                      Adam Smith Investment Partners, L.P. is hereby
                      incorporated by reference to Exhibit 10(w) to Merrimac's
                      Annual Report on Form 10-KSB for the year ending December
                      30, 2000.

       10(x)          Subscription Agreement for Common Stock and Warrants dated
                      October 26, 2000, among Merrimac, Edward H. Cohen, Joseph
                      B. Fuller and Joel H. Goldberg (with a form of Warrant
                      attached) is hereby incorporated by reference to Exhibit
                      10(x) to Merrimac's Annual Report on Form 10-KSB for the
                      year ending December 30, 2000.

       10(y)          2001 Key Employee Incentive Plan is hereby incorporated by
                      reference to Exhibit 4.01 to Merrimac's Form S-8
                      (No. 333-63434) dated June 30, 2001.

       10(z)          2001 Stock Option Plan is hereby incorporated by reference
                      to Exhibit 4.01 to Merrimac's Form S-8 (No. 333-63436)
                      dated June 20, 2001.

       10(aa)         2001 Stock Purchase Plan is hereby incorporated by
                      reference to Exhibit 4.01 to Merrimac's Form S-8
                      (No. 333-63438) dated June 20, 2001.

       10(bb)         2001 Amended and Restated Stock Option Plan is hereby
                      incorporated by reference to Exhibit 4(i) to Merrimac's
                      Quarterly Report on Form 10-QSB for the period ending
                      June 30, 2001.

       10(cc)         Subscription Agreement, dated February 28, 2002 between
                      Merrimac and DuPont Chemical and Energy Operations, Inc.,
                      a subsidiary of E.I. DuPont de Nemours and Company is
                      hereby incorporated by reference to Exhibit 99.2 to
                      Merrimac's Form 8-K for the period ending February 28,
                      2002.

       10(dd)         Registration Rights Agreement, dated February 28, 2002
                      between Merrimac and DuPont Chemical and Energy
                      Operations, Inc., a subsidiary of E.I. DuPont de Nemours
                      and Company is hereby incorporated by reference to Exhibit
                      99.3 to Merrimac's Form 8-K for the period ending
                      February 28, 2002.

       10(ee)         Consent and Waiver, dated as of September 18, 2002, among
                      Merrimac, Ericsson Holding International B.V. and
                      Infineon Technologies AG is hereby incorporated by
                      reference to Exhibit 99.1 to Merrimac's Form 8-K for the
                      period ending September 18, 2002.


       10(ff)         Modification Agreement, dated as of September 27, 2002,
                      between Merrimac and Infineon Technologies AG is hereby
                      incorporated by reference to Exhibit 99.2 to Merrimac's
                      Form 8-K for the period ending September 18, 2002.

       10(gg)         Letter Agreement, dated February 1, 2002, among Merrimac,
                      Ericsson Holding International B.V. and Ericsson
                      Microelectronics, A.B., which amends the Stock Purchase
                      and Exclusivity Letter, dated April 7, 2000 is hereby
                      incorporated by reference to Exhibit 99.4 to Merrimac's
                      Form 8-K for the period ending September 18, 2002.

       11             Statement re: Computation of earnings per share.

       99.1           Certification Pursuant to Section 1350 to Chapter 63 of
                      Title 18 of the United States Code as Adopted Pursuant to
                      Section 906 of the Sarbanes-Oxley Act of 2002.



*   Indicates that exhibit is a management contract or compensatory plan or
    arrangement.

(b) Reports on Form 8-K

       A Current Report on Form 8-K was filed on September 18, 2002 reporting
       the transfer of Shares and warrants previously owned by Ericsson
       Holding International, B.V. to Infineon Technologies AG.



                                       -29-

<PAGE>

                                   SIGNATURES


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


                                          MERRIMAC INDUSTRIES, INC.
                                          -------------------------
                                                (Registrant)

    Date: November 8, 2002             By: /s/ Mason N. Carter
                                         -------------------------------------
                                         Mason N. Carter
                                         Chairman, President and
                                         Chief Executive Officer


    Date: November 8, 2002             By: /s/ Robert V. Condon
                                         -------------------------------------
                                         Robert V. Condon
                                         Vice President, Finance, Treasurer,
                                         Secretary and Chief Financial Officer



                                      -30-
<PAGE>

CERTIFICATIONS

I, Mason N. Carter, certify that:

     1. I have  reviewed  this  quarterly  report  on  Form  10QSB  of  Merrimac
Industries, Inc.;

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.



Date: November 8, 2002                         /s/ Mason N. Carter
                                                   Chairman, President
                                                   and Chief Executive Officer

                                      -31-
<PAGE>


CERTIFICATIONS

I, Robert V. Condon, certify that:

     1. I have  reviewed  this  quarterly  report  on  Form  10QSB  of  Merrimac
Industries, Inc.;

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly report whether there were significant  changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.


Date: November 8, 2002                         /s/ Robert V. Condon
                                                   Vice President, Finance
                                                   and Chief Financial Officer



                                      -32-