UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q/A


(Amendment
      No. 1)





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





For
      the
      quarterly period ended June 28, 2008




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





For
      the
      transition period from   to ****




Commission
      File No. 0-11201




Merrimac
      Industries, Inc.


(Exact
      Name of Registrant as Specified in Its Charter)




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




41
      FAIRFIELD PLACE


WEST
      CALDWELL, NEW JERSEY 07006


(Address
      of Principal Executive Offices) (Zip Code)





(973)
      575-1300


(Registrant’s
      Telephone Number)





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





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





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





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


Yes
      [__]  No
      [ X
      ]





As
      of
      November 17, 2008, there were 2,951,324 shares of Common Stock, par value $.01
      per share, outstanding.








Explanatory
      note





We
      are
      filing this Amendment No. 1 on Form 10-Q/A to Merrimac Industries, Inc.
      Quarterly Report on Form 10-Q for the quarterly period ended June 28, 2008,
      which was originally filed with the Securities and Exchange Commission (“SEC”)
      on August 18, 2008 (the “Original Form 10-Q”) to reflect the restatements of our
      consolidated balance sheet, at June 28, 2008; our consolidated statements of
      income for the quarter and six months ended June 28, 2008, our Consolidted
      Statement of Shareholders’ Equity for the six months ended June 28,2008, our
      consolidated statements of cash flows for the six months ended June 28, 2008
      and
      the related notes.





On
      November 17, 2008, the Audit Committee of Merrimac Industries, Inc. determined
      that reissuing the previously filed financial statements for the fiscal 2008
      second quarter was appropriate to correct certain accounting errors. These
      errors arose from control deficiencies created by changes of accounting
      personnel and the failure to properly implement a new financial accounting
      system. The second quarter errors include a $33,937 overstatement of net sales
      and corresponding $33,937 understatement of customer deposits; a $211,603
      understatement of inventory and corresponding $211,603 overstatement of cost
      of
      sales; and a $177,666 understatement of net income.





The
      Audit Committee concluded that the aggregate impact of these errors is material
      to the fiscal 2008 second quarter financial statements. Therefore, the Company
      is restating the previously filed financial statements and the financial
      statements contained in the Original Form 10-Q should no longer be relied upon.





As
      a result of the adjustments, the fiscal 2008 second quarter is restated as
      follows:




**Consolidated
                Statement of Operations**
            **Three
                Months Ended**
              **June
                28, 2008 ($)**
            **Six
                Months Ended**
              **June
                28, 2008 ($)****Previously
                Reported**
            **Restated**
            **Previously
                Reported**
            **Restated**Net
                Sales
            7,524,203
            7,490,266
            13,281,889
            13,247,952Cost
                of Sales
            4,308,912
            4,097,309
            7,760,872
            7,549,269Net
                Income
            383,672
            561,338
            11,437
            189,103Net
                Income per Common Share - Basic
            .13
            .19
            0
            .06Net
                Income per Common Share - Diluted
            .13
            .19
            0
            .06




**Consolidated
                Balance**
            **As
                Of**
              **June
                28, 2008 ($)****Sheet**
            **Previously
                Reported**
            **Restated**Inventories,
                Net
            6,462,065
            6,673,668Total
                Current Assets
            15,023,672
            15,235,275Total
                Assets
            25,845,158
            26,056,761Customer
                Deposits
            483,393
            517,330Total
                Current Liabilities
            4,315,747
            4,349,684Total
                Liabilities
            7,616,025
            7,649,962Retained
                Earnings
            1,185,361
            1,363,027Total
                Stockholders’ Equity
            18,229,133
            18,406,799Total
                Liabilities and Stockholders’ Equity
            25,845,158
            26,056,761




The
      Audit Committee also concluded that the Company’s internal control over
      financial reporting were not effective for the second quarter of fiscal year
      2008 due to material weaknesses in internal control. Accordingly, management’s
      report on Controls and Procedures included in the Company’s Quarterly Report on
      Form 10-Q for the period ended June 28, 2008 should no longer be relied upon.





This
      Form
      10-Q/A amends and restates only certain information in the following sections
      as
      a result of the current restatement described above:




Part
      I
—Item 1 - Financial Statements









Part
      I—
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results
      of Operations




Part
      I—
Item 4 - Controls and Procedures




In
      addition, we are also including currently dated Sarbanes Oxley Act Section
      302
      and Section 906 certifications of the Chief Executive Officer and Principal
      Financial Officer that are attached to this Form 10-Q/A as Exhibits 31.1 and
      32.1.




For
      the
      convenience of the reader, this Amendment No. 1 on Form 10-Q/A sets forth the
      entire Form 10-Q for the quarterly period ended June 28, 2008. However, this
      Form 10-Q/A only amends and restates the Items described above to reflect the
      effects of the restatements and no attempt has been made to modify or update
      other disclosures presented in our Form 10-Q for the quarterly period ended
      June
      28, 2008. Accordingly, except for the foregoing amended information, this Form
      10-Q/A continues to speak as of August 18, 2008 (the original filing date of
      our
      Form 10-Q for the quarterly period ended June 28, 2008) and does not reflect
      events occurring after the filing of our Form 10-Q for the quarterly period
      ended June 28, 2008 and does not modify or update those disclosures affected
      by
      subsequent events. Forward looking statements made in the Form 10-Q for the
      quarterly period ended June 28, 2008 have not been revised to reflect events,
      results or developments that have become known to us after the date of the
      original filing (other than the current restatements described above), and
      such
      forward looking statements should be read in their historical context. Unless
      otherwise stated, the information in this Form 10-Q/A not affected by such
      restatements is unchanged and reflects the disclosures made at the time of
      the
      original filing.









MERRIMAC
        INDUSTRIES, INC.
 41
        Fairfield Place
 West
        Caldwell, NJ 07006
 INDEX
 
 PagePART
                  I. FINANCIAL INFORMATIONItem
                  1.    Financial Statements (Restated)Consolidated
                  Statements of Operations and Comprehensive Income (Loss)for
                  the Quarters and Six Months Ended June 28, 2008and
                  June 30, 2007 (Unaudited
              1Consolidated
                  Balance Sheets-June 28, 2008 (Unaudited) andDecember
                  29, 2007
              2Consolidated
                  Statement of Stockholders’ Equity for the Six MonthsEnded
                  June 28, 2008 (Unaudited)
              3Consolidated
                  Statements of Cash Flows for the SixEnded
                  June 28, 2008 and June 30,2007 (Unaudited)
              4Notes
                  to Consolidated Financial Statements.
              5Item
                  2.    Management's Discussion and Analysis of
                  Financial Conditionand
                  Results of Operations
              16Item
                  3.    Quantitative and Qualitative Disclosures about
                  Market Risk
              27Item
                  4.    Controls and Procedures
              27PART
                  II. OTHER INFORMATIONItem
                  1.    Legal Proceedings
              28Item
                  1A. Risk Factors
              28Item
                  4.    Submission of Matters to a Vote of Security
                  Holders
              29Item
                  5.    Other Information
              29Item
                  6.    Exhibits
              29Signatures
              30









**PART
      I. FINANCIAL INFORMATION**


**ITEM
        1. FINANCIAL STATEMENTS**
 
 **MERRIMAC
        INDUSTRIES, INC.**
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **AND
        COMPREHENSIVE INCOME (LOSS)**
 **(UNAUDITED)**
  **Quarters
                  Ended**
              
              **Six
                  Months
                  Ended****June
                  28,**
              
              **June30,**
              
              **June
                  28,**
              
              **June
                  30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Restated**
              
              
              
              **Restated**CONTINUING
                  OPERATIONSNet
                  sales
              
              $
              7,490,266
              
              $
              5,371,471
              
              $
              13,247,952
              
              $
              9,882,917Costs
                  and expenses:Cost
                  of sales
              
              
              4,097,309
              
              
              3,004,761
              
              
              7,549,269
              
              
              5,818,881Selling,
                  general and administrative
              
              
              2,353,395
              
              
              1,976,729
              
              
              4,597,965
              
              
              4,193,731Research
                  and development
              
              
              374,581
              
              
              335,262
              
              
              747,399
              
              
              819,5076,825,285
              
              
              5,316,752
              
              
              12,894,633
              
              
              10,832,119Operating
                  income (loss)
              
              
              664,981
              
              
              54,719
              
              
              353,319
              
              
              (949,202
              )Interest
                  and other (expense) income, net
              
              
              (48,607
              )
              
              4,231
              
              
              (109,180
              )
              
              16,401Income
                  (loss) from continuing operations beforeincome
                  taxes
              
              
              616,374
              
              
              50,488
              
              
              244,139
              
              
              (932,801
              )Provision
                  (benefit) for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Income
                  (loss) from continuing operations
              
              
              616,374
              
              
              50,488
              
              
              244,139
              
              
              (932,801
              )DISCONTINUED
                  OPERATIONSLoss
                  from discontinued operations, afterincome
                  taxes in 2007
              
              
              (55,036
              )
              
              (3,519,411
              )
              
              (55,036
              )
              
              (3,799,924
              )Net
                  income (loss)
              
              $
              561,338
              
              $
              (3,468,923
              )
              $
              189,103
              
              $
              (4,732,725
              )Income
                  (loss) per common share from continuingoperations-basic
              
              $
              .21
              
              $
              .02
              
              $
              .08
              
              $
              (.31
              )Loss
                  per common share from discontinuedoperations-basic
              
              $
              (.02
              )
              $
              (1.21
              )
              $
              (.02
              )
              $
              (1.27
              )Net
                  income (loss) per common share-basic
              
              $
              .19
              
              $
              (1.19
              )
              $
              .06
              
              $
              (1.58
              )Income
                  (loss) per common share from continuingoperations-diluted
              
              $
              .21
              
              $
              .02
              
              $
              .08
              
              $
              (.31
              )Loss
                  per common share from discontinuedoperations-diluted
              
              $
              (.02
              )
              $
              (1.20
              )
              $
              (.02
              )
              $
              (1.27
              )Net
                  income (loss) per common share-diluted
              
              $
              .19
              
              $
              (1.18
              )
              $
              .06
              
              $
              (1.58
              )
 Weighted
                  average number of sharesoutstanding-basic
              
              
              2,939,788
              
              
              2,910,711
              
              
              2,936,155
              
              
              3,003,513Weighted
                  average number of sharesoutstanding-diluted
              
              
              2,945,203
              
              
              2,947,464
              
              
              2,948,287
              
              
              3,003,513COMPREHENSIVE
                  INCOME (LOSS)Net
                  income (loss)
              
              $
              561,338
              
              $
              (3,468,923
              )
              $
              189,103
              
              $
              (4,732,725
              )Comprehensive
                  income (loss):Foreign
                  currency translation adjustment
              
              
              -
              
              
              307,131
              
              
              -
              
              
              368,514Comprehensive
                  income (loss)
              
              $
              561,338
              
              $
              (3,161,792
              )
              $
              189,103
              
              $
              (4,364,211
              )
 
 See
        accompanying notes.
 1
  **MERRIMAC
          INDUSTRIES, INC.**
 **CONSOLIDATED
          BALANCE SHEETS**
  **June
                    28,****2008**
                
                **December
                    29,****Restated**
                
                **2007**ASSETS
                
                **(UNAUDITED)**
                
                **(Note
                    1)**Current
                    assets:Cash
                    and cash equivalents
                
                $
                409,374
                
                $
                2,004,471Accounts
                    receivable, net
                
                
                7,609,252
                
                
                5,299,753Inventories,
                    net
                
                
                6,673,668
                
                
                5,039,770Other
                    current assets
                
                
                542,981
                
                
                774,007Due
                    from assets sale contract
                
                
                -
                
                
                664,282Total
                    current assets
                
                
                15,235,275
                
                
                13,782,283Property,
                    plant and equipment
                
                
                37,949,701
                
                
                37,556,672Less
                    accumulated depreciation and amortization
                
                
                27,650,605
                
                
                26,600,240Property,
                    plant and equipment, net
                
                
                10,299,096
                
                
                10,956,432Restricted
                    cash
                
                
                -
                
                
                250,000Other
                    assets
                
                
                470,390
                
                
                531,633Deferred
                    tax assets
                
                
                52,000
                
                
                52,000Total
                    Assets
                
                $
                26,056,761
                
                $
                25,572,348LIABILITIES
                    AND STOCKHOLDERS’ EQUITYCurrent
                    liabilities:Current
                    portion of long-term debt
                
                $
                1,050,000
                
                $
                550,000Accounts
                    payable
                
                
                1,085,015
                
                
                943,481Accrued
                    liabilities
                
                
                1,645,339
                
                
                1,965,403Customer
                    deposits
                
                
                517,330
                
                
                363,296Deferred
                    income taxes
                
                
                52,000
                
                
                52,000Total
                    current liabilities
                
                
                4,349,684
                
                
                3,874,180Long-term
                    debt, net of current portion
                
                
                3,237,500
                
                
                3,762,500Deferred
                    liabilities
                
                
                62,778
                
                
                61,300Total
                    liabilities
                
                
                7,649,962
                
                
                7,697,980Commitments
                    and contingenciesStockholders'
                    equity:Preferred
                    stock, par value $.01 per share:Authorized:
                    1,000,000 sharesNo
                    shares issuedCommon
                    stock, par value $.01 per share:20,000,000
                    shares authorized; 3,310,486 and 3,289,103 shares issued;and
                    2,947,581 and 2,926,198 shares outstanding, respectively
                
                
                33,105
                
                
                32,891Additional
                    paid-in capital
                
                
                20,132,831
                
                
                19,789,717Retained
                    earnings
                
                
                1,363,027
                
                
                1,173,92421,528,963
                
                
                20,996,532Less
                    treasury stock, at cost - 362,905 shares at June 28, 2008
                    andDecember
                    29, 2007
                
                
                (3,122,164
                )
                
                (3,122,164
                )Total
                    stockholders' equity
                
                
                18,406,799
                
                
                17,874,368Total
                    Liabilities and Stockholders' Equity
                
                $
                26,056,761
                
                $
                25,572,348
  See
          accompanying notes.
 2
 **MERRIMAC
            INDUSTRIES, INC.**
 **CONSOLIDATED
            STATEMENT OF STOCKHOLDERS' EQUITY**
 **SIX
            MONTHS ENDED JUNE 28, 2008**
 **(UNAUDITED)**
 **Restated**
 **Additional****Common
                    Stock**
                
                
                **Paid-in**
                
                
                **Retained**
                
                
                **Treasury
                    Stock****Shares**
                
                
                **Amount**
                
                
                **Capital**
                
                
                **Earnings**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Total**Balance,
                    December 29, 2007
                
                
                3,289,103
                
                $
                32,891
                
                $
                19,789,717
                
                $
                1,173,924
                
                
                362,905
                
                $
                (3,122,164
                )
                $
                17,874,368Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                189,103
                
                
                
                
                
                
                
                
                189,103Share-based
                    compensation
                
                
                
                
                
                
                
                
                257,480
                
                
                
                
                
                
                
                
                
                
                
                257,480Stock
                    Purchase Plan sales
                
                
                9,301
                
                
                93
                
                
                57,344
                
                
                
                
                
                
                
                
                
                
                
                57,437Exercise
                    of stock options
                
                
                4,082
                
                
                41
                
                
                28,290
                
                
                
                
                
                
                
                
                
                
                
                28,331Vesting
                    of restricted stock
                
                
                8,000
                
                
                80
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                80Balance,
                    June 28, 2008
                
                
                3,310,486
                
                $
                33,105
                
                $
                20,132,831
                
                $
                1,363,027
                
                
                362,905
                
                $
                (3,122,164
                )
                $
                18,406,799
 
 See
          accompanying notes.
 3
 
 **MERRIMAC
          INDUSTRIES, INC.**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
 **Six
                      Months Ended****June
                      28, 2008**
                  
                  **June
                      30, 2007****Restated**Cash
                      flows from operating activities:Net
                      income (loss)
                  
                  $
                  189,103
                  
                  $
                  (4,732,725
                  )Less,
                      loss from discontinued operations
                  
                  
                  (55,036
                  )
                  
                  (3,799,924
                  )Income
                      (loss) from continuing operations
                  
                  
                  244,139
                  
                  
                  (932,801
                  )Adjustments
                      to reconcile income (loss) from continuing operations to net cash
                      provided by (used in) operating activities:Depreciation
                      and amortization
                  
                  
                  1,270,228
                  
                  
                  1,157,836Amortization
                      of deferred financing costs
                  
                  
                  16,080
                  
                  
                  14,716Share-based
                      compensation
                  
                  
                  257,560
                  
                  
                  132,496Changes
                      in operating assets and liabilities:Accounts
                      receivable
                  
                  
                  (2,309,499
                  )
                  
                  644,552Inventories
                  
                  
                  (1,633,898
                  )
                  
                  (825,915
                  )Other
                      current assets
                  
                  
                  125,749
                  
                  
                  187,107Other
                      assets
                  
                  
                  125,891
                  
                  
                  (198,602
                  )Accounts
                      payable
                  
                  
                  141,534
                  
                  
                  170,648Accrued
                      liabilities
                  
                  
                  (295,515
                  )
                  
                  9,204Customer
                      deposits
                  
                  
                  154,034
                  
                  
                  102,000Deferred
                      liabilities
                  
                  
                  1,479
                  
                  
                  11,730Net
                      cash provided by (used in) operating activities of continuing
                      operations
                  
                  
                  (1,902,218
                  )
                  
                  472,971Net
                      cash (used in) operating activities of discontinued
                      operations
                  
                  
                  (55,036
                  )
                  
                  (295,948
                  )Net
                      cash provided by (used in) operating activities
                  
                  
                  (1,957,254
                  )
                  
                  177,023Cash
                      flows from investing activities:Purchases
                      of capital assets
                  
                  
                  (612,893
                  )
                  
                  (755,796
                  )Cash
                      proceeds from sale of discontinued operations
                  
                  
                  664,282
                  
                  
                  -Net
                      cash provided by (used in) investing activities of continuing
                      operations
                  
                  
                  51,389
                  
                  
                  (755,796
                  )Net
                      cash used in investing activities of discontinued
                      operations
                  
                  
                  -
                  
                  
                  (171,265
                  )Net
                      cash provided by (used in) investing activities
                  
                  
                  51,389
                  
                  
                  (927,061
                  )Cash
                      flows from financing activities:Repurchase
                      of common stock for the treasury
                  
                  
                  -
                  
                  
                  (2,148,300
                  )Borrowings
                      under revolving credit facility
                  
                  
                  500,000Repayment
                      of long-term debt
                  
                  
                  (525,000
                  )
                  
                  (275,000
                  )Restricted
                      cash returned
                  
                  
                  250,000
                  
                  
                  -Proceeds
                      from the exercise of stock options
                  
                  
                  28,331
                  
                  
                  73,800Proceeds
                      from Stock Purchase Plan sales
                  
                  
                  57,437
                  
                  
                  7,495Net
                      cash provided by (used in) financing activities of continuing
                      operations
                  
                  
                  310,768
                  
                  
                  (2,342,005
                  )Net
                      cash used in financing activities of discontinued
                      operations
                  
                  
                  -
                  
                  
                  (68,496
                  )Net
                      cash provided by (used in) financing activities
                  
                  
                  310,768
                  
                  
                  (2,410,501
                  )Effect
                      of exchange rate changes
                  
                  
                  -
                  
                  
                  16,410Net
                      decrease in cash and cash equivalents
                  
                  
                  (1,595,097
                  )
                  
                  (3,144,129
                  )Cash
                        and cash equivalents at beginning of period, including $0
                        and $562,205
                        reported under assets held for sale
                  
                  
                  2,004,471
                  
                  
                  5,961,537Cash
                      and cash equivalents at end of period including $0 and $42,905
                      reported
                      under assets held for sale
                  
                  $
                  409,374
                  
                  $
                  2,817,408Supplemental
                      disclosures of cash flow information:Cash
                      paid during the period for-Interest
                      on credit facilities
                  
                  $
                  112,717
                  
                  $
                  182,544
 See
              accompanying notes.




4


MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 1.
        BASIS
        OF PRESENTATION
 
 The
        accompanying unaudited consolidated financial statements have been prepared
        in
        accordance with the instructions to Form 10-Q and therefore do not include
        all
        information and footnote disclosures otherwise required by accounting principles
        generally accepted in the United States of America for a full fiscal year.
        The
        financial statements do, however, reflect all adjustments of a normal recurring
        nature which are, in the opinion of management, necessary for a fair
        presentation of the financial position of Merrimac Industries, Inc. (“Merrimac”
or the “Company”) as of June 28, 2008 and its results of operations and cash
        flows for the periods presented. Results of operations of interim periods
        are
        not necessarily indicative of results for a full year.
 
 As
        discussed in Note 19, this second quarter restatement includes the following
        corrections of previous errors, a $33,937 decrease of net sales and
        corresponding $33,937 increase in customer deposits; a $211,603 increase
        in
        inventory and corresponding $211,603 decrease in cost of sales; and a $177,666
        increase in net income.
 
 In
        accordance with the provisions of Statement of Financial Accounting Standards
        No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS
        No. 144), the results of operations related to Filtran Microcircuits Inc.
        (“FMI”) for the first quarter of 2007 prior period have been reported as
        discontinued operations.
 
 The
        consolidated balance sheet at December 29, 2007 has been derived from the
        audited financial statements at that date but does not include all the
        information required by accounting principles generally accepted in the United
        States of America for complete financial statements. For further information,
        refer to the consolidated financial statements and footnotes thereto included
        in
        the Company’s Annual Report on Form 10-K filed with the Securities and Exchange
        Commission on March 28, 2008 for the year ended December 29, 2007.
 
 2.
        DISCONTINUED OPERATIONS
 
 Company
        management determined, and on August 9, 2007 the Board of Directors approved,
        that the Company should divest its FMI operations. The divestiture should
        enable
        Merrimac to concentrate its resources on RF Microwave and Multi-Mix®
Microtechnology product lines to generate sustainable, profitable growth.
        Beginning with the third quarter of 2007, the Company reflected FMI as a
        discontinued operation and the Company reclassified prior financial statements
        to reflect the results of operations, financial position and cash flows of
        FMI
        as discontinued operations.
 
 On
        December 28, 2007, the Company sold substantially all of the assets of its
        wholly-owned subsidiary, FMI, to Firan Technology Group Corporation (“FTG”), a
        manufacturer of high technology/high reliability printed circuit boards,
        that
        has operations in Toronto, Ontario, Canada and Chatsworth, California. The
        transaction was effected pursuant to an asset purchase agreement entered
        into
        between Merrimac, FMI and FTG. The total consideration payable by FTG was
        $1,482,000 (Canadian $1,450,000) plus the assumption of certain liabilities
        of
        approximately $368,000 (Canadian $360,000). FTG paid $818,000 (Canadian
        $800,000) of the purchase price at closing and the balance was paid on February
        21, 2008 following the conclusion of a transitional period.
 
 Operating
        results of FMI, which were formerly represented as Merrimac’s microwave
        micro-circuitry  segment  are
        summarized as follows:
 
 Quarter
                  Ended
              
              Six
                  Months EndedJune
                  28, 2008
              
              June
                  30, 2007
              
              June
                  28, 2008
              
              June
                  30, 2007Net
                  sales
              
              $
              0
              
              $
              854,000
              
              $
              0
              
              $
              1,766,000Loss
                  before provision for income taxes
              
              $
              (55,000
              )
              $
              (3,013,000
              )
              $
              (55,000
              )
              $
              (3,294,000
              )Provision
                  for income taxes
              
              
              ----
              
              
              506,000
              
              
              ----
              
              
              506,000Net
                  loss
              
              $
              (55,000
              )
              $
              (3,519,000
              )
              $
              (55,000
              )
              $
              (3,800,000
              )
 
  5
  MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 3.
        CONTRACT REVENUE RECOGNITION
 
 The
        Company derives its revenues from sales of the following: customized products,
        which include amounts billable for non-recurring engineering services and
        in
        some instances the production and delivery of prototypes, ** and
        the
        subsequent production of delivery of units under short-term, firm-fixed price
        contracts; the design, documentation, production and delivery of a series
        of
        complex components under long-term firm-fixed price contracts; and the delivery
        of off-the-shelf, standard products.
 
 The
        Company accounts for all contracts, except for the sale of off-the-shelf
        standard products, in accordance with AICPA Statement of Position No. 81-1,
        “Accounting for Performance of Construction-Type and Certain Production-Type
        Contracts” (“SOP 81-1”).
 
 The
        Company recognizes all amounts billable under short-term contracts involving
        non-recurring engineering services for customization of products in net sales
        and all related costs in cost of sales under the completed-contract method
        when
        the customized units are delivered. The Company periodically enters into
        contracts with customers for the development and delivery of a prototype
        prior
        to the shipment of units. Under those circumstances, the Company recognizes
        all
        amounts billable for non-recurring engineering services in net sales and
        all
        related costs in cost of sales when the prototype is delivered and recognize
        all
        of the remaining amounts billable and the related costs when the units are
        delivered.
 
 Periodically,
        the Company has complex, long-term contracts for the engineering design,
        development and production of space electronics products for which revenue
        is
        recognized under the percentage-of-completion method. Sales and related contract
        costs for design and documentation services under this type of contract are
        recognized based on the cost-to-cost method. Sales and related contract costs
        for products delivered under these contracts are recognized on the
        units-of-delivery method.
 
 Pursuant
        to SOP 81-1, anticipated losses on all contracts are charged to operations
        in
        the period when the losses become known.
 
 Sales
        of
        off-the-shelf, standard products and related costs of sales are recorded
        when
        title transfers to the customer, which is generally on the date of shipment,
        provided persuasive evidence of an arrangement exists, the sales price is
        fixed
        or determinable and collection of the related receivable is
        probable.
 
 4.
        ACCOUNTING PERIOD
 
 The
        Company's fiscal year is the 52-53 week period ending on the Saturday closest
        to
        December 31. The Company has quarterly dates that correspond with the Saturday
        closest to the last day of each calendar quarter and each quarter consists
        of 13
        weeks in a 52-week year. Periodically, the
 additional
        week to make a 53-week year (fiscal year 2008 will be the next) is added
        to the
        fourth quarter, making such quarter consist of 14 weeks.
 
 5.
        COMPREHENSIVE INCOME (LOSS)
 
 Comprehensive
        income (loss) is defined as the change in equity of a company during a period
        from transactions and other events and circumstances from non-owner sources.
        Accumulated other comprehensive income at June 30, 2007 was attributable
        solely
        to the effects of foreign currency translation.  Following
        the sale of the Company’s discontinued operations in December 2007, there is no
        foreign currency translation adjustment at June 28, 2008.
 
 6.
        RECENT
        ACCOUNTING PRONOUNCEMENTS
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157 “Fair Value Measurements”. SFAS No. 157 establishes a single authoritative
        definition of fair value, sets out a framework for measuring fair value and
        requires additional disclosures about fair-value measurements. SFAS No. 157
        applies only to fair-value measurements that are already required or permitted
        by other accounting standards and is expected to increase the consistency
        of
        those measurements. It will also affect current practices by nullifying Emerging
        Issues Task Force guidance that prohibited recognition of gains or losses
        at the
        inception of derivative transactions whose fair value is estimated by applying
        a
        model and by eliminating the use of “blockage” factors by brokers, dealers and
        investment companies that have been applying AICPA Guides. The Company adopted SFAS No. 157 on December 30, 2007.
        The adoption of SFAS No. 157 did not have an impact on its financial position
        and results of operations.
  6
  MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        159 “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS
        No. 159 permits entities to choose to measure many financial assets and
        financial liabilities at fair value. Unrealized gains and losses on items
        for
        which the fair value option has been elected are reported in net income.
        The
        Company adopted SFAS No. 159 on December 30, 2007. The adoption of SFAS No.
        159
        did not have an impact on its financial position and results of operations.
 
 In
        December 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R established
        principles and requirements for how an acquiring company recognizes and measures
        in its financial statements the identifiable assets acquired, the liabilities
        assumed, any noncontrolling interest if the acquired company and the goodwill
        acquired. SFAS 141R also established disclosure requirements to enable the
        evaluation of the nature and financial effects of the business combination.
        SFAS
        141R is effective for fiscal periods beginning after December 15, 2008. The
        Company is currently evaluating the impact that SFAS 141R will have on its
        financial position and results of operations.
 
 In
        December 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        160 “ Noncontrolling Interests in Consolidated Financial Statements-an amendment
        of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes
        accounting and reporting standards of ownership interests in subsidiaries
        held
        by parties other than the parent, the amount of consolidated net income
        attributable to the parent and to the noncontrolling interest, changes in
        a
        parent’s ownership interest and the valuation of retained noncontrolling equity
        investments when a subsidiary is deconsolidated. SFAS 160 also establishes
        disclosure requirements that clearly identify and distinguish between the
        interests of the parent and the interests of the noncontrolling owners. SFAS
        160
        is effective for fiscal periods beginning after December 15, 2008. The Company
        is currently evaluating the impact that SFAS 160 will have on its financial
        position and results of operations.
 
 7.
        SHARE-BASED COMPENSATION
 
 On
        January 1, 2006, the start of the first quarter of fiscal 2006, the Company
        adopted the provisions of Statement of Financial Accounting Standards No.
        123
        (revised 2004), "Share-Based Payment" ("SFAS 123R") which requires that the
        costs resulting from all share-based payment transactions be recognized in
        the
        financial statements at their fair values. The Company adopted SFAS 123R
        using
        the modified prospective application method under which the provisions of
        SFAS
        123R apply to new awards and to awards modified, repurchased, or cancelled
        after
        the adoption date. Additionally, compensation cost for the portion of the
        awards
        for which the requisite service has not been rendered that are outstanding
        as of
        the adoption date is recognized in the consolidated statement of operations
        over
        the remaining service period after the adoption date based on the award's
        original estimate of fair value.
 
 Because
        of the Company’s net operating loss carryforwards, no tax benefits resulting
        from the exercise of stock options have been recorded, thus there was no
        effect
        on cash flows from operating or financing activities.
 
 For
        the quarters and six months ended June 28, 2008 and June 30, 2007, share-based
        compensation expense related to the 2001 Employee Stock Purchase Plan and
        the
        various stock option plans was allocated as follows:
 
 Quarters
                  Ended
              
              Six
                  Months EndedJune
                  28, 2008
              
              June
                  30, 2007
              
              June
                  28, 2008
              
              June
                  30, 2007Cost
                  of sales
              
              $
              45,000
              
              $
              21,000
              
              $
              90,000
              
              $
              29,000Selling,
                  general and administrative
              
              
              93,000
              
              
              60,000
              
              
              168,000
              
              
              103,000Total
                  share-based compensation
              
              $
              138,000
              
              $
              81,000
              
              $
              258,000
              
              $
              132,000
  The
        fair
        value of the options granted was estimated on the date of grant using the
        Black-Scholes option valuation model.
  7
  MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 The
        following weighted average assumptions for the quarter and six months ended
        June
        28, 2008 and June 30, 2007 were utilized:
 
 2008
              
              2007Expected
                  option life (years)
              6.0
              
              5.7Expected
                  volatility
              37.56%
              
              32.89%Risk-free
                  interest rate
              3.14%
              
              4.53%Expected
                  dividend yield
              0.00%
              
              0.00%
 
 The
        Black-Scholes option valuation model was developed for use in estimating
        the
        fair value of traded options, which have no vesting restrictions and are
        fully
        transferable. In addition, option valuation models require the input of highly
        subjective assumptions including the expected stock price volatility.
 
 Share-Based
        Compensation Plans:
 
 On
        June
        22, 2006, the Company’s stockholders approved three share-based compensation
        programs as follows: (i) 2006 Stock Option Plan; (ii) 2006 Key Employee
        Incentive Plan; and (iii) 2006 Non-Employee Directors’ Stock Plan.
 
 The
        2006
        Stock Option Plan authorizes the grant of an aggregate of 500,000 shares
        of
        Common Stock to employees, directors and consultants of the Company. Under
        the
        2006 Stock Option Plan, the Company may grant to eligible individuals incentive
        stock options, as defined in Section 422 of the Internal Revenue Code of
        1986
        (the “Code”), and/or non-qualified stock options. The purposes of the 2006 Stock
        Option Plan are to attract, retain and motivate employees, compensate
        consultants, and to enable employees, consultants and directors, including
        non-employee directors, to participate in the long-term growth of the Company
        by
        providing for or increasing the proprietary interests of such persons in
        the
        Company, thereby assisting the Company to achieve its long-range goals. The
        2006
        Stock Option Plan replaced the 2001 Stock Option Plan, and the remaining
        19,700
        unissued options under the 2001 Stock Option Plan are no longer available
        for
        grant.
 
 At
        June
        28, 2008, there were 328,100 options outstanding under the 2006 Stock Option
        Plan of which was 124,365 were exercisable. Options are granted at the closing
        price of the Company’s shares on the American Stock Exchange on the date
        immediately prior to grant, pursuant to the 2006 Stock Option Plan. Options
        available for grant under the 2006 Stock Option Plan were 171,900 at June
        28,
        2008.
 
 At
        June
        28, 2008, the Company also maintains share-based compensation arrangements
        under
        the following plans: (i) 1993 Stock Option Plan; (ii) 1997 Long-Term Incentive
        Plan; and (iii) 2001 Stock Option Plan.
 
 At
        June
        28, 2008, there was 143,300 options outstanding under the 1997 Long Term
        Incentive Plan and the 2001 Stock Option Plan, of which all were exercisable.
        No
        options are available for future grant under the 1997 Long Term Incentive
        Plan
        or the 2001 Stock Option Plan.
 
 A
        summary
        of all stock option activity and information related to all options outstanding
        follows:
  2008Weightedaverageexerciseprice
                SharesOutstanding
                    atbeginning
                    of year
                $
                    9.30
                594,747Granted
                5.15
                17,500Exercised
                6.94
                (4,082)Expired
                10.12
                (72,965)Forfeited
                8.53
                (63,800)Outstanding
                    at end of period
                $ 
                    9.14
                471,400Exercisable
                    at end of period
                $
                     9.22
                267,665Option
                    price range at end of period
                $5.15-$17.00Weighted
                    average estimated fairvalue
                    of options granted duringthe
                    year
                $
                    2.14
  8
  MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
  A
        summary
        of intrinsic and fair value stock option information follows:
 
 Aggregate
                  intrinsic value of all options at June 28, 2008
              $                              
                  0Aggregate
                  intrinsic value of exercisable options at June 28, 2008
              $                              
                  0Intrinsic
                  value of options exercised during 2008
              $                        9,000Fair
                  value of options vested during 2008
              $                    343,000
 
 As
        of
        June 28, 2008, the total future compensation cost related to nonvested stock
        options and the employee stock purchase plan not yet recognized in the statement
        of operations was $674,000. Of that total, $197,000, $344,000, $128,000 and
        $5,000 are expected to be recognized in 2008, 2009, 2010 and 2011
        respectively.
 
 The
        2006
        Non-Employee Directors’ Stock Plan is a plan that authorizes the grant of an
        aggregate of 100,000 shares of Common Stock to the non-employee directors
        of the
        Company. The plan authorizes each non-employee director to receive 1,500
        shares
        of restricted stock beginning in 2006, and 1,500 shares or such other amount
        as
        the Board of Directors may, from time to time, decide for each year in the
        future following the Company’s Annual Meeting of Stockholders.
 
 On
        June
        26, 2008, the Company issued a grant of 9,000 shares of restricted stock
        to six
        of its non-employee directors. The per share price of the grant was $5.15
        (the
        closing price of the Company’s shares on The American Stock Exchange on the date
        immediately prior to the grant, pursuant to the terms of the plan). One third
        of
        such restricted stock vests on the anniversary of the grant date over a
        three-year period. Share-based compensation expense for the quarter and six
        months ended June 28, 2008 related to the grants of restricted stock was
        approximately $32,000 and $47,000, respectively, which was based on a
        straight-line amortization. Share-based compensation expense for the quarter
        and
        six months ended June 30, 2007 related to the grants of restricted stock
        was
        approximately $7,000 and $14,000, respectively. Restricted shares of common
        stock available for grant under the 2006 Non-Employee Directors’ Stock Plan were
        71,500 at June 28, 2008.
 
 A
        summary
        of unvested restricted stock activity and information related to all restricted
        stock outstanding follows:
  Weighted-AverageGrant-DayFair
                    Value
                SharesUnvested
                    at December 29, 2007.
                $    
                    9.69
                16,500Granted
                5.15
                9,000Vested
                9.67
                (8,000)Unvested
                    at June 28, 2008
                $  
                    7.36
                17,500
  9
 
 MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 8.
        INVENTORIES
 
 Inventories
        are stated at the lower of cost or market, using the average cost method.
        Cost
        includes materials, labor, and manufacturing overhead related to the purchase
        and production of inventories.
 
 Inventories
        consist of the following:
 June
                  28,2008
              
              December
                  29,2007Finished
                  goods
              
              $
              537,525
              
              $
              239,503Work
                  in process
              
              
              3,324,500
              
              
              2,979,632Raw
                  materials and purchased parts
              
              
              2,811,643
              
              
              1,820,635Total
              
              $
              6,673,668
              
              $
              5,039,770
  
 9.
              LONG-LIVED
                  ASSETS
 
 The
        Company accounts for long-lived assets under SFAS 144, “Accounting for the
        impairment or disposal of long-lived assets” (“SFAS NO. 144”). Management
        assesses the recoverability of its long-lived assets, which consist primarily
        of
        fixed assets and intangible assets with finite useful lives, whenever events
        or
        changes in circumstances as described in SFAS No. 144 indicate that the carrying
        value may not be recoverable. Impairment charges would be included with costs
        and expenses in the Company's consolidated statements of operations, and
        would
        result in reduced carrying amounts of the related assets on the Company's
        consolidated balance sheets.
 
 Fixed
        assets and intangible assets related to the Multi-Mix® product line have been
        tested for recoverability at least annually since 2002 following the guidance
        of
        SFAS No. 144. Based on the results of this testing we have concluded that
        the
        undiscounted cash flows expected to result from the use of these assets exceeds
        its carrying amount, and therefore there is no impairment loss.
 
 10.
        CURRENT AND LONG-TERM DEBT
 
 The
        Company was obligated under the following debt instruments at June 28, 2008
        and
        December 29, 2007:
  2008
                
                2007Capital
                    One N.A. (formerly North Fork Bank):Revolving
                    line of credit, 2.00% above LIBOR or 0.50% below prime..
                
                $
                500,000
                
                $
                -Term
                    loan, due October 1, 2011, 2.25% above LIBOR or 0.50%below
                    prime
                
                
                1,300,000
                
                
                1,500,000Mortgage
                    loan, due October 1, 2016, 2.25% above LIBOR or 0.50%below
                    prime
                
                
                2,487,500
                
                
                2,812,5004,287,500
                
                
                4,312,500Less
                    current portion
                
                
                1,050,000
                
                
                550,000Long-term
                    portion
                
                $
                3,237,500
                
                $
                3,762,500
  On
        October 18, 2006, the Company entered into a financing agreement with North
        Fork
        Bank (now Capital One, N.A.) which consists of a two-year $5,000,000 revolving
        line of credit, a five-year $2,000,000 machinery and equipment term loan
        due
        October 1, 2011 (“Term Loan”) and a ten-year $3,000,000 real estate term loan
        due October 1, 2016 (“Mortgage Loan”). This financing agreement replaced the
        prior financing agreement with CIT. Completion of the financing agreement
        resulted in additional cash loan proceeds of approximately $2,900,000 plus
        the
        release of previously restricted cash of $1,500,000. The revolving line of
        credit is subject to an availability limit under a borrowing base calculation
        (85% of eligible accounts receivable plus up to 50% of eligible raw materials
        inventory plus up to 25% of eligible electronic components, with an inventory
        advance sublimit not to exceed $1,500,000, as defined in the financing
        agreement). Our revolving line of credit expires in October 2008. Capital
        One,
        N.A. (formerly North Fork Bank)has indicted to us that it does intend to
        renew
        the line of credit. We believe that we will be able to refinance the line
        of
        credit with another financial institution, but such refinancing likely will
        be
        on less favorable terms to us. The Company borrowed $500,000 under its revolving
        line of credit on May 1, 2008. At June 28, 2008, the Company had available
 
 10
 
 MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
  borrowing
        capacity under its revolving line of credit of $4,500,000. Subsequent to
        the end
        of the second quarter of 2008, the Company borrowed an additional $500,000
        under
        its revolving line of credit on July 1, 2008. The revolving line of credit
        bears
        interest at the prime rate less 0.50% (4.50% at June 28, 2008 and currently
        4.50%) or LIBOR plus 2.00%. The principal amount of the Term Loan is payable
        in
        59 equal monthly installments of $33,333 and one final payment of the remaining
        principal balance. The Term Loan bears interest at the prime rate less 0.50%
        (4.50% at June 28, 2008 and currently 4.50%) or LIBOR plus 2.25%. The principal
        amount of the Mortgage Loan is payable in 119 equal monthly installments
        of
        $12,500 and one final payment of the remaining principal balance. The Mortgage
        Loan bears interest at the prime rate less 0.50% (4.50% at June 28, 2008
        and
        currently 4.50%) or LIBOR plus 2.25%. At June 28, 2008, the Company had no
        portion of its borrowings under LIBOR-based interest rates. The revolving
        line
        of credit, the Term Loan and the Mortgage Loan are secured by substantially
        all
        assets located within the United States and the pledge of 65% of the stock
        of
        the Company's subsidiaries located in Costa Rica and Canada.
 
 Capital
        One, N.A. and the Company amended the financing agreement, as of May 15,
        2007,
        which (i) eliminated the fixed charge coverage ratio covenant for the quarter
        ended June 30, 2007, (ii) added a covenant related to earnings before interest,
        taxes, depreciation and amortization (“EBITDA”) for the four quarters ended June
        30, 2007 to require the Company to achieve a minimum level of EBITDA, and
        (iii)
        modified the fixed charge coverage ratio covenant for periods after the quarter
        ending September 29, 2007. The Company was in compliance with these amended
        covenants at June 28, 2008.
 
 On
        August
        9, 2007, Capital One N.A. and Merrimac entered into a Pledge and Security
        Agreement, under which Capital One N.A. consented to the guaranty by Merrimac
        of
        FMI's borrowings under the revolving credit agreement with The Bank of Nova
        Scotia in the amount of up to $250,000 (Canadian). In consideration for Capital
        One N.A. providing such consent, Merrimac deposited $250,000 into a controlled
        collateral account with Capital One N. A. and also agreed to prepay the mortgage
        loan portion of the credit facility with Capital One N.A. with fifty percent
        of
        the net proceeds from a sale of FMI, up to a maximum amount of $500,000.
        This
        agreement terminated in November 2007 when The Bank of Nova Scotia terminated
        FMI’s revolving credit agreement. Upon the termination of such agreement, the
        Company agreed to repay a portion of its Mortgage Loan with the funds in
        the
        controlled collateral account upon the expiration of the LIBOR contracts
        in
        January 2008. On January 18, 2008, Merrimac paid $250,000 of the Mortgage
        Loan
        using the funds previously deposited into the controlled collateral
        account.
 
 At
        June
        28, 2008 and December 29, 2007, the fair value of the Company's debt
        approximates carrying value. The fair value of the Company's long-term debt
        is
        estimated based on current interest rates.
 
 11.
        WARRANTIES
 
 The
        Company's products sold under contracts have warranty obligations. Estimated
        warranty costs for each contract are determined based on the contract terms
        and
        technology specific issues. The Company accrues estimated warranty costs
        at the
        time of sale and any additional amounts are recorded when such costs are
        probable and can be reasonably estimated. Warranty expense was approximately
        $15,000 and $28,000 for the quarters ended June 28, 2008 and June 30, 2007,
        respectively, and $65,000 and $79,000 for the six months ended June 28, 2008
        and
        June 30, 2007, respectively. The warranty reserve at June 28, 2008 and December
        29, 2007 was $200,000.
 
 12.
        INCOME TAXES
 
 The
        Company’s effective tax rate for the quarter and six months ended June 28, 2008,
        (which effective tax rate was zero percent), reflects U.S. Federal Alternative
        Minimum Tax and State income taxes that are due based on certain statutory
        limitations on the use of the Company’s net operating loss carryforwards. No
        provision or benefit for income taxes was recorded based on management’s
        estimate of the minimal projected taxable income and the availability of
        net
        operating loss carryforwards that can be utilized.
  11
  MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 As
        of
        June 28, 2008, the Company has significant deferred tax assets resulting
        from
        net operating loss carryforwards, tax credit carryforwards, and deductible
        temporary differences, which should reduce taxable income in future periods.
        A
        valuation allowance is required when management assesses that it is more
        likely
        than not that all or a portion of a deferred tax asset will not be realized.
        The
        Company's 2002, 2003, 2006 and 2007 net losses have weighed heavily in the
        Company's overall assessments. The Company established a full valuation
        allowance for its remaining U.S. net deferred tax assets as a result of its
        assessment at December 28, 2002. This assessment continued unchanged from
        2003
        through the second quarter of 2008.
 
 Internal
        Revenue Service Code Section 382 places a limitation on the utilization of
        net
        operating loss carryforwards when an ownership change, as defined in the
        tax
        law, occurs. Generally, an ownership change occurs when there is a greater
        than
        50 percent change in ownership. If such a change should occur, the actual
        utilization of net operating loss carryforwards, for tax purposes, would
        be
        limited annually to a percentage of the fair market value of the Company
        at the
        time of such change. The Company may become subject to these limitations
        in 2008
        depending on the extent of the changes in its ownership.
 
 13.
        BUSINESS SEGMENT DATA
 
 The
        Company's continuing operations are conducted through one business segment,
        electronic components and subsystems. This segment involves the design,
        manufacture and sale of electronic component devices offering extremely broad
        frequency coverage and high performance characteristics for communications,
        defense and aerospace applications. Of the identifiable assets, 85% are located
        in the United States and 15% are located in Costa Rica.
 
 14.
        NET
        INCOME (LOSS) PER COMMON SHARE
 
 Basic
        net
        income (loss) per common share is calculated by dividing net income (loss)
        by
        the weighted average number of common shares outstanding during the
        period.
 
 The
        calculation of diluted net income (loss) per common share is similar to that
        of
        basic net income (loss) per common share, except that the denominator is
        increased to include the number of additional common shares that would have
        been
        outstanding if all potentially dilutive common shares, principally those
        issuable under stock options, were issued during the reporting period to
        the
        extent they are not anti-dilutive, using the treasury stock method.
 
 The
        following table summarizes the calculation of basic and diluted net income
        (loss) per share:
 
  Quarters
                    Ended
                Six
                    Months EndedJune
                    28,
                
                
                June
                    30,
                
                
                June
                    28,
                
                
                June
                    30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
                    income (loss) available to common stockholders
                
                $
                561,338
                
                $
                (3,468,923
                )
                $
                189,103
                
                $
                (4,732,725
                )Basic
                    net income (loss) per shareWeighted
                    average number of shares outstanding forbasic
                    net income (loss) per share-Common
                    stock .
                
                
                2,939,788
                
                
                2,910,711
                
                
                2,936,155
                
                
                3,003,513Net
                    income (loss) per common share - basic
                
                $
                .19
                
                $
                (1.19
                )
                $
                .06
                
                $
                (1.58
                )Diluted
                    net income (loss) per shareWeighted
                    average number of shares outstanding fordiluted
                    net income (loss) per share:Common
                    stock
                
                
                2,939,788
                
                
                2,910,711
                
                
                2,936,155
                
                
                3,003,513Effect
                    of dilutive securities:Stock
                    options (1)
                
                
                5,415
                
                
                36,753
                
                
                12,132
                
                
                -Weighted
                    average number of shares outstanding fordiluted
                    net income (loss) per share.
                
                
                2,945,203
                
                
                2,947,464
                
                
                2,948,287
                
                
                3,003,513Net
                    income (loss) per common share - diluted
                
                $
                .19
                
                $
                (1.18
                )
                $
                .06
                
                $
                (1.58
                )
 (1)
              Represents
                  additional shares resulting from assumed conversion of stock options
                  less
                  shares purchased with the proceeds
                  therefrom.
  Diluted
          net income (loss) per share excludes 456,000 and 228,000 shares underlying
          stock
          options for the quarters ended June 28, 2008 and June 30, 2007, respectively,
          as
          the exercise price of these options was greater than the average market
          value of
          the common shares, resulting in an anti-dilutive effect on net income (loss)
          per
          share. Diluted net
 12
 MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 income
        (loss) per share excludes 425,000 shares underlying stock options for the
        six-month period ended June 28, 2008, as the exercise price of these options
        was
        greater than the average market value of the common shares, resulting in
        an
        anti-dilutive effect on net income (loss) per share. Due to the net loss
        for the
        six months ended June 30, 2007, approximately 625,000 shares underlying stock
        options were excluded from the calculation of diluted net income (loss) per
        share as the effect would be anti-dilutive.
 
 15.
        RELATED PARTY TRANSACTIONS
 
 During
        the second quarter and first six months of 2008, the Company's outside general
        counsel Katten Muchin Rosenman LLP was paid $96,000 and $169,000, respectively,
        for providing legal services to the Company. During the second quarter and
        first
        six months of 2007, Katten Muchin Rosenman LLP was paid $108,000 and $196,000,
        respectively. A director of the Company is counsel to Katten Muchin Rosenman
        LLP
        but does not share in the fees that the Company pays to such law firm and
        his
        compensation is not based on such fees.
  During
        2008 and 2007 the Company retained Career Consultants, Inc. and SK Associates
        to
        perform executive searches and to provide other services to the Company.
        The
        Company paid an aggregate of $2,000 and $3,000 to these companies during
        the
        second quarter and first six months of 2008, respectively. The Company paid
        an
        aggregate of $5,000 and $21,000 to these companies during the second quarter
        and
        first six months of 2007, respectively. A director of the Company is the
        chairman and chief executive officer of these companies.
 
 During
        the second quarter and first six months of 2008 and 2007, a director of the
        Company was paid $9,000 and $18,000, respectively, for providing
        technology-related consulting services to the Company.
 
 The
        Company has an agreement with DuPont Electronic Technologies (“DuPont”), a
        stockholder and the employer of a director, for providing technological and
        marketing-related personnel and services on a cost-sharing basis to the Company
        under the Technology Agreement dated February 28, 2002. No payments were
        made to
        DuPont during the second quarter and first six months of 2008 or 2007. A
        director of the Company is an officer of DuPont, but would not share in these
        payments, if any.
 
 Compensation
        of Directors: Each director, who is not an employee of the Company, receives
        a
        monthly director's fee of $1,500, plus an additional $500 for each meeting
        of
        the Board and of any Committees of the Board attended. In addition, the Chair
        of
        the Audit Committee receives an annual fee of $2,500 for his services in
        such
        capacity. The directors are also reimbursed for reasonable travel expenses
        incurred in attending Board and Committee meetings. In addition, pursuant
        to the
        2006 Stock Option Plan, each non-employee director is granted an option to
        purchase 2,500 shares of the Common Stock of the Company on the date of each
        Annual Meeting of Stockholders. Such options have a three-year vesting period.
        Each such grant has an exercise price equal to the fair market value on the
        date
        of such grant and will expire on the tenth anniversary of the date of the
        grant.
        On June 26, 2008, non-qualified stock options to purchase an aggregate of
        17,500
        shares were issued to seven directors at an exercise price of $5.15 per share.
        Also on June 26, 2008, pursuant to the 2006 Non-Employee Directors’ Stock Plan,
        six directors each received a grant of 1,500 shares of restricted stock at
        a
        fair market value of $5.15 per share. One-third of such restricted stock
        vests
        on the anniversary of the grant date over a three-year period.
 
 On
        December 13, 2004, Infineon Technologies AG (“Infineon”), at such time the
        beneficial owner of a portion of the Company’s common stock, sold 475,000 shares
        of the Company’s common stock to four purchasers in a privately-negotiated
        transaction. Two purchasers in such transaction, K Holdings, LLC and Hampshire
        Investments, Limited, each of which is affiliated with Ludwig G. Kuttner,
        who
        was President and Chief Executive Officer of Hampshire Group, Limited
        (“Hampshire”), purchased 300,000 shares of the Company’s Common Stock. Mr.
        Kuttner was elected to the Company’s Board of Directors at its 2006 Annual
        Meeting of Stockholders. As a result of an ongoing investigation by Hampshire's
        audit committee, the Securities and Exchange Commission, and the Department
        of
        Justice of allegations of certain improprieties and possibly unlawful conduct
        involving Mr. Kuttner and other Hampshire executives, Mr. Kuttner's employment
        with Hampshire has been terminated and he remains as a director. Mr. Kuttner
        took a leave of absence from his position as a director of Merrimac. During
        his
        leave of absence, Mr. Kuttner was not entitled to any compensation from the
        Company. Mr. Kuttner rescinded his leave of absence from his position as
        a
        director of Merrimac as of June 20, 2007. Infineon also assigned to each
        purchaser certain registration rights to such shares under the existing
        registration rights agreements Infineon had with the Company. In connection
        with
        the transaction, the Company and
  13
  MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
  Infineon
        terminated  the
        Stock
        Purchase and Exclusivity Letter Agreement dated April 7, 2000, as amended,
        which
        provided that the Company would design, develop and produce exclusively for
        Infineon certain Multi-Mix® products that incorporate active RF power
        transistors for use in certain wireless base station applications, television
        transmitters and certain other applications that are intended for Bluetooth
        transceivers.
 
 DuPont
        and two of the purchasers above hold registration rights, which currently
        give
        them the right in perpetuity to register an aggregate of 828,413 shares of
        Common Stock of the Company. There are no settlement alternatives and the
        registration of the shares of Common Stock would be on a “best efforts” basis.
 
 16.
        REPURCHASE OF COMMON STOCK
 
 On
        March
        13, 2007, the Company repurchased in a private transaction 238,700 shares
        of its
        Common Stock for the treasury at $9.00 per share for an aggregate total of
        $2,148,300 from a group of investors.
 
 17.
        LEGAL
        PROCEEDINGS
 
 Merrimac
        is party to lawsuits, arising in the normal course of business. It is the
        opinion of management of Merrimac that the disposition of these various lawsuits
        will not individually or in the aggregate have a material adverse effect
        on the
        consolidated financial position or results of the Company.
 
 On
        February 22, 2008, a statement of claim in Ontario Superior Court of Justice
        was
        filed by a former FMI employee against FMI seeking damages for approximately
        $77,000 ($75,000 Canadian) for wrongful dismissal following the sale of FMI’s
        assets to FTG. The Company settled this claim in May 2008 for a minimal
        amount.
 
 On
        March
        10, 2008, a statement of claim in Ontario Superior Court of Justice was filed
        by
        nineteen (19) former FMI employees against Merrimac, FMI and FTG seeking
        damages
        for wrongful dismissal for approximately $1,000,000 (Canadian $977,000)
        following the sale of FMI’s assets to FTG. The former FMI employees are alleging
        that an employment contract existed between FMI and the plaintiffs and are
        seeking additional damages for termination of the alleged contract. Merrimac
        believes it has been improperly named in this claim and is petitioning the
        Court
        to be removed as a defendant.
 
 Merrimac
        has an Employment Practices Liability insurance policy that extends coverage
        to
        its subsidiaries. The insurance carrier agreed to provide a defense in this
        matter on April 24, 2008 and they retained Canadian counsel to defend against
        this claim. Merrimac made provision for the deductible amount of the insurance
        policy which is $25,000. In accordance with the requirements of SFAS No.
        5,
        after discussions with counsel, Merrimac cannot presently determine if the
        likelihood of an unfavorable outcome is probable, reasonably possible or
        remote.
        In addition, Merrimac cannot reasonably estimate the amount of a probable
        loss,
        other than the minimal deductible amount under the insurance policy. The
        Company
        and its insurance carrier intend to defend against these claims
        vigorously.
 
 18.
        SUBSEQUENT EVENT
 
 On
        July
        23, 2008, a Statement of Claim was filed in Ontario Superior Court of Justice
        by
        the lessor of the premises formerly occupied by FMI in Ontario, Canada, against
        FMI, Merrimac, and FTG. The Statement of Claim seeks damages of $150,612
        in
        respect of the period from and after which FTG, which purchased the assets
        of
        FMI, removed operations from the premises through the term of the lease.
        In
        addition, the Statement of Claim seeks damages for $110,319 for repairs to
        the
        premises, and seeks to set aside the transfer of assets from FMI to FTG for
        the
        failure to comply with the Bulk Sales Act Ontario.
 
 Merrimac
        cannot presently determine if the likelihood of an unfavorable outcome is
        probable, reasonably possible or remote. In addition, Merrimac cannot reasonably
        estimate the amount of a probable loss. The Company intends to defend this
        claim
        vigorously.
 14
  MERRIMAC
        INDUSTRIES, INC.
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 Restated
 
 19.
        RESTATEMENT
 
 On
        November 17, 2008, the Audit Committee of Merrimac Industries, Inc. determined
        that reissuing the previously filed financial statements for the fiscal 2008
        second quarter was appropriate to correct certain accounting errors. These
        errors arose from control deficiencies created by changes of accounting
        personnel and the failure to properly implement a new financial accounting
        system. The second quarter errors include a $33,937 overstatement of net
        sales
        and corresponding $33,937 understatement of customer deposits; a $211,603
        understatement of inventory and corresponding $211,603 overstatement of cost
        of
        sales; and a $177,666 understatement of net income.
 
 As
        a result of the adjustments, the fiscal 2008 second quarter is restated as
        follows:
  **Three
                    Months Ended**
                  **June
                    28, 2008 ($)**
              **Six
                  Months Ended**
                **June
                  28, 2008 ($)****Consolidated
                    Statement of Operations**
              **Previously**
                **Reported**
              **Restated**
              **Previously**
                **Reported**
              **Restated**Net
                  Sales
              7,524,203
              7,490,266
              13,281,889
              13,247,952Cost
                  of Sales
              4,308,912
              4,097,309
              7,760,872
              7,549,269Net
                  Income
              383,672
              561,338
              11,437
              189,103Net
                  Income per Common Share - Basic
              .13
              .19
              0
              .06Net
                  Income per Common Share - Diluted
              .13
              .19
              0
              .06
  **As
                  Of**
                **June
                  28, 2008 ($)****Consolidated
                    Balance****Sheet**
              **Previously
                  Reported**
              **Restated**Inventories,
                  Net
              6,462,065
              6,673,668Total
                  Current Assets
              15,023,672
              15,235,275Total
                  Assets
              25,845,158
              26,056,761Customer
                  Deposits
              483,393
              517,330Total
                  Current Liabilities
              4,315,747
              4,349,684Total
                  Liabilities
              7,616,025
              7,649,962Retained
                  Earnings
              1,185,361
              1,363,027Total
                  Stockholders’ Equity
              18,229,133
              18,406,799Total
                  Liabilities and Stockholders’ Equity
              25,845,158
              26,056,761
  15
  ITEM
        2.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS
 
 FORWARD-LOOKING
        STATEMENTS
 
 This
        Quarterly Report on Form 10-Q contains statements relating to future results
        of
        Merrimac (including certain projections and business trends) that are
        "forward-looking statements" as defined in the Private Securities Litigation
        Reform Act of 1995. In this report, the words “we”, “us” and “our” refer to
        Merrimac and its subsidiaries. Actual results may differ materially from
        those
        projected as a result of certain risks and uncertainties. These risks and
        uncertainties include, but are not limited to: risks associated with demand
        for
        and market acceptance of existing and newly developed products as to which
        the
        Company has made significant investments, particularly its Multi-Mix® products;
        the possibilities of impairment charges to the carrying value of our Multi-Mix®
assets, thereby resulting in charges to our earnings; risks associated with
        adequate capacity to obtain raw materials and reduced control over delivery
        schedules and costs due to reliance on sole source or limited suppliers;
        slower
        than anticipated penetration into the satellite communications, defense and
        wireless markets; failure of our Original Equipment Manufacturer, or OEM,
        customers to successfully incorporate our products into their systems; changes
        in product mix resulting in unexpected engineering and research and development
        costs; delays and increased costs in product development, engineering and
        production; reliance on a small number of significant customers; the emergence
        of new or stronger competitors as a result of consolidation movements in
        the
        market; the timing and market acceptance of our or our OEM customers’ new or
        enhanced products; general economic and industry conditions; the ability
        to
        protect proprietary information and technology; competitive products and
        pricing
        pressures; our ability and the ability of our OEM customers to keep pace
        with
        the rapid technological changes and short product life cycles in our industry
        and gain market acceptance for new products and technologies; risks relating
        to
        governmental regulatory actions in communications and defense programs; and
        inventory risks due to technological innovation and product obsolescence,
        as
        well as other risks and uncertainties as are detailed from time to time in
        the
        Company's Securities and Exchange Commission filings. These forward-looking
        statements are made only as of the date of the filing of this Form 10-Q,
        and the
        Company undertakes no obligation to update or revise the forward-looking
        statements, whether as a result of new information, future events or
        otherwise.
  OVERVIEW
 
 *Continuing
        operations.*
 
 Merrimac
        Industries, Inc. is involved in the design, manufacture and sale of electronic
        component devices offering extremely broad frequency coverage and high
        performance characteristics, and microstrip, bonded stripline and thick
        metal-backed Teflon® (PTFE) and mixed dielectric multilayer circuits for
        communications, defense and aerospace applications. The Company's operations
        are
        conducted primarily through one business segment, electronic components and
        subsystems.
 
 Merrimac
        is a versatile technologically oriented company specializing in radio frequency
        Multi-Mix®, stripline, microstrip and discreet element technologies. Of special
        significance has been the combination of two or more of these technologies
        into
        single components and integrated multifunction subassemblies to achieve superior
        performance and reliability while minimizing package size and weight. Merrimac
        components and integrated assemblies are found in applications as diverse
        as
        satellites, military and commercial aircraft, radar, cellular radio systems,
        medical and dental diagnostic instruments, personal communications systems
        and
        wireless connectivity. Merrimac maintains ISO 9001:2000 and AS 9100 registered
        quality assurance programs. Merrimac's components range in price from $0.50
        to
        more than $10,000 and its subsystems range from $500 to more than
        $1,500,000.
 
 For
        the
        second quarter and first six months of 2008, the Company returned to profitable
        results from continuing operations. Previously, the Company experienced losses
        from continuing operations in the first quarter of 2008 and prior quarters.
        Improved orders and the increased opening backlog from 2007 provided the
        catalyst to increase sales for the second quarter of 2008 by $2,119,000 or
        39.4%
        and 3,365,000 or 34.4% for the first six months of 2008 compared to 2007,
        particularly sales of Core and Multi-Mix® products
        to defense industry-related customers. The increased gross profit from the
        higher sales level coupled with most expenses, as a percentage of net sales,
        being lower than previous periods, resulted in income from continuing operations
        for the second quarter of 2008 as compared to losses in recent prior quarters.
        Backlog increased by $2,397,000 or 13.3% to $20,388,000 at the end of the
        first
        quarter of 2008 from the end of 2007. The June 28, 2008 backlog of
        $20,137,000,an increase of $2,146,000 or 11.9% compared to year-end 2007
        backlog
        of $17,991,000, is slightly below the highest quarter-end backlog of $20,388,000
        that the Company achieved in March 2008, because of the higher level of second
        quarter 2008 sales.
  16
  The
        Company markets and sells its products domestically and internationally through
        a direct sales force and manufacturers’ representatives. Merrimac has
        traditionally developed and offered for sale products built to specific customer
        needs, as well as standard catalog items.
 
 Cost
        of
        sales for the Company consists of materials, salaries and related expenses,
        and
        outside services for manufacturing and certain engineering personnel and
        manufacturing overhead. Our products are designed and manufactured in the
        Company’s facilities. The Company’s manufacturing and production facilities
        infrastructure overhead are relatively fixed and are based on its expectations
        of future net revenues. Should the Company experience a reduction in net
        revenues in a quarter, it could have difficulty adjusting short-term
        expenditures and absorbing any excess capacity expenses. If this were to
        occur,
        the Company’s operating results for that quarter would be negatively impacted.
        In order to remain competitive, the Company must continually reduce its
        manufacturing costs through design and engineering innovations and increases
        in
        manufacturing efficiencies. There can be no assurance that the Company will
        be
        able to reduce its manufacturing costs.
 
 The
        Company anticipates that depreciation and amortization expenses will exceed
        its
        revised capital expenditures for fiscal year 2008 by approximately $1,600,000.
        The Company intends to reduce its commitments to purchase capital equipment
        from
        various vendors to an amount of approximately $400,000 for the remainder
        of
        2008. The Company anticipates that such equipment will be purchased and become
        operational during the remainder of 2008. The Company’s planned equipment
        purchases and other commitments are expected to be funded through cash resources
        and cash flows expected to be generated from operations, and supplemented
        by the
        Company’s $5,000,000 revolving credit facility, which expires October 18, 2008.
        Capital One N.A. has indicated to us that it does not intend to renew the
        line
        of credit. We believe that we will be able to refinance the line of credit
        with
        another financial institution, but such refinancing likely will be on less
        favorable terms to us.
 
 Selling,
        general and administrative expenses consist of personnel costs for
        administrative, selling and marketing groups, sales commissions to employees
        and
        manufacturing representatives, travel, product marketing and promotion costs,
        as
        well as legal, accounting, information technology and other administrative
        costs. As discussed below, the Company expects to continue to make significant
        and increasing expenditures for selling, general and administrative expenses,
        especially in connection with implementation of its strategic plan for
        generating and expanding sales of Multi-Mix® products.
 
 Research
        and development expenses consist of materials, salaries and related expenses
        of
        certain engineering personnel, and outside services related to product
        development projects. The Company charges all research and development expenses
        to operations as incurred. The Company believes that continued investment
        in
        research and development is critical to the Company’s long-term business
        success. The Company intends to continue to invest in research and development
        programs in future periods, and expects that these costs will increase over
        time, in order to develop new products, enhance performance of existing products
        and reduce the cost of current or new products.
 
 The
        Company anticipates 2008 orders from its defense and satellite customers
        will be
        comparable to fiscal year 2007 levels. Nevertheless, in times of armed conflict
        or war, military spending is concentrated on armaments build up, maintenance
        and
        troop support, and not on the research and development and specialty
        applications that are the Company’s core strengths and revenue generators.
 
 *Discontinued
        operations.*
 
 Filtran
        Microcircuits Inc. (“FMI”) was established in 1983, and was acquired by Merrimac
        in February 1999. FMI is a manufacturer of microwave micro-circuitry for
        the
        high frequency communications industry. FMI has been engaged in the production
        of microstrip, bonded stripline, and thick metal-backed Teflon® (PTFE)
        microcircuits for RF applications including satellite, aerospace, PCS, fiber
        optic telecommunications, automotive, navigational and defense applications
        worldwide. FMI has supplied mixed dielectric multilayer and high speed
        interconnect circuitry to meet customer demand for high performance and
        cost-effective packaging.
  17
  Company
        management determined, and on August 9, 2007 the Board of Directors approved,
        that the Company should divest its FMI operations. The divestiture should
        enable
        Merrimac to concentrate its resources on RF Microwave and Multi-Mix®
Microtechnology product lines to generate sustainable, profitable growth.
        Beginning with the second quarter of 2008, the Company reflected FMI as a
        discontinued operation and the Company reclassified prior financial statements
        to reflect the results of operations, financial position and cash flows of
        FMI
        as discontinued operations.
  On
        December 28, 2007, the Company sold substantially all of the assets of its
        wholly-owned subsidiary, FMI, to Firan Technology Group Corporation (“FTG”), a
        manufacturer of high technology/high reliability printed circuit boards,
        that
        has operations in Toronto, Ontario, Canada and Chatsworth, California. The
        transaction was effected pursuant to an asset purchase agreement entered
        into
        between Merrimac, FMI and FTG. The total consideration payable by FTG was
        $1,482,000 (Canadian $1,450,000) plus the assumption of certain liabilities
        of
        approximately $368,000 (Canadian $360,000). FTG paid $818,000 (Canadian
        $800,000) of the purchase price at closing and the balance was paid on February
        21, 2008 following the conclusion of a transitional period.
 
 Operating
        results of FMI, which were formerly represented as Merrimac’s microwave
        micro-circuitry  segment,
        are summarized as follows:
 
 Quarter
                  Ended
              
              Six
                  Months EndedJune
                  28, 2008
              
              June
                  30, 2007
              
              June
                  28, 2008
              
              June
                  30, 2007Net
                  sales
              
              $
              0
              
              $
              854,000
              
              $
              0
              
              $
              1,766,000Loss
                  before provision for income taxes
              
              $
              (55,000
              )
              $
              (3,013,000
              )
              $
              (55,000
              )
              
              (3,294,000
              )Provision
                  for income taxes
              
              
              -----
              
              
              506,000
              
              
              -----
              
              
              506,000Net
                  loss
              
              $
              (55,000
              )
              $
              (3,519,000
              )
              $
              (55,000
              )
              $
              (3,800,000
              )
 
 CRITICAL
        ACCOUNTING ESTIMATES AND POLICIES
 
 The
        Company's management makes certain assumptions and estimates that impact
        the
        reported amounts of assets, liabilities and stockholders' equity, and revenues
        and expenses. The management judgments that are currently the most critical
        are
        related to the accounting for the Company's investments in Multi-Mix®
Microtechnology, contract revenue recognition, inventory valuation and valuation
        of deferred tax assets.
 
 Impairment
        of long-lived assets
 
 Following
        is a summary of the carrying amounts of the Multi-Mix® Microtechnology net
        assets included in the Company's consolidated financial statements at June
        28,
        2008 and the related future planned purchases and lease obligation commitments
        through January 2011.
 
 Net
                  assets:Property,
                  plant and equipment, at cost
              
              $
              14,859,000Less,
                  accumulated depreciation and amortization
              
              
              10,117,000Property,
                  plant and equipment, net
              
              
              4,742,000Inventories
              
              
              740,000Other
                  assets, net
              
              
              128,000Total
                  net assets at June 28, 2008
              
              
              5,610,000Commitments:Planned
                  equipment purchases for the remainder of 2008
              
              
              200,000Lease
                  obligations through January 2011
              
              
              500,000Total
                  commitments
              
              
              700,000Total
                  net assets and commitments
              
              $
              6,310,000
 
 Approximately
        34% of the property, plant and equipment may be utilized in other areas of
        our
        electronic components and subsystems operations.
 
 18
 Any
        future demand for Multi-Mix® for the wireless market is dependent on various
        third-party programs and is directly related to the timing of our customers’ and
        potential customers’ phase-out of existing programs and their migration, which
        is not assured and has not yet commenced commercially, toward new programs
        to
        meet their customers’ new requirements. While these circumstances have resulted
        in the delay or cancellation of Multi-Mix® Microtechnology product purchases
        that had been anticipated from certain specific customers or programs, the
        Company has implemented a strategic plan utilizing product knowledge and
        customer focus to expand specific sales opportunities. However, continued
        extended delay or reduction from planned levels in new orders expected from
        customers for these products could require the Company to pursue alternatives
        related to the utilization or realization of these assets and commitments,
        the
        net result of which could be materially adverse to the financial results
        and
        position of the Company.
        In accordance with the Company’s evaluation of Multi-Mix® under SFAS No. 144 at
        December 29, 2007, the Company has determined no provision for impairment
        is
        required at this time. Management will continue to monitor the recoverability
        of
        the Multi-Mix® assets.
 
 Contract
        Revenue Recognition
 
 The
        Company derives its revenues from sales of the following: customized products,
        which include amounts billable for non-recurring engineering services and
        in
        some instances the production and delivery of prototypes, ** and
        the
        subsequent production of delivery of units under short-term, firm-fixed price
        contracts; the design, documentation, production and delivery of a series
        of
        complex components under long-term firm-fixed price contracts; and the delivery
        of off-the-shelf, standard products.
 
 The
        Company accounts for all contracts, except for the sale of off-the-shelf
        standard products, in accordance with AICPA Statement of Position No. 81-1,
        “Accounting for Performance of Construction-Type and Certain Production-Type
        Contracts” (“SOP 81-1”).
 
 The
        Company recognizes all amounts billable under short-term contracts involving
        non-recurring engineering services for customization of products in net sales
        and all related costs in cost of sales under the completed-contract method
        when
        the customized units are delivered. The Company periodically enters into
        contracts with customers for the development and delivery of a prototype
        prior
        to the shipment of units. Under those circumstances, the Company recognizes
        all
        amounts billable for non-recurring engineering services in net sales and
        all
        related costs in cost of sales when the prototype is delivered and recognize
        all
        of the remaining amounts billable and the related costs when the units are
        delivered.
 
 Periodically,
        the Company has complex, long-term contracts for the engineering design,
        development and production of space electronics products for which revenue
        is
        recognized under the percentage-of-completion method. Sales and related contract
        costs for design and documentation services under this type of contract are
        recognized based on the cost-to-cost method. Sales and related contract costs
        for products delivered under these contracts are recognized on the
        units-of-delivery method.
 
 Pursuant
        to SOP 81-1, anticipated losses on all contracts are charged to operations
        in
        the period when the losses become known.
 
 Sales
        of
        off-the-shelf, standard products and related costs of sales are recorded
        when
        title transfers to the customer, which is generally on the date of shipment,
        provided persuasive evidence of an arrangement exists, the sales price is
        fixed
        or determinable and collection of the related receivable is
        probable.
 
 Inventory
        Valuation
 
 Inventories
        are valued at the lower of average cost or market. Inventories are periodically
        reviewed for their projected manufacturing usage utilization and, when
        slow-moving or obsolete inventories are identified, a provision for a potential
        loss is made and charged to operations.
 
 Procurement
        of inventory is based on specific customer orders and forecasts. Customers
        have
        certain rights of modification with respect to these orders and forecasts.
        As a
        result, customer modifications to orders and forecasts affecting inventory
        previously procured by us and our purchases of inventory beyond customer
        needs
        may result in excess and obsolete inventory for the related customers. Although
        the Company may be able to use some of these excess components and raw materials
        in other products it manufactures, a portion of the cost of this excess
        inventory may not be recoverable from customers, nor may any excess quantities
        be returned to the vendors. The Company also may not be able to recover the
        cost
        of obsolete inventory from vendors or customers.
  19
 Write
        offs or write downs of inventory generally arise from:
  ·
              declines
                  in the market value of inventory;
  ·
              changes
                  in customer demand for inventory, such as cancellation of orders;
                  and
  ·
              our
                  purchases of inventory beyond customer needs that result in excess
                  quantities on hand that may not be returned to the vendor or charged
                  back
                  to the customer.
 
 Valuation
        of Deferred Tax Assets
 
 As
        of
        June 28, 2008, the Company has significant deferred tax assets resulting
        from
        net operating loss carryforwards, tax credit carryforwards and deductible
        temporary differences, which should reduce taxable income in future periods.
        A
        valuation allowance is required when management assesses that it is more
        likely
        than not that all or a portion of a deferred tax asset will not be realized.
        The
        Company's 2002, 2003, 2006 and 2007 net losses have weighed heavily
        in the Company's overall assessments. The Company established a full valuation
        allowance for its remaining U.S. net deferred tax assets as a result of its
        assessment at December 28, 2002. This assessment continued unchanged from
        2003
        through the first six months of 2008
  20
  CONSOLIDATED
        STATEMENTS OF OPERATIONS SUMMARY
 (UNAUDITED)
  The
        following table reflects the percentage relationships of items from the
        Consolidated Statements of Operations as a percentage of net sales.
 
 Percentage
                    of Net Sales
                
                Percentage
                    of Net SalesQuarters
                    Ended
                
                Six
                    Months EndedJune
                    28,
                
                June
                    30,
                
                June
                    28,
                
                June
                    30,CONTINUING
                    OPERATIONS
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007Restated
                
                
                
                
                
                RestatedNet
                    sales
                
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %Costs
                    and expenses:Cost
                    of sales
                
                
                .
                    54.7
                
                
                55.9
                
                
                57.0
                
                
                58.9Selling,
                    general and administrative
                
                
                31.4
                
                
                36.8
                
                
                34.7
                
                
                42.4Research
                    and development
                
                
                5.0
                
                
                6.3
                
                
                5.6
                
                
                8.391.1
                
                
                99.0
                
                
                97.3
                
                
                109.6Operating
                    income (loss)
                
                
                8.9
                
                
                1.0
                
                
                2.7
                
                
                (9.6
                )Interest
                    and other (expense) income, net
                
                
                (0.7
                )
                
                (0.1
                )
                
                (0.8
                )
                
                0.2Income
                    (loss) from continuing operationsbefore
                    income taxes
                
                
                8.2
                
                
                0.9
                
                
                1.9
                
                
                (9.4
                )Provision
                    (benefit) for income taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -Income
                    (loss) from continuing operations
                
                
                8.2
                
                
                0.9
                
                
                1.9
                
                
                (9.4
                )DISCONTINUED
                    OPERATIONSLoss
                    from discontinued operations afterincome
                    taxes
                
                
                (
                    0.7
                )
                
                (65.5
                )
                
                (0.4
                )
                
                (38.5
                )Net
                    income (loss)
                
                
                7.5
                %
                
                (64.6
                )%
                
                1.5
                %
                
                (47.9
                )%
 **SECOND
        QUARTER AND FIRST SIX MONTHS OF 2008 COMPARED TO THE SECOND QUARTER AND FIRST
        SIX MONTHS OF 2007-CONTINUING OPERATIONS**
 
 *Net
        sales.*
 
 Net
        sales
        from continuing operations for the second quarter of 2008 were $7,490,000,
        an
        increase of $2,119,000 or 39.4 percent compared to the second quarter of
        2007
        net sales of $5,371,000. Net sales from continuing operations increased due
        to
        the higher level of orders received throughout fiscal year 2007, which resulted
        in a higher opening backlog at the beginning of the 2008 fiscal year, including
        higher sales of Multi-Mix® products to the defense industry-related customers,
        as well as a continuation of the favorable trend in orders received during
        the
        current year that have positively impacted backlog during 2008.
 
 Net
        sales
        from continuing operations for the first six months of 2008 were $13,248,000,
        an
        increase of $3,365,000 or 34.0 percent compared to net sales of $9,883,000
        for
        the first six months of 2007. The increase in net sales for the first six
        months
        of 2008 is primarily due to the same reasons that benefited the second quarter
        of 2008 increase in net sales.
 
 Backlog
        represents the amount of orders the Company has received that have not been
        shipped as of the end of a particular fiscal period. The orders in backlog
        are a
        measure of future sales and determine the Company’s upcoming material, labor and
        service requirements. The book-to-bill ratio for a particular period represents
        orders received for that period divided by net sales for the same period.
        The
        Company looks for this ratio to exceed 1.0, indicating the backlog is being
        replenished by new orders at a higher rate than the sales being removed from
        the
        backlog.
 
 The
        following table presents key performance measures that we use to monitor
        our
        operating results for the six months ended June 28, 2008 and June 30,
        2007:
 
 2008
                Restated
              
              2007Beginning
                  backlog
              
              $
              17,991,000
              
              $
              11,490,000Plus
                  bookings
              
              
              15,393,000
              
              
              14,738,000Less
                  net sales
              
              
              13,247,000
              
              
              9,883,000Ending
                  backlog
              
              $
              20,137,000
              
              $
              16,345,000Book-to-bill
                  ratio
              
              
              1.16
              
              
              1.49
  21
  Orders
        of
        $7,238,000 were received during the second quarter of 2008, a decrease of
        $1,531,000 or 17.5 percent compared to $8,769,000 in orders received during
        the
        second quarter of 2007. Orders of $15,393,000 were received during the first
        six
        months of 2008, an increase of $655,000 or 4.4 percent compared to $14,738,000
        in orders received during the first six months of 2007. Backlog increased
        by
        $2,146,000 or 11.9 percent to $20,137,000 at the end of the second quarter
        of
        2008 compared to $17,991,000 at year-end 2007, due to the increased orders
        received during the first six months of 2008. The book-to-bill ratio for
        the
        second quarter of 2008 was 0.96 to 1 and for the second quarter of 2007 was
        1.63
        to 1. The book-to-bill ratio for the first six months of 2008 was 1.16 to
        1 and
        for the first six months of 2007 was 1.49 to 1. The orders, backlog and
        book-to-bill data exclude FMI information for 2007.
  The
        backlog of unfilled orders includes amounts based on signed contracts as
        well as
        agreed letters of intent, which we have determined are legally binding and
        likely to proceed. Although backlog represents only business that is considered
        likely to be performed, cancellations or scope adjustments may and do occur.
        The
        elapsed time from the award of a contract to completion of performance may
        be up
        to approximately four years. The dollar amount of backlog is not necessarily
        indicative of our future earnings related to the performance of such work
        due to
        factors outside our control, such as changes in project schedules, scope
        adjustments or project cancellations. We cannot predict with certainty the
        portion of backlog to be performed in a given year. Backlog is adjusted
        quarterly to reflect project cancellations, deferrals, revised project scope
        and
        cost, and sales of subsidiaries, if any.
  
 *Cost
        of sales and Gross profit.*
 
 The
        following table provides comparative gross profit information for the quarters
        and six months ended June 28, 2008 and June 30, 2007.
 
 
 Quarter
                  ended June 28, 2008
              
              Quarter
                  ended June 30, 2007Restated$
              
              Increase/
                (Decrease)from
                  priorperiod
              
              %
                  of
                Net
                  Sales
              
              $
              
              Increase/
                (Decrease)
                  from priorperiod
              
              %
                  of
                Net
                  SalesConsolidatedgross
                  profit
              
              $
              3,393,000
              
              $
              1,026,000
              
              
              45.3
              %
              $
              2,367,000
              
              $
              (1,143,000
              )
              
              44.1
              %
  Six
                  Months ended June 28, 2008
              
              Six
                  Months ended June 30, 2007Restated$
              
              Increase/
                (Decrease)from
                  priorperiod
              
              %
                  of
                Net
                  Sales
              
              $
              
              Increase/
                (Decrease)
                  from priorperiod
              
              %
                  of
                Net
                  SalesConsolidatedgross
                  profit
              
              $
              5,699,000
              
              $
              1,635,000
              
              
              43.0
              %
              $
              4,064,000
              
              $
              (1,315,000
              )
              
              41.1
              %
 
 The
        increase in consolidated gross profit for the second quarter of 2008 was
        due to
        the higher level of sales, which improved the absorption of fixed manufacturing
        costs.
 
 The
        increase in consolidated gross profit and consolidated gross profit percentage
        for the six months of 2008 was due to the impact of the higher level of sales
        allowing for a better absorption of fixed manufacturing costs.
 
 Depreciation
        expense included in consolidated cost of sales for the second quarter of
        2008
        was $611,000, an increase of $60,000 compared to the second quarter of 2007.
        Depreciation expense included in consolidated cost of sales for the first
        six
        months of 2008 was $1,193,000, an increase of $125,000 compared to the first
        six
        months of 2007. For the second quarter and first six months of 2008,
        approximately $414,000 and $812,000, respectively, of depreciation expense
        was
        associated with Multi-Mix® Microtechnology capital assets. For the second
        quarter and first six months of 2007, approximately $383,000 and $758,000,
        respectively, of depreciation expense was associated with Multi-Mix®
Microtechnology capital assets.
 
  22
  *Selling,
        general and administrative expenses.*
 
 Selling,
        general and administrative expenses of $2,353,000 for the second quarter
        of 2008
        increased by $377,000 or 19.1%, and when expressed as a percentage of net
        sales,
        decreased by 5.5 percentage points to 31.3% compared to the second quarter
        of
        2007. The increase in such expenses for the second quarter of 2008 was due
        to
        higher sales commissions, increased selling costs from recent sales personnel
        hired to meet the demand of increased sales, higher professional fee costs,
        and
        higher share-based compensation from the grant of stock options in April
        2007.
        Selling, general and administrative expenses of $4,598,000 for the first
        six
        months of 2008 increased by $404,000 or 9.6%, and when expressed as a percentage
        of net sales, by 7.8 percentage points to 34.6% compared to the first six
        months
        of 2007. the increase in such expenses for the first six months of 2008 was
        due
        to higher commissions on the increased sales level, higher selling and
        administrative costs, and higher share-based compensation from the grant
        of
        stock options in April 2007.
 
 *Research
        and development expenses.*
 
 Research
        and development expenses for new products were $375,000 for the second quarter
        of 2008, an increase of $39,000 or 11.7%, and when expressed as a percentage
        of
        net sales, decreased by 1.2 percentage points to 5.0% compared to the second
        quarter of 2007. Substantially all of the research and development expenses
        were
        related to Multi-Mix® Microtechnology products. Research and development
        expenses for new products were $747,000 for the first six months of 2008,
        a
        decrease of $72,000 or 8.8%, and when expressed as a percentage of net sales,
        decreased by 2.7 percentage points to 5.6% compared to the first six months
        of
        2007. Substantially all of the research and development expenses were related
        to
        Multi-Mix® Microtechnology products. The Company anticipates that these expenses
        will increase in future periods in connection with implementation of our
        strategic plan for Multi-Mix®.
 
 *Operating
        income (loss) from continuing operations.*
 
 Operating
        income from continuing operations for the second quarter of 2008 was $665,000,
        compared to an operating income from continuing operations of $55,000 for
        the
        second quarter of 2007. T he
        increase in operating income from continuing operations for the second quarter
        of 2008 as compared to the second quarter of 2007 was due to the improved
        gross
        profit from the increase in sales, partially offset by higher sales commissions
        and increased selling, general and administrative expenses, and higher research
        and development costs.
 
 Operating
        income from continuing operations for the first six months of 2008 was $353,000
        compared to an operating loss from continuing operations for the first six
        months of 2007 of $(949,000). T he
        increase in operating income from continuing operations for the first six
        months
        of 2008 as compared to the first six months of 2007 was due to higher gross
        profit from the increase in sales, partially offset by higher sales commissions,
        and increased general and administrative expenses.
 
 *Interest
        and other (expense) income, net.*
 
 Interest
        and other (expense) income, net was $(49,000) for the second quarter of 2008
        compared to interest and other (expense) income, net of $4,000 for the second
        quarter of 2007. Interest and other (expense) income, net was $(109,000)
        for the
        first six months of 2008 compared to interest and other (expense) income,
        net of
        $16,000 for the first six months of 2007. Interest expense for the second
        quarter and first six months of 2008 and 2007 was principally incurred on
        borrowings under the term loans which the Company refinanced in October 2006.
        Interest expense for the second quarter and first six months of 2008 was
        higher
        than the second quarter and first nine months of 2007 due to the lower levels
        of
        investable cash that generated less interest income to be received during
        2008
        when compared to 2007.
 
 *Income
        (loss) from continuing operations.*
 
 For
        the
        reasons set forth above, income from continuing operations for the second
        quarter of 2008 was $616,000 compared to income from continuing operations
        of
        $50,000 for the second quarter of 2007. Income per diluted share from continuing
        operations for the second quarter of 2008 was $.21 compared to income from
        continuing operations of $.02 per diluted share for the second quarter of
        2007.
 
 For
        the
        reasons set forth above, income from continuing operations for the first
        six
        months of 2008 was $244,000 compared to a loss from continuing operations
        of
        $(933,000) for the first six months of 2007. Income from continuing operations
        per diluted share for the first six months of 2008 was $.08 compared to a
        loss
        from continuing operations of $(.31) per share for the first nine months
        of
        2006.
 
 23
  *Income
        taxes.*
 
 The
        Company’s effective tax rate for the quarter and six months ended June 28, 2008,
        (which effective tax rate was zero percent), reflects U.S. Federal Alternative
        Minimum Tax and State income taxes that are due based on certain statutory
        limitations on the use of the Company’s net operating loss carryforwards. No
        provisions or benefit for income taxes was recorded based on management’s
        estimate of the minimal projected taxable income and the availability of
        net
        operating loss carryforwards that can be utilized.
 
 As
        of
        June 28, 2008, the Company has significant deferred tax assets resulting
        from
        net operating loss carryforwards, tax credit carryforwards, and deductible
        temporary differences, which
        should reduce taxable income in future periods. A valuation allowance is
        required when management assesses that it is more likely than not that all
        or a
        portion of a deferred tax asset will not be realized. The Company's 2002,
        2003,
        2006 and 2007 net losses have weighed heavily in the Company's overall
        assessments. The Company established a full valuation allowance for its
        remaining U.S. net deferred tax assets as a result of its assessment at December
        28, 2002. This assessment continued unchanged from 2003 through the second
        quarter of 2008.
 
 On
        December 31, 2006, the Company adopted FIN 48, which clarifies the accounting
        for uncertainty in tax positions. As of that date, the Company had no uncertain
        tax positions and did not record any additional benefits of liabilities.
        At June
        28, 2008 and December 29, 2007, the company had no uncertain tax positions
        and
        did not record any additional benefits or liabilities. The Company will
        recognize any accrued interest or penalties related to unrecognized tax benefits
        or liabilities within the provision for income taxes.
 
 Internal
        Revenue Service Code Section 382 places a limitation on the utilization of
        net
        operating loss carryforwards when an ownership change, as defined in the
        tax
        law, occurs. Generally, an ownership change occurs when there is a greater
        tha
        50 percent change in ownership. If such a change should occur, the actual
        utilization of net operating loss carryforwards, for tax purposes, would
        be
        limited annually to a percentage of the fair market value of the company
        at the
        time of such change. The company may become subject to these limitations
        in 2007
        depending on the extent of the changes in its ownership.
 
 *Discontinued
        operations* .
 
 Loss
        from
        discontinued operations for the second quarter and first six months of 2008
        was
        $55,000 or $.02 per share, which consisted of certain ongoing professional
        fees,
        claim defense deductibles and certain other expenses. There was no loss from
        discontinued operations in the first quarter of 2008. Loss from discontinued
        operations for the second quarter of 2007 was $3,519,000 and for the first
        six
        months of 2007 was $3,800,000. Loss from discontinued operations includes
        a
        partial goodwill impairment charge of $2,630,000 and a charge of $506,000
        to
        provide a full valuation allowance for a Canadian net deferred tax asset,
        for a
        total of $3,136,000 of non-cash charges. Loss from discontinued operations
        for
        the second quarter of 2007 was $1.21 per basic share, and $1.20 per diluted
        share, and for the first six months of 2007 was $1.27 per basic
        share.
 
 *Net
        income (loss).*
 
 For
        the
        reasons set forth above, net income for the second quarter of 2008 was $561,000
        compared to a net loss of $(3,469,000) for the second quarter of 2007. Net
        income per diluted share for the second quarter of 2008 was $.19 compared
        to a
        net loss of $(1.18) per diluted share for the second quarter of
        2007.
 
 For
        the
        reasons set forth above, net income for the first six months of 2008 was
        $189,000 compared to a net loss of $(4,733,000) for the first six months
        of
        2007. Net income per diluted share for the first six months of 2008 was $.06
        compared to a net loss of $(1.58) per share for the first six months of 2007.
 
 LIQUIDITY
        AND CAPITAL RESOURCES
 
 The
        Company had liquid resources comprised of cash and cash equivalents totaling
        approximately $410,000 at the end of the first six months of 2008 compared
        to
        approximately $2,000,000 at the end of 2007. The principal reasons for the
        reduction in cash at June 28, 2008 from December 29, 2007 were capital
        expenditures of $613,000, cash used in operating activities of continuing
        operations of $1,902,000 as described below, and repayments of borrowings
        of
        $525,000 offset, in part, by the return of restricted cash to repay term
        debt of
        $250,000, the receipts of the remaining proceeds from the sale of FMI’s assets
        of $664,000, proceeds from sales of stock to employees of $86,000, and revolving
        credit borrowings of $500,000 drawn down in the second quarter of 2008. The
        Company's working capital was approximately $10,900,000 and its current ratio
        was 3.5 to 1 at the end of the second quarter of 2008 compared to $9,900,000
        and
        3.5 to 1, respectively, at the end of 2007. At June 28, 2007, the Company
        had
        available borrowing
 
 24
 
 capacity
        under its revolving line of credit of $4,500,000, net of the $500,000
        outstanding revolving credit borrowings.
 
 The
        Company's activities from continuing operations used operating cash flows
        of
        $1,902,000 during the first six months of 2008 compared to generating $473,000
        of operating cash flows during the first six months of 2007. The primary
        uses of
        operating cash flows from continuing operations for the first six months
        of 2008
        were an increase accounts receivable of $2,309,000 from the higher sales
        level
        and an increase in inventories of $1,634,000 to meet the production needs
        of the
        increased backlog. These uses of operating cash flows were partly offset
        by
        income from continuing operations for the first six months of 2008 of $244,000
        plus depreciation and amortization of $1,270,000 and share-based compensation
        of
        $258,000, coupled with an aggregate reduction in other assets of $252,000.
 
 The
        primary sources of operating cash flows from continuing operations for the
        first
        six months of 2007 were a decrease in accounts receivable of $645,000, a
        decrease in other current assets of $187,000, and an aggregate increase in
        accounts payable, customer depostis and accrued liabilities of $282,000,
        partly
        offset by the loss from continuing operations of $933,000 and an increase
        in
        inventory of $826,000, which was reduced by depreciation and amortization
        of
        $1,158,000 and share-based compensation of $132,000.
 
 The
        Company made net cash investments in property, plant and equipment of $613,000
        during the first six months of 2008 compared to net cash investments made
        in
        property, plant and equipment of $756,000 during the first six months of
        2007.
        These capital expenditures are related to new production and test equipment
        capabilities in connection with the introduction of new products and
        enhancements to existing products. The depreciated cost of capital equipment
        associated with Multi-Mix® Microtechnology was $4,742,000 at the end of the
        second quarter of 2008, a decrease of $739,000 compared to $5,481,000 at
        the end
        of fiscal year 2007.
 
 The
        primary uses of cash flows from financing activities during the first six
        months
        of 2007 were the repurchase, in a private transaction on March 14, 2007,
        of
        238,700 shares of common stock for the treasury at $9.00 per share for an
        aggregate total of $2,148,000 and the repayments of $275,000 of term loan
        borrowings.
 
 The
        Company’s remaining planned equipment purchases for the second half of 2008 have
        been reduced to approximately $400,000. The reduced capital expenditures
        and
        other commitments are expected to be funded through cash resources and cash
        flows expected to be generated from operations, and supplemented by the
        Company’s $5,000,000 revolving credit facility, which expires October 18, 2008.
        Capital One, N.A. has indicated to us that it does not intend to renew the
        line
        of credit. We believe that we will be able to refinance the line of credit
        with
        another financial institution, but such refinancing likely will be on less
        favorable terms to us.
 
 On
        October 18, 2006, the Company entered into a financing agreement with Capital
        One, N.A. which consists of a two-year $5,000,000 revolving line of credit,
        a
        five-year $2,000,000 machinery and equipment term loan due October 1, 2011
        (“Term Loan”) and a ten-year $3,000,000 real estate term loan due October 1,
        2016 (“Mortgage Loan”). This financing agreement replaced the prior financing
        agreement with CIT. Completion of the financing agreement resulted in additional
        cash loan proceeds of approximately $2,900,000 plus the release of previously
        restricted cash of $1,500,000. The revolving line of credit is subject to
        an
        availability limit under a borrowing base calculation (85% of eligible accounts
        receivable plus up to 50% of eligible raw materials inventory plus up to
        25% of
        eligible electronic components, with an inventory advance sublimit not to
        exceed
        $1,500,000, as defined in the financing agreement). The revolving line of
        credit
        expires October 18, 2008. The Company anticipates the revolving credit facility
        will be refinanced, under terms less favorable than its existing credit
        facilities. At June 28, 2008, the Company had available borrowing capacity
        under
        its revolving line of credit of $4,500,000. The revolving line of credit
        bears
        interest at the prime rate less 0.50% (4.50% at June 28, 2008 and currently
        4.50%) or LIBOR plus 2.00%. The principal amount of the Term Loan is payable
        in
        59 equal monthly installments of $33,333 and one final payment of the remaining
        principal balance of $33,333. The Term Loan bears interest at the prime rate
        less 0.50% (4.50% at June 28, 2008 and currently 4.50%) or LIBOR plus 2.25%.
        The
        principal amount of the Mortgage Loan is payable in 119 equal monthly
        installments of $12,500 and one final payment of the remaining principal
        balance. The Mortgage Loan bears interest at the prime rate less 0.50% (4.50%
        at
        June 28, 2008 and currently 4.50%) or LIBOR plus 2.25%. At June 28, 2008,
        the
        Company had no portion of its borrowings under LIBOR-based interest rates.
        The
        revolving line of credit, the Term Loan and the Mortgage Loan are secured
        by
        substantially all assets located within the United States and the pledge
        of 65%
        of the stock of the Company's subsidiaries located in Costa Rica and Canada.
        The
        provisions of the financing agreement require the Company to maintain certain
        financial covenants.
 
  25
  Capital
        One, N.A. and the Company amended the financing agreement, as of May 15,
        2007,
        which:
 
 (i)
        eliminated the fixed charge coverage ratio covenant for the quarter ended
        June
        30, 2007, (ii) added a covenant related to earnings before interest, taxes,
        depreciation and amortization (“EBITDA”) for the four quarters ended June 30,
        2007 to require the Company to achieve a minimum level of EBITDA, and (iii)
        modified the fixed charge coverage ratio covenant for periods after the quarter
        ending September 29, 2007. The Company was in compliance with these amended
        covenants at June 28, 2008.
 
 On
        August
        9, 2007, Capital One, N.A. and Merrimac entered into a Pledge and Security
        Agreement, under which Capital One, N.A. consented to the guaranty by Merrimac
        of FMI's borrowings under the revolving credit agreement with The Bank of
        Nova
        Scotia in the amount of up to $250,000 (Canadian). In consideration for Capital
        One, N.A. providing such consent, Merrimac deposited $250,000 into a controlled
        collateral account with Capital One, N.A. and also agreed to prepay the mortgage
        loan portion of the credit facility with Capital One, N.A. with fifty percent
        of
        the net proceeds from a sale of FMI up to a maximum amount of $500,000. This
        agreement terminated in November 2007, when The Bank of Nova Scotia terminated
        FMI’s revolving credit agreement. Upon termination of such agreement, the
        Company agreed to repay a portion of its Mortgage Loan with the funds in
        the
        controlled collateral account upon the expiration of LIBOR contracts in January
        2008. On January 18, 2008, Merrimac paid $250,000 of the Mortgage Loan using
        the
        funds previously deposited into the controlled collateral account.
 
 Depreciation
        and amortization expenses exceeded capital expenditures for production equipment
        during the first six months of 2008 by approximately $660,000, and the Company
        anticipates that depreciation and amortization expenses will exceed capital
        expenditures in fiscal year 2008 by approximately $1,600,000. The Company
        intends to issue commitments to purchase up to $400,000 of capital equipment
        from various vendors for the remainder of 2008. The Company anticipates that
        such equipment will be purchased and become operational during 2008.
 
 Related
        to the discontinued operations of FMI, there is a remaining lease commitment
        on
        its leased facility of approximately $160,000, however, the Company anticipates
        settling the remaining lease commitment for a reduced amount.
 
 The
        functional currency for the Company’s Costa Rica operations is the United States
        dollar. The functional currency for the Company’s previously wholly-owned
        subsidiary FMI is the Canadian dollar. The change in accumulated other
        comprehensive income for 2007 reflects the changes in the exchange rates
        between
        the Canadian dollar and the United States dollar for those respective periods.
        Following the sale of Company’s discontinued operations in December 2007, there
        is no foreign currency translation adjustment at June 28, 2008.
 
 RECENT
        ACCOUNTING PRONOUNCEMENTS
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157 “Fair Value Measurements”. SFAS No. 157 establishes a single authoritative
        definition of fair value, sets out a framework for measuring fair value and
        requires additional disclosures about fair-value measurements. SFAS No. 157
        applies only to fair-value measurements that are already required or permitted
        by other accounting standards and is expected to increase the consistency
        of
        those measurements. It will also affect current practices by nullifying Emerging
        Issues Task Force guidance that prohibited recognition of gains or losses
        at the
        inception of derivative transactions whose fair value is estimated by applying
        a
        model and by eliminating the use of “blockage” factors by brokers, dealers and
        investment companies that have been applying AICPA Guides. The Company adopted SFAS No. 157 on December 30, 2007.
        The adoption of SFAS No. 157 did not have an impact on its financial position
        and results of operations.
 
 In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        159 “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS
        No. 159 permits entities to choose to measure many financial assets and
        financial liabilities at fair value. Unrealized gains and losses on items
        for
        which the fair value option has been elected are reported in net income.
        The
        Company adopted SFAS No. 159 On December 30, 2007. The adoption of SFAS No.
        159
        did not have an impact on its financial position and results of operations.
 
 In
        December 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R established
        principles and requirements for how an acquiring company recognizes and measures
        in its financial statements the identifiable assets acquired, the liabilities
        assumed, any noncontrolling interest if the acquired company and the goodwill
        acquired. SFAS 141R also established disclosure requirements to enable the
        evaluation of the nature and financial effects of the business combination.
        SFAS
        141R is effective for fiscal periods beginning after December 15, 2008. The
        Company is currently evaluating the impact that SFAS 141R will have on its
        financial position and results of operations.
 
 26
  In
        December 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        160 “Noncontrolling Interests in Consolidated Financial Statements-an amendment
        of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes
        accounting and reporting standards of ownership interests in subsidiaries
        held
        by parties other than the parent, the amount of consolidated net income
        attributable to the parent and to the noncontrolling interest, changes in
        a
        parent’s ownership interest and the valuation of retained noncontrolling equity
        investments when a subsidiary is deconsolidated. SFAS 160 also establishes
        disclosure requirements that clearly identify and distinguish between the
        interests of the parent and the interests of the noncontrolling owners. SFAS
        160
        is effective for fiscal periods beginning after December 15, 2008. The Company
        is currently evaluating the impact that SFAS 160 will have on its financial
        position and results of operations.
  ITEM
        3.
        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 For
        quantitative and qualitative disclosures about the market risks affecting
        Merrimac, see “Quantitative and Qualitative Disclosures about Market Risk” in
        Item 7A of Part II of the Company’s Annual Report on Form 10-K for the fiscal
        year ended December 29, 2007, which is incorporated herein by reference.
        Our
        exposure to market risk has not changed materially since December 29, 2007.
 
 ITEM
        4.
        CONTROLS AND PROCEDURES
 
 (a) Evaluation
        of Disclosure Controls and Procedures .
        Based
        on the material weaknesses in internal control identified below, as of June
        28,
        2008 (the end of the period covered by this report), the Company's management
        reevaluated, with the participation of the Company's Chief Executive Officer
        and
        Principal Financial Officer, the effectiveness of the Company's disclosure
        controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the
        Securities Exchange Act of 1934). Based upon that reevaluation, the Chief
        Executive Officer and Principal Financial Officer concluded that, as of June
        28,
        2008, the Company's disclosure controls and procedures were not effective.
 
 (b) Material
        Weakness in Internal Control Over Financial Reporting .
        A
        material weakness is a control deficiency, or combination of control
        deficiencies, that results in a reasonably possible likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected. Management identified the following material weaknesses in its
        internal control over financial reporting as of June 28, 2008:
 
 *Personnel*
 
 Management
        identified changes in financial personnel that led to a lack of sufficient
        financial reporting experience to prepare accurate financial statements in
        a
        timely manner.
 
 *New
        Financial Reporting System*
 
 Management
        identified the failure to accurately implement the Company’s new financial
        reporting system which has led to errors in preliminary financial reports
        requiring additional resources and time to correct.
 
 *Potential
        Problem Areas*
 
 Management
        was unable to identify potential problem areas in financial reporting that
        required immediate attention by operational and financial personnel that
        were
        not identified on a timely basis.
 
 *Remediation*
 
 (a)
        The
        Company is currently seeking to hire an experienced chief financial officer
        and
        an experienced cost accountant. Until such personnel can be hired, the Company
        will be utilizing an accounting consulting firm to oversee, test and support
        procedures and processes for financial reporting for the fourth quarter and
        year
        end of 2008.
 
 27
 (b)
        Management has identified procedures to enable the Company to better close
        work
        orders in the new financial reporting system, including the deployment of
        additional personnel to ensure that work orders are properly closed out.
 
 (c)
        Personnel will be trained as to the importance of timely and accurate reporting
        to the labor system. Exception reports will be generated that provide operations
        and finance information regarding any discrepancies to the procedures on
        a daily
        basis.
 
   28
  Apart
        from the implementation of a new financial accounting system and changes
        in
        financial personnel, there were no changes that occurred during the quarter
        ended June 28, 2008 that materially affected, or are reasonably likely to
        materially affect, the Company’s internal controls over financial
        reporting.
 
 PART
        II
        OTHER INFORMATION
 
 ITEM
        1.
        LEGAL PROCEEDINGS.
 
 Merrimac
        is a party to lawsuits, arising in the normal course of business. It is the
        opinion of Merrimac's management that the disposition of these various lawsuits
        will not individually or in the aggregate have a material adverse effect
        on the
        consolidated financial position or the results of operations of
        Merrimac.
 
 On
        February 22, 2008, a statement of claim in Ontario Superior Court of Justice
        was
        filed by a former FMI employee against FMI seeking damages for approximately
        $77,000 ($75,000 Canadian) for wrongful dismissal following the sale of FMI’s
        assets to FTG. The Company agreed to settle this claim in May 2008 for a
        minimal
        amount.
 
 On
        March
        10, 2008, a statement of claim in Ontario Superior Court of Justice was filed
        by
        nineteen (19) former FMI employees against Merrimac, FMI and FTG seeking
        damages
        for wrongful dismissal for approximately $1,000,000 (Canadian $977,000)
        following the sale of FMI’s assets to FTG. The former FMI employees are alleging
        that an employment contract existed between FMI and the plaintiffs and are
        seeking additional damages for termination of the alleged contract. Merrimac
        believes it has been improperly named in this claim and is petitioning the
        Court
        to be removed as a defendant.
 
 Merrimac
        has an Employment Practices Liability insurance policy that extends coverage
        to
        its subsidiaries. The insurance carrier agreed to provide a defense in this
        matter on April 24, 2008 and they retained Canadian counsel to defend this
        claim. Merrimac made provision for the deductible amount of the insurance
        policy
        which is $25,000. In accordance with the requirements of SFAS No. 5, after
        discussions with counsel, Merrimac cannot presently determine if the likelihood
        of an unfavorable outcome is probable, reasonably possible or remote. In
        addition, Merrimac cannot reasonably estimate the amount of a probable loss,
        other than the minimal deductible amount under the insurance policy. The
        Company
        and its insurance carrier intend to defend these claims vigorously.
 
 On
        July
        23, 2008, a Statement of Claim was filed in Ontario Superior Court of Justice
        by
        the lessor of the premises formerly occupied by FMI in Ontario, Canada, against
        FMI, Merrimac, and FTG. The Statement of Claim seeks damages of $150,612
        in
        respect of the period from and after which FTG, which purchased the assets
        of
        FMI, removed operations from the premises through the term of the lease.
        In
        addition, the Statement of Claim seeks damages for $110,319 for repairs to
        the
        premises, and seeks to set aside the transfer of assets from FMI to FTG for
        the
        failure to comply with the Bulk Sales Act Ontario.
 
 Merrimac
        cannot presently determine if the likelihood of an unfavorable outcome is
        probable, reasonably possible or remote. In addition, Merrimac cannot reasonably
        estimate the amount of a probable loss. The Company intends to defend this
        claim
        vigorously.
 
 ITEM
        1A.
        RISK FACTORS.
 
 There
        have been no material changes to our Risk Factors from those presented in
        our
        Form 10-K for fiscal year 2007, except that the Risk Factor captioned “Our
        revolving line of credit expires in October 2008 and the failure to renew
        the
        revolving line of credit or a renewal on less favorable terms could have
        a
        material adverse effect on our business operations” is revised to read as
        follows:
 
 Our
        revolving line of credit expires in October 2008 and the failure to refinance
        the revolving line of credit or a refinancing on less favorable terms could
        have
        a material adverse effect on our business operations.
 
 Our
        revolving line of credit with Capital One, N.A. expires in October 2008.
        Capital
        One, N.A. has indicted to us that it does intend to renew the line of credit.
        We
        believe that we will be able to refinance the line of credit with another
        financial institution, but such refinancing likely will be o less favorable
        terms to us. In the event that we are unable to refinance the revolving line
        of
        credit with another financial institution or if we are required to refinance
        our
        line of credit on less favorable terms, our business operations could suffer
        a
        material adverse effect.
  29
  ITEM
        4.
        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  On
        June
        26, 2008, the Company held its Annual Stockholders Meeting at which the
        stockholders elected two members to the Company's Board of Directors. The
        stockholders of the Company elected Mason N. Carter and Timothy P. McCann
        as
        Class III Directors whose terms expire at the 2011 Annual Meeting.
 
 The
        following sets forth the number of votes cast for, against or withheld, as
        well
        as the number of abstentions and broker non-votes, voted upon at the Company's
        June 20, 2007 Annual Stockholders Meeting:
 
 Election
        of Directors.
  For
                
                WithheldMason
                    N. Carter
                
                
                2,302,252
                
                
                216,104Timothy
                    P. McCann
                
                
                2,484,169
                
                
                34,187
 Ratification
        of J.H. Cohn LLP as the Company's independent registered public accounting
        firm.
 
 For
                
                Against
                
                Abstain2,513,691
                
                3,572
                
                1,093
  The
        Company’s three Class I directors, Fernando L. Fernandez, Joel H. Goldberg and
        Ludwig G. Kuttner and three Class II directors, Edward H. Cohen, Arthur A.
        Oliner and Harold J. Raveché, continued as directors after the Annual
        Stockholders Meeting and are serving terms expiring at the time of the Company's
        annual meetings in 2009 and 2010, respectively, and until their respective
        successors have been duly elected and qualified.
 
 
 ITEM
        5.
        OTHER INFORMATION.
 
 None.
  
 ITEM
        6.
        EXHIBITS
 
 Exhibits:
 
 EXHIBIT
                NUMBER
              DESCRIPTION
                  OF EXHIBIT31.1+
              Certificate
                  of Chief Executive Officer and Principal Financial Officer , pursuant
                  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.32.1+
              Certificate
                  of Chief Executive Officer and Principal Financial Officer , pursuant
                  to
                  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.
 
 +
        Indicates that exhibit is filed as an exhibit hereto.
  30
 
 SIGNATURES
  In
        accordance with the requirements of Section 13 or 15 (d) of the Securities
        Exchange Act of 1934, the Registrant caused this report to be signed on its
        behalf by the undersigned, thereunto duly authorized.
   MERRIMAC
        INDUSTRIES, INC.
 
 Date:
        November 18, 2008 By: /s/
        Mason N. Carter
 Mason
        N.
        Carter
 Chairman,
        President,
 Chief
        Executive Officer
 And
        Principal Financial
 Officer
  31