`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended April 1, 2006

[ ] 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. Employer
 Incorporation 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, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]   Accelerated filer [ ]    Non-accelerated filer [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 May 12, 2006, there were 3,136,135 shares of Common Stock, par value $0.01
per share, outstanding.




                            MERRIMAC INDUSTRIES, INC.
                               41 Fairfield Place
                             West Caldwell, NJ 07006

                                      INDEX


                                                                            Page
PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements


   Consolidated Statements of Operations and Comprehensive Income (Loss)
          for the Quarters Ended April 1, 2006 and April 2, 2005
          (Unaudited)........................................................ 1

   Consolidated Balance Sheets-April 1, 2006 (Unaudited) and
          December 31, 2005.................................................. 2

   Consolidated Statement of Stockholders' Equity as of
          April 1, 2006 (Unaudited).......................................... 3

   Consolidated Statements of Cash Flows for the Quarters
          Ended April 1, 2006 and April 2, 2005 (Unaudited).................. 4

   Notes to Consolidated Financial Statements................................ 5

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations ......................................... 16

Item 3.   Quantitative and Qualitative Disclosures about Market Risk......... 28

Item 4.   Controls and Procedures ........................................... 28

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings ................................................. 29

Item 1A.  Risk Factors ...................................................... 29

Item 6.   Exhibits .......................................................... 36

Signatures................................................................... 39

Exhibit Index ...............................................................





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                            MERRIMAC INDUSTRIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)



                                                                              Quarters Ended
                                                                  -----------------------------------
                                                                   April 1, 2006       April 2, 2005
                                                                   -------------       --------------

      OPERATIONS
      Net sales                                                      $ 6,230,703         $ 7,258,335
                                                                     -----------         -----------
      Costs and expenses:
          Cost of sales                                                3,829,766           4,223,957
          Selling, general and administrative                          2,485,894           2,311,398
          Research and development                                       371,948             540,596
                                                                     -----------         -----------
                                                                       6,687,608           7,075,951
      Operating income (loss)                                           (456,905)            182,384

      Interest and other expense, net                                    (18,704)            (52,934)

      Loss on disposition of capital assets                                   --             (35,868)
                                                                     -----------         -----------

      Income (loss) before income taxes                                 (475,609)             93,582
      (Benefit) provision for income taxes                               (35,000)             10,000
                                                                     -----------         -----------

      Net income (loss)                                              $  (440,609)        $    83,582
                                                                     ===========         ===========

      Net income (loss) per common share-basic                       $      (.14)        $       .03
                                                                     ===========         ===========

      Net income (loss) per common share-diluted                     $      (.14)        $       .03
                                                                     ===========         ===========
      Weighted average number of shares outstanding:

          Basic                                                        3,149,164           3,137,784
                                                                     ===========         ===========
          Diluted                                                      3,149,164           3,174,520
                                                                     ===========         ===========

      COMPREHENSIVE INCOME (LOSS)

      Net income (loss)                                               $ (440,609)        $    83,582
      Comprehensive income:
          Foreign currency translation adjustment                         (8,709)            (58,694)
                                                                     -----------         -----------
      Comprehensive income (loss)                                     $ (449,318)        $    24,888
                                                                     ===========         ===========



See accompanying notes.

                                        1




                            MERRIMAC INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEETS



                                                                         April 1, 2006     December 31, 2005
                                                                         -------------     -----------------
                                                                          (UNAUDITED)           (AUDITED)

ASSETS
Current assets:
  Cash and cash equivalents                                                $ 3,302,525         $ 4,081,330
  Restricted cash                                                            1,500,000                  --
  Accounts receivable, net                                                   5,405,000           5,309,786
  Income tax refunds receivable                                                418,700             418,420
  Inventories, net                                                           4,223,659           3,709,567
  Other current assets                                                         653,539             692,832
  Deferred tax assets                                                          140,000             140,000
                                                                           -----------         -----------
                  Total current assets:                                     15,643,423          14,351,935
                                                                           -----------         -----------
Property, plant and equipment                                               39,330,224          38,708,486
  Less accumulated depreciation and amortization                            25,395,853          24,735,905
                                                                           -----------         -----------
Property, plant and equipment, net                                          13,934,371          13,972,581

Restricted cash                                                                     --           1,500,000
Other assets                                                                   634,537             614,553
Deferred tax assets                                                            481,000             482,000
Goodwill                                                                     3,497,146           3,501,193
                                                                           -----------         -----------
                  Total Assets:                                            $34,190,477         $34,422,262
                                                                           ===========         ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                                        $ 2,608,110         $   907,895
  Accounts payable                                                           1,118,158           1,161,199
  Accrued liabilities                                                        1,659,249           1,545,407
  Customer deposits                                                            974,080             863,582
  Deferred income taxes                                                         20,000              20,000
                                                                           -----------         -----------
                  Total current liabilities:                                 6,379,597           4,498,083
Long-term debt, net of current portion                                         298,343           2,071,299
Deferred compensation                                                           16,657              19,692
Deferred liabilities                                                                --               2,720
Deferred tax liabilities                                                       140,000             140,000
                                                                           -----------         -----------
                  Total liabilities.                                         6,834,597           6,731,794
                                                                           -----------         -----------
Commitments and contingencies
Stockholders' equity:
  Preferred stock, par value $.01 per share:
     Authorized: 1,000,000 shares
     No shares issued
  Common stock, par value $.01 per share:
     20,000,000 shares authorized; 3,238,862 and 3,228,715 shares issued;
     and 3,156,762 and 3,146,615 shares outstanding, respectively               32,389              32,287
  Additional paid-in capital                                                18,937,981          18,823,353

  Retained earnings                                                          8,000,669           8,441,278
  Accumulated other comprehensive income                                     1,358,707           1,367,416
                                                                           -----------         -----------
                                                                            28,329,746          28,664,334

  Less treasury stock, at cost - 82,100 shares                                (573,866)           (573,866)

  Less loan to officer-stockholder                                            (400,000)           (400,000)
                                                                           -----------         -----------
                  Total stockholders' equity                                27,355,880          27,690,468
                                                                           -----------         -----------
                  Total Liabilities and Stockholders' Equity               $34,190,477         $34,422,262
                                                                           ===========         ===========



See accompanying notes.

                                        2



                            MERRIMAC INDUSTRIES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                           QUARTER ENDED APRIL 1, 2006
                                   (UNAUDITED)




                                                                                  Accumulated
                                                       Additional                    Other
                                    Common Stock        Paid-in      Retained    Comprehensive
                                 Shares      Amount    Capital(A)    Earnings       Income
                             ------------------------------------------------------------------

Balance, December 31, 2005..    3,228,715   $32,287   $18,823,353   $8,441,278    $1,367,416
Net loss....................                                          (440,609)
Share-based compensation....                               43,667
Stock Purchase Plan sales...        8,347        84        58,629
Exercise of stock options...        1,800        18        12,332
Foreign currency translation                                                          (8,709)
                             ------------------------------------------------------------------
Balance, April 1, 2006......    3,238,862   $32,389   $18,937,981   $8,000,669    $1,358,707
                             ==================================================================


                                                       Loan to
                                 Treasury  Stock      Officer-
                                 Shares    Amount    Stockholder      Total
                             -------------------------------------------------

Balance, December 31, 2005..     82,100  $(573,866)   $(400,000)   $27,690,468
Net loss....................                                          (440,609)
Share-based compensation....                                            43,667
Stock Purchase Plan sales...                                            58,713
Exercise of stock options...                                            12,350
Foreign currency translation                                            (8,709)
                             -------------------------------------------------
Balance, April 1, 2006......     82,100  $(573,866)   $(400,000)   $27,355,880
                             =================================================


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


See accompanying notes.

                                        3




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



                                                                           Quarters Ended
                                                                    ----------------------------
                                                                    April 1, 2006  April 2, 2005
                                                                    -------------  -------------

Cash flows from operating activities:
  Net income (loss)                                                   $ (440,609)    $   83,582
  Adjustments to reconcile net income (loss) to net cash (used
  in) provided by operating activities:
      Depreciation and amortization                                      662,728        764,495
      Amortization of deferred financing costs                            12,480         12,480
      Share-based compensation                                            43,667             --
      Loss on disposition of assets                                           --         35,868
      Deferred and other compensation                                        860          1,437

      Changes in operating assets and liabilities:
          Accounts receivable                                            (82,955)       251,702
          Income tax refunds receivable                                     (485)         3,758
          Inventories                                                   (514,563)      (363,269)
          Other current assets                                            39,303        (86,327)
          Other assets                                                   (10,752)        29,559
          Accounts payable                                              (133,809)       (20,232)
          Accrued liabilities                                             99,578       (325,213)
          Customer deposits                                              110,498        (43,688)
          Income taxes payable                                                --          7,657
          Deferred compensation                                           (3,895)       (10,904)
          Other liabilities                                               (2,720)        (7,813)
                                                                      ----------     ----------
Net cash (used in) provided by operating activities                     (220,674)       333,092
                                                                      ----------     ----------

Cash flows from investing activities:
   Purchases of capital assets                                          (552,338)      (244,963)
                                                                      ----------     ----------

Net cash used in investing activities                                   (552,338)      (244,963)
                                                                      ----------     ----------

Cash flows from financing activities:
   Repayment of borrowings                                              (232,902)      (389,111)
   Borrowings under revolving credit facility                                 --        161,017
   Borrowings from revolving lease line                                  159,988        230,753
   Proceeds from the exercise of stock options                            12,350         20,000
   Proceeds from Stock Purchase Plan sales                                58,713         11,749
                                                                      ----------     ----------

Net cash (used in) provided by financing activities                       (1,851)        34,408
                                                                      ----------     ----------

Effect of exchange rate changes                                           (3,942)         5,282
                                                                      ----------     ----------

Net (decrease) increase in cash and cash equivalents                    (778,805)       127,819
Cash and cash equivalents at beginning of year                         4,081,330      2,166,481
                                                                      ----------     ----------

Cash and cash equivalents at end of period                            $3,302,525     $2,294,300
                                                                      ==========     ==========
Supplemental disclosures of cash flow information:
     Cash paid during the period for:
     Income taxes                                                     $       --     $  120,000
                                                                      ==========     ==========
     Interest on credit facilities                                    $   67,507     $   69,133
                                                                      ==========     ==========
Non-cash activities:
      Unpaid purchases of capital assets                              $  150,000     $       --
                                                                      ==========     ==========
      Uncollected proceeds from disposition of capital assets         $       --     $  295,000
                                                                      ==========     ==========



See accompanying notes.

                                        4




                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all information and footnote disclosures otherwise required by generally
accepted accounting principles for a full fiscal year. The financial statements
do, however, reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position of the Company as of
April 1, 2006 and its results of operations and cash flows for the periods
presented. Results of operations of interim periods are not necessarily
indicative of results for a full year. These financial statements should be read
in conjunction with the audited consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2005.

2. CONTRACT REVENUE RECOGNITION

The Company recognizes revenue in accordance with the provisions of Staff
Accounting Bulletin No. 104. Contract revenue and related costs on fixed-price
and cost-reimbursement contracts that require customization of products to
customer specifications are recorded when title transfers to the customer, which
is generally on the date of shipment. Prior to shipment, manufacturing costs
incurred on such contracts are recorded as work-in-process inventory.
Anticipated losses on contracts are charged to operations when identified.
Revenue related to non-recurring engineering charges is generally recognized
upon shipment of the related initial units produced or based upon contractually
established stages of completion.

The cost rates utilized for cost-reimbursement contracts are subject to review
by third parties and can be revised, which can result in additions to or
reductions from revenue. Revisions which result in reductions to revenue are
recognized in the period that the rates are reviewed and finalized; additions to
revenue are recognized in the period that the rates are reviewed, finalized,
accepted by the customer, and collectability from the customer is assured. The
Company submits financial information regarding the cost rates on
cost-reimbursement contracts for each fiscal year in which the Company performed
work on cost-reimbursement contracts. The Company does not record any estimates
on a regular basis for potential revenue adjustments, as there currently is no
reasonable basis on which to estimate such adjustments given the Company's very
limited experience with these contracts. No revenue was recognized related to
cost-reimbursement contracts during the first quarter of 2006 or 2005,
respectively.

3. 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 2003 was the last and fiscal year 2008 will be
the next) is added to the fourth quarter, making such quarter consist of 14
weeks.

4. 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 April 1, 2006 and
December 31, 2005 was attributable solely to the effects of foreign currency
translation.

5. RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, SFAS No. 151, "Inventory Costs (An amendment of ARB No. 43,
Chapter 4)," was issued. SFAS No. 151 amends Accounting Research Bulletin
("ARB") No. 43, Chapter 4, to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials (spoilage) should be
recognized as current-period charges. In addition, SFAS No. 151 requires that
allocation of fixed production overhead to inventory be based on normal capacity
of the production facilities. The Company adopted SFAS No. 151 on January 1,
2006. The adoption of SFAS No. 151 did not have a material impact on its
financial position and results of operations.


                                        5



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The FASB has issued FASB Staff Position No. 109-1, "Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities by the American Jobs Creation Act of 2004." On
October 22, 2004, the American Jobs Creation Act of 2004 (the "Act") was signed
into law by the President. This Act includes tax relief for domestic
manufacturers by providing a tax deduction for up to 9 percent (when fully
phased in) of the lesser of (a) "qualified production activities income," or (b)
taxable income (after the deduction for the utilization of any net operating
loss carryforwards). As a result of this Act, an issue has arisen as to whether
this deduction should be accounted for as a special deduction or a tax rate
reduction under SFAS No. 109. The FASB staff believes that the domestic
manufacturing deduction is based on the future performance of specific
activities, including the level of wages. Accordingly, the FASB staff believes
that the deduction provided for under the Act should be accounted for as a
special deduction in accordance with SFAS No. 109 and not as a tax rate
reduction. The Company will be utilizing its net operating loss carryforwards to
offset domestic taxable income, thus the Company does not anticipate this
provision will have an impact on its financial position and results of
operations in 2006.

In May 2005, SFAS No. 154, "Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3," was issued. This
statement provides guidance on the accounting for and reporting of accounting
changes and error corrections. This standard applies to voluntary changes in
existing accounting principles and to new accounting standards that do not
specify the transition requirements upon adoption of those standards. Except for
changes in depreciation methods, this standard will require retrospective
application of the new accounting principle to previous periods reported rather
than presenting the cumulative effect of the change as of the beginning of the
period of the change. Changes in depreciation methods will be applied on a
prospective basis, meaning the effects of the change will be reflected only in
current and future periods. Corrections of errors will be reported by restating
previously issued financial statements. The Company adopted SFAS No. 154 as of
the beginning of the 2006 fiscal year. The adoption of SFAS No. 154 did not have
a material impact on its financial position or results of operations.

On November 10, 2005, the FASB issued FASB Staff Position 123(R)-3 ("FSP
123R-3"), "Transition Election Related to Accounting for the Tax Effects of
Share-based Payment Awards," that provides an elective alternative transition
method of calculating the pool of excess tax benefits available to absorb tax
deficiencies recognized subsequent to the adoption of SFAS 123R (the "APIC
Pool") to the method otherwise required by paragraph 81 of SFAS 123R. The
Company may take up to one year from the effective date of this FSP to evaluate
its available alternatives and make its one-time election. The Company is
currently evaluating the alternative methods; however, neither alternative would
have an impact on the Company's results of operations or financial condition for
the quarter ended April 1, 2006, due to the fact that the Company is currently
using prior period net operating losses and has not realized any tax benefits
under SFAS 123R.

6. 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 No. 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. Results for prior periods have not
been restated. Total share-based compensation expense recorded in the
Consolidated Statement of Operations for the quarter ended April 1, 2006 is
$44,000. The impact on both basic and diluted net income per common share for
the quarter ended April 1, 2006 was $.01 per share.

For the quarter ended April 1, 2006, share-based compensation expense related to
the 2001 Employee Stock Purchase Plan and the various stock option plans was
allocated as follows:

Cost of sales ................................................ $ 11,000
Selling, general and administrative ..........................   33,000
                                                               --------
Total share-based compensation ............................... $ 44,000
                                                               ========

                                        6



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to adopting SFAS No. 123R on January 1, 2006, the Company's share-based
compensation expense was accounted for under the recognition and measurement
principles of APB Opinion No. 25 "Accounting for Stock-Based Compensation" and
related interpretations. For the quarter ended April 2, 2005, no share-based
compensation expense is reflected in net income, as all options granted under
the Company's stock option plans had an exercise price equal to the underlying
common stock price on the date of the grant. The following table illustrates the
effect on net income and net income per common share for the quarter ended April
2, 2005, as if the Company had applied the fair value recognition provisions for
share-based employee compensation of SFAS 123R:

                                                          Quarter Ended
                                                          -------------
                                                          April 2, 2005

      Net income - as reported                            $      83,582
           Plus: stock-based compensation
           expense included in reported net income                   --
      Less: Stock-based compensation expense determined
      using the fair value method                               (33,000)
                                                          -------------

      Net income - pro forma                              $      50,582
                                                          =============

      Basic net income per share:
           As reported                                    $         .03
           Pro forma                                      $         .02
      Diluted net income per share:
           As reported                                    $         .03
           Pro forma                                      $         .02

The fair value of each of the options granted in 2005 was estimated on the date
of grant using the Black-Scholes option valuation model.

The following weighted average assumptions were utilized:

                                                           2005
                                                           -----
              Expected option life (years)                   1.0

              Expected volatility                          25.00%

              Risk-free interest rate                       3.50%

              Expected dividend yield                       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.
Because the Company's employee stock options and subscription rights have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options and subscription rights.

Stock Option and Employee Stock Purchase Plans:

At April 1, 2006, the Company 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. In addition, non-qualified
options for the purchase of a total of 33,000 shares remained outstanding and
exercisable at $10.00 per share expiring September 1, 2006, as a result of
grants by the Board of Directors in 1996 to non-employee directors at fair
market value on the date of grant.

At April 1, 2006 there were 416,684 options outstanding under these plans of
which 407,084 were exercisable. 19,700 options were available for future grant
under the 2001 Stock Option Plan. No options were available for future grant
under the 1993 Stock Option Plan and the 1997 Long Term Incentive Plan.

                                        7



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of all stock option activity and information related to all options
outstanding follows:

                                                     Weighted
                                                     average    Shares
                                                     exercise  or price
                                                      price    per share
                                                     -------------------
Outstanding at January 1, 2005 ..................... $  9.81     431,766
Granted ............................................    9.00      42,600
Exercised ..........................................    4.16      (5,300)
Cancelled ..........................................    9.49     (38,197)
                                                     -------------------
Outstanding at December 31, 2005 ...................    9.83     430,869

Granted ............................................      --          --
Exercised ..........................................    6.86      (1,800)
Cancelled ..........................................   10.25     (12,385)
                                                     -------------------
Outstanding at April 1, 2006 .......................    9.83     416,684
                                                     -------------------
Option price range at end of period                      $3.10-$17.00
                                                     -------------------

The following table sets forth information as of April 1, 2006 regarding
weighted average exercise prices, weighted average remaining contractual lives
and remaining outstanding options under the various stock option plans sorted by
range of exercise price:



                      Options Outstanding                              Options Exercisable
---------------------------------------------------------------    ----------------------------
                                 Weighted      Weighted Average                     Weighted
Options           Number         Average          Remaining          Number         Average
Price Range     Outstanding   Exercise Price   Contractual Life    Exercisable   Exercise Price
-----------     -----------   --------------   ----------------    -----------   ---------------

$3.10-$7.00        91,300         $ 6.01          4.5 years           91,300         $ 6.01
$7.01-$10.00      154,294         $ 9.25          5.2 years          147,444         $ 9.26
$10.01-$13.00      91,790         $11.03          1.6 years           91,790         $11.03
$13.01-$17.00      79,300         $13.95          3.9 years           76,550         $13.96


In 2001, the Company's stockholders approved a stock purchase plan pursuant to
which 250,000 shares of the Company's common stock were initially reserved for
sale to eligible employees. Under this plan, the Company may grant employees the
right to subscribe to purchase shares of common stock from the Company at 85% of
the market value on specified dates and pay for the shares through payroll
deductions over a period of up to 27 months.

A summary of stock purchase plan subscription activity follows:

                                                        Weighted
                                                        average    Shares
                                                        exercise  or price
                                                         price    per share
                                                        -------------------
Subscribed at January 1, 2005 .......................   $  5.36      33,176
Subscribed ..........................................      7.48      22,694
Purchased ...........................................      5.36      (8,345)
Cancelled ...........................................      6.80      (3,478)
                                                        -------------------
Subscribed December 31, 2005 ........................   $  6.34      44,047
                                                        -------------------
Subscribed ..........................................        --          --
Purchased ...........................................      7.03      (8,347)
Cancelled ...........................................      5.36        (682)
                                                        -------------------
Subscribed April 1, 2006 ............................   $  6.19      35,018
                                                        -------------------
Subscription price
 range end of year ..................................      $5.36 - $7.48
                                                        -------------------

                                        8



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

New Share-Based Compensation Plans:

On April 26, 2006, the Board of Directors adopted, subject to stockholder
approval, three new 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 ("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 is intended to replace the 2001 Stock Option Plan, which will
be terminated if the 2006 Stock Option Plan is approved by stockholders.

The 2006 Stock Option Plan may be terminated, amended, altered, or discontinued
at any time by the Board, but no amendment may impair the rights of a
participant without the participant's consent, subject to the terms of the 2006
Stock Option Plan. In addition, the 2006 Stock Option Plan may not be amended
without the approval of the Company's stockholders to the extent such approval
is required by law or listing requirement on which the Company's equity
securities are publicly traded. Options may not be granted under the 2006 Stock
Option Plan after March 28, 2016, or earlier as the Compensation Committee may
determine.

The 2006 Key Employee Incentive Plan replaces the 2001 Key Employee Incentive
Plan, which terminated on April 20, 2006. The purpose of the 2006 Key Employee
Incentive Plan is to give the Company a competitive advantage in retaining and
motivating key officers and employees and to provide the Company and its
subsidiaries with a stock plan providing incentives linked to increases in
stockholder value.

The 2006 Key Employee Incentive Plan is substantially similar to the 2001 Key
Employee Incentive Plan. The changes primarily relate to updating for changes in
applicable tax law and to raise the target market capitalization levels to be
achieved by the Company in order for the 2006 Key Employee Incentive Plan
participants to receive the benefits of the 2006 Key Employee Incentive Plan.

The number of Restricted Shares issued under the 2006 Key Employee Incentive
Plan will depend on whether the Company achieves certain target market
capitalizations during the five-year period beginning on March 29, 2006 (the
"Effective Date"). If the Company attains or achieves an average market
capitalization equal to or greater than $58,000,000 during any six-month period
during the five-year period beginning on the Effective Date (the "$58,000,000
Market Capitalization"), then each participant who shall still be in the employ
of the Company on the last day of such six-month period will be issued the
number of Restricted Shares determined by multiplying (a) his or her Award
Percentage, (b) 5% and (c) the average market capitalization during such
six-month period and dividing the product by the average fair market value of
the Common Stock during such six-month period.

If the Company attains or achieves an average market capitalization equal to or
greater than $93,000,000 over the course of any six-month period during the
five-year period beginning on the Effective Date (the "$93,000,000 Market
Capitalization"), then each participant who shall still be in the employ of the
Company on the last day of such six-month period will be awarded the number of
Restricted Shares determined by multiplying (a) his or her Award Percentage, (b)
5% and (c) the average market capitalization during such six-month period and
dividing the product by the average fair market value of the Common Stock during
such six-month period. Such six-month periods may be, in whole or in part,
coterminous with, the six-month period in which the $58,000,000 Market
Capitalization is achieved. In no event can Restricted Shares be issued upon
attainment of either the $58,000,000 Market Capitalization or the $93,000,000
Market Capitalization more than once during the five-year term of the 2006 Key
Employee Incentive Plan.

In the event of a Change in Control prior to the achievement of the $58,000,000
Market Capitalization, the $58,000,000 Market Capitalization will be deemed to
be achieved if the number of outstanding shares of Common Stock (calculated on a
fully diluted basis) on the date of the Change in Control multiplied by the fair
market value determined as of the date of the Change of Control is equal to or
greater than $58,000,000, and in the event it is achieved, each participant will
be granted the number of Restricted Shares determined by multiplying (i) such
participant's Award Percentage, (ii) 5% and (iii) the Change in Control Market
Capitalization

                                        9




and dividing the product by the Change in Control Price. Similarly, the
$93,000,000 Market Capitalization will be deemed to be achieved if such number
of shares on the date of the Change of Control multiplied by the fair market
value as of the date of the Change of Control is equal to or greater than
$93,000,000, and in the event it is achieved, each participant will be granted
the number of Restricted Shares determined by multiplying (i) such participant's
Award Percentage, (ii) (A) if the $58,000,000 Market Capitalization shall have
previously been achieved, 5% or (B) if the $58,000,000 Market Capitalization
shall not have previously been achieved, 10% and (iii) the Change in Control
Market Capitalization and dividing the product by the Change in Control Price.

The maximum value of an award of Restricted Shares which may be issued to any
participant upon achievement (or deemed achievement) of the $58,000,000 Market
Capitalization is $1,500,000 (based on the fair market value on the date of
issuance of such shares). The maximum value of an award of Restricted Shares
which may be issued to any participant upon achievement (or deemed achievement)
of the $93,000,000 Market Capitalization is $3,500,000 (based on the fair market
value of the Common Stock on the date of issuance of the Restricted Shares). In
the event a Change in Control shall occur which results in a change of control
market capitalization equal to or greater than $93,000,000 prior to achievement
of the $58,000,000 Market Capitalization, the maximum award would be $5,000,000.
The 2006 Key Employee Incentive Plan will terminate at the end of ten years
after its Effective Date; provided that the Restricted Shares outstanding as of
such date will not be affected or impaired by the termination of the 2006 Key
Employee Incentive Plan.

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

The purpose of the 2006 Non-Employee Directors' Stock Plan is to attract, retain
and motivate the most capable non-employee directors, to align the interests of
the Company's non-employee directors and stockholders, to compensate the
non-employee directors in line with the Company's competitors, and to generally
increase the effectiveness of the Company's non-employee director compensation
structure, thereby assisting the Company to achieve its long-range goals. The
2006 Non-Employee Directors' Stock Plan may be terminated, amended, altered, or
discontinued at any time by the Board, but no amendment may impair the rights of
a participant without the participant's consent, subject to the terms of the
2006 Non-Employee Directors' Stock Plan. In addition, the 2006 Non-Employee
Directors' Stock Plan may not be amended without the approval of the Company's
stockholders to the extent such approval is required by law or listing
requirement on which the Company's equity securities are publicly traded. Awards
may not be granted under the 2006 Non-Employee Directors' Stock Plan after
December 31, 2015, or earlier as the Board may determine.

7. GOODWILL

The changes in the carrying amount of goodwill for the periods ended April 1,
2006 and December 31, 2005 are as follows:

                                                         2006           2005
                                                      -----------   -----------
      Original balance                                $ 3,179,341   $ 3,179,341
      Accumulated amortization through 2001              (434,603)     (434,603)
      Accumulated foreign currency adjustment
      through prior year                                  756,455       633,175
      Foreign currency adjustment, current year            (4,047)      123,280
                                                      -----------   -----------
      Balance, end of period                          $ 3,497,146   $ 3,501,193
                                                      ===========   ===========

                                       10



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. INVENTORIES

Inventories consist of the following:

                                                 April 1,     December 31,
                                                   2006           2005
                                                -----------   -----------
      Finished goods                            $   650,181   $    365,346
      Work in process                             1,984,185      1,675,747
      Raw materials and purchased parts           1,589,293      1,668,474
                                                -----------   -----------
      Total                                     $ 4,223,659   $  3,709,567
                                                ===========   ============

Total inventories are net of valuation allowances for obsolescence and cost
overruns of $1,114,000 at April 1, 2006 and $1,084,000 at December 31, 2005.

9. CURRENT AND LONG-TERM DEBT

The Company was obligated under the following debt instruments at April 1, 2006
and December 31, 2005:



                                                                              April 1,     December 31,
                                                                                2006           2005
                                                                             -----------   ------------

The CIT Group/Business Credit, Inc. (A):
      Revolving line of credit, interest 1/2% above prime                             --            --
      Term loan A, due October 8, 2008, variable interest above
      LIBOR or prime                                                         $   650,000   $    725,000
      Term loan B, due October 8, 2010, variable interest above
      LIBOR or prime                                                           1,767,860      1,866,074

The Bank of Nova Scotia (B):
      Capital leases, interest 7.3%, due April 2006                               59,808         74,025
      Capital leases, interest 5.85%, due May 2006                                14,783         36,725
      Capital leases, interest 7.9%, due June 2006                                55,997         67,469
      Capital leases, interest 5.8%, due January 2010                            200,688        209,901
      Capital leases, interest 6.6%, due March 2011                              157,317             --
                                                                             -----------   ------------
                                                                               2,906,453      2,979,194
Less current portion                                                           2,608,110        907,895
                                                                             -----------   ------------

Long-term portion                                                            $   298,343   $  2,071,299
                                                                             ===========   ============


The financing agreement with CIT consists of a $5,000,000 revolving line of
credit, that is temporarily reduced by $250,000 until certain conditions are
met; a $1,500,000 machinery and equipment term loan ("Term Loan A") and a
$2,750,000 real estate term loan ("Term Loan B"). In connection with this
financing agreement, the Company was required to place, over the life of the
loan, $1,500,000 as restricted cash collateral with CIT. The revolving line of
credit, which expires October 8, 2006, is subject to an availability limit under
a borrowing base calculation (85% of eligible accounts receivable as defined in
the financing agreement plus 100% of the $1,500,000 restricted cash). At April
1, 2006, the Company had available borrowing capacity under its revolving line
of credit of $2,800,000. The revolving line of credit bears interest at the
prime rate plus 1/2 percent (currently 8.50%). The principal amount of Term Loan
A is payable in 60 equal monthly installments of $25,000 and bears interest at
the prime rate plus one percent (currently 9.00%). The principal amount of Term
Loan B is payable in 84 equal monthly installments of $32,738 and bears interest
at the prime rate plus one percent (currently 9.00%). As of April 1, 2006, the
Company, under the terms of its agreement with CIT, had elected to convert
$650,000 of Term Loan A and $1,750,000 of Term Loan B from their prime rate base
to LIBOR-based interest rate loans. The current LIBOR interest rate options were
renewed on October 11, 2005 for six months at an interest rate of 7.54% and
expired April 12, 2006. The new LIBOR interest rate options were renewed for six
months at 8.4543% and will expire October 13, 2006. The revolving line of credit
and the term loans are secured by substantially all of the Company's 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.

                                       11




                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provisions of the financing agreement require the Company to maintain
certain financial and other covenants. At April 1, 2006 the Company was not in
compliance with one of these covenants. Due to the convenant violation, the
Company has classified the amounts owed under the financing agreement with CIT
as current liabilities at April 1, 2006.

FMI has a revolving credit agreement in place with The Bank of Nova Scotia for
up to $500,000 (Canadian) at the prime rate plus 3/4%. No borrowings were
outstanding under this agreement at April 1, 2006.

FMI has a $1,800,000 (Canadian) revolving lease line with the Bank of Nova
Scotia, whereby the Company can obtain funding for previous production equipment
purchases via a sale/leaseback transaction. As of April 1, 2006, $570,000
(Canadian) has been utilized under this facility. Such leases are payable in
monthly installments for up to five years and are secured by the related
production equipment. Interest rates (typically prime rate plus one percent) are
set at the closing of each respective sale/leaseback transaction. During the
first quarter of 2006, FMI obtained $160,000 (US) in connection with the
sale/leaseback of certain production equipment. The related equipment was
originally purchased by the Company in 2005.

Capital leases included in property, plant and equipment, net, have a
depreciated cost of approximately $806,000 at April 1, 2006 and $678,000 at
December 31, 2005.

10. INCOME TAXES

The current foreign tax benefit for the quarter ended April 1, 2006 represents
refundable Canadian provincial tax credits for which FMI, as a technology
company, has qualified.

The Company's effective tax rate for the quarter ended April 2, 2005 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.

The Company currently 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 it is more likely than not that all or a portion of a
deferred tax asset will not be realized. The Company's 2002 and 2003 net losses
weighed heavily in the Company's overall assessment. As a result of the
assessment, the Company established a full valuation allowance for its remaining
net domestic deferred tax assets at December 28, 2002. This assessment continued
unchanged in 2003, 2004, 2005 and the first quarter of 2006. In 2005 the Company
added a valuation allowance for certain Canadian deferred tax assets of
$270,000, because it believed that the probability of realization of such assets
was uncertain. Management believes that a valuation allowance is not required
for the remainder of FMI's recorded deferred tax assets as they are more likely
than not to be realized.

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 2006
depending on change in ownership.

11. BUSINESS SEGMENT DATA

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

                                       12



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Electronic components and subsystems: Design, manufacture and sale of electronic
component devices offering extremely broad frequency coverage and high
performance characteristics for communications, defense and aerospace
applications. Of the identifiable assets, 83% are located in the United States
and 17% are located in Costa Rica. Included in such segment are the Multi-Mix(R)
Microtechnology net assets.

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

Information about the Company's operations in different areas of its business
follows. Operating income (loss) is net sales less operating expenses. Operating
expenses exclude interest expense, other income and income taxes. Corporate
assets consist principally of cash and corporate expenses are immaterial.
Intersegment sales and the resulting intersegment assets are principally due to
intercompany sales from the microwave micro-circuitry segment to the electronic
components and subsystems segment.



                                                                        Quarters Ended
                                                                  --------------------------
                                                                   April 1,       April 2,
                                                                     2006           2005
                                                                  -----------    -----------
                                                                  (In thousands of dollars)

Industry segments:
   Sales to unaffiliated customers:
      Electronic components and subsystems                        $     4,682    $     5,637
      Microwave micro-circuitry                                         1,646          1,635
      Intersegment sales                                                  (97)           (14)
                                                                  -----------    -----------
      Consolidated                                                $     6,231    $     7,258
                                                                  ===========    ===========
Income (loss) before income taxes:
   Operating income (loss):
       Electronic components and subsystems                       $      (627)   $       187
       Microwave micro-circuitry                                          170             (5)
   Interest and other expense, net                                        (19)           (52)
   Loss on disposition of assets                                           --            (36)
                                                                  -----------    -----------
       Consolidated                                               $      (476)   $        94
                                                                  ===========    ===========
Depreciation and amortization:
       Electronic components and subsystems                       $       594    $       696
       Microwave micro-circuitry                                           69             69
                                                                  -----------    -----------
       Consolidated                                               $       663    $       765
                                                                  ===========    ===========
Capital expenditures:
       Electronic components and subsystems                       $       538    $       233
       Microwave micro-circuitry                                           14             12
                                                                  -----------    -----------
       Consolidated                                               $       552    $       245
                                                                  ===========    ===========
Identifiable assets:
       Electronic components and subsystems                       $    24,095    $    25,181
       Microwave micro-circuitry                                        6,821          6,779
       Corporate                                                        3,303          2,294
       Intersegment                                                       (29)           (21)
                                                                  -----------    -----------
       Consolidated                                               $    34,190    $    34,233
                                                                  ===========    ===========


12. NET INCOME (LOSS) PER COMMON SHARE

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

                                       13



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and warrants, were issued during the reporting
period to the extent they are not anti-dilutive.

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



                                                                        Quarters Ended
                                                                  --------------------------
                                                                   April 1,       April 2,
                                                                     2006           2005
                                                                  -----------    -----------

Net income (loss) available to common stockholders                $  (440,609)   $    83,582
                                                                  ===========    ===========

Basic net income (loss) per share
Weighted average number of shares outstanding for basic
net income per share -
Common stock                                                        3,149,164      3,137,784
Net income (loss) per share - basic                               $      (.14)   $       .03
                                                                  ===========    ===========

Diluted net income (loss) per share
Weighted average number of shares outstanding for basic
net income per share -
Common stock                                                        3,149,164      3,137,784
Effect of dilutive securities - stock options (1)                          --         36,736
                                                                  -----------    -----------

Weighted average number of shares outstanding for basic
Diluted net income (loss) per share                                 3,149,164      3,174,520
                                                                  ===========    ===========

Net income (loss) per share - diluted                             $      (.14)   $       .03
                                                                  ===========    ===========


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

      Because of the net loss for the quarter ended April 1, 2006 approximately
      417,000 shares underlying stock options were excluded from the calculation
      of diluted net income (loss) per share as the effect would be
      anti-dilutive. Diluted net income per share excludes 253,000 shares
      underlying stock options for the quarter ended April 2, 2005 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
      per share.


13. RELATED PARTY TRANSACTIONS

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

On August 31, 2000, in connection with an amendment of Mr. Carter's employment
agreement, the Company loaned Mr. Carter an additional $280,000. Interest on the
loan varies and is based on the prime rate, payable in accordance with Mr.
Carter's employment agreement. Each year the Company is required to forgive 20%
of the amount due under this loan and the accrued interest thereon. During 2005,
the Company forgave $56,000 of principal and $3,000 of accrued interest and paid
a tax gross-up benefit of $4,300. This loan was fully satisfied in 2005.

                                       14



                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 29, 2006, the Company entered into an agreement with Mr. Carter to
purchase 42,105 shares of the Company's common stock owned by Mr. Carter at a
purchase price of $9.50 per share (the closing price of the common stock on
March 29, 2006) resulting in a total purchase price for the shares of $399,998.
As a condition to the Company's obligation to purchase the shares, concurrent
with the Company's payment of the purchase price Mr. Carter will pay to the
Company $400,000 (plus any accrued and unpaid interest) in full satisfaction of
Mr. Carter's promissory note in favor of the Company dated July 29, 2002. This
transaction was closed on April 24, 2006.

During the first quarter of 2006, the Company's outside general counsel Katten
Muchin Rosenman LLP was paid $93,000 for providing legal services to the
Company. During the first quarter of 2005, Katten Muchin Rosenman LLP was paid
$100,000. A director of the Company is counsel to Katten Muchin Rosenman LLP but
does not share in the fees that the Company pays to such law firm and his
compensation is not based on such fees.

During 2006 and 2005 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 to these companies during the
first quarter of 2006 and $2,000 to these companies during the first quarter of
2005. A director of the Company is the chairman and chief executive officer of
these companies.

During the first quarter of 2006 and 2005, a director of the Company was paid
$9,000 for providing technology-related consulting services to the Company.

During the first quarter of 2006, DuPont Electronic Technologies ("DuPont"), a
stockholder and the employer of a director, was paid $15,000 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.
During the first quarter of 2005, DuPont was paid $17,000. A director of the
Company is an officer of DuPont, but does not share in any of these payments.

Each director who is not an employee of the Company receives a monthly
director's fee of $1,500, plus an additional $500 for each meeting of the Board
and of any Committees of the Board attended. In addition, the Chair of the Audit
Committee receives an annual fee of $2,500 for his services in such capacity.
The directors are also reimbursed for reasonable travel expenses incurred in
attending Board and Committee meetings. In addition, pursuant to the 2001 Stock
Option Plan, each non-employee director is granted an immediately exercisable
option to purchase 2,500 shares of the Common Stock of the Company on the date
of each Annual Meeting of Stockholders. Each such grant 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 December 13, 2004 Infineon Technologies AG ("Infineon"), at such time the
beneficial owner of approximately 15% of the Company's common stock, sold
475,000 shares of the Company's common stock to four purchasers in a
privately-negotiated transaction. Two purchasers in such transaction, K Holdings
LLC and Hampshire Investments, Limited, each of which is affiliated with Ludwig
G. Kuttner, purchased shares representing an aggregate of approximately 9.6% of
the Company's common stock. Mr. Kuttner is a nominee for election to the
Company's Board of Directors at its 2006 Annual Meeting of Stockholders.
Infineon also assigned to each purchaser certain registration rights to such
shares under the existing registration rights agreements Infineon had with the
Company. In connection with the transaction, the Company and Infineon terminated
the Stock Purchase and Exclusivity Letter Agreement dated April 7, 2000, as
amended, which provided that the Company would design, develop and produce
exclusively for Infineon certain Multi-Mix(R) 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 the four purchasers above hold registration rights which currently
give them the right to register an aggregate of 1,003,413 shares of Common Stock
of the Company.

                                       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 the Company (including certain projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: 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(R) products; the
possibilities of impairment charges to the carrying value of our Multi-Mix(R)
assets, thereby resulting in charges to our earnings; 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 risk that the benefits expected from the
Company's acquisition of Filtran Microcircuits Inc. are not realized; 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; foreign
currency fluctuations between the U.S. and Canadian dollars; 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

Merrimac Industries, Inc. ("Merrimac" or the "Company") 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(R) (PTFE) and mixed dielectric
multilayer circuits for communications, defense and aerospace applications. The
Company's operations are conducted primarily through two business segments: (1)
electronic components and subsystems and (2) microwave micro-circuitry (through
its subsidiary, Filtran Microcircuits Inc.).

The following table provides a breakdown of our sales between these segments for
the quarters ended April 1, 2006 and April 2, 2005:



                                                         Quarters Ended
                                        -------------------------------------------------
                                           April 1, 2006               April 2, 2005
                                        --------------------       ----------------------
                                                       % of                        % of
                                             $        sales             $         sales
                                        -----------   ------       -----------   --------

Electronic components and subsystems    $ 4,682,000     75.1%      $ 5,637,000      77.7%

Microwave micro-circuitry (1)           $ 1,646,000     26.4%      $ 1,635,000      22.5%

Less intersegment sales                 $   (97,000)    (1.5)%     $   (14,000)     (0.2)%
                                        -----------   ------       -----------    -------

Consolidated                            $ 6,231,000    100.0%      $ 7,258,000      100.0%
                                        ===========   ======       ===========    =======


(1)   Substantially all conducted by our Canadian subsidiary, Filtran
      Microcircuits Inc.

Merrimac is a versatile technologically oriented company specializing in
miniature radio frequency lumped-element components, integrated networks,
microstrip and stripline microwave components, subsystem assemblies and ferrite
attenuators. Of special significance has been the combination of two or more of
these technologies into single components to achieve superior performance and
reliability while minimizing package size and weight. Merrimac components are
today found in applications as diverse as satellites, military and commercial
aircraft, radar, cellular radio systems, medical and dental diagnostic
instruments and wireless Internet connectivity. Merrimac's components range in
price from $0.50 to more than $10,000 and its subsystem assemblies range from
$500 to more than $1,000,000.

                                       16



Multi-Mix(R)

In 1998, Merrimac introduced Multi-Mix(R) Microtechnology capabilities, an
innovative process for microwave, multilayer integrated circuits and
micro-multifunction module (MMFM)(R) technology and subsystems. This process is
based on fluoropolymer composite substrates, which are bonded together into a
multilayer structure using a fusion bonding process. The fusion process provides
a homogeneous dielectric medium for superior electrical performance at microwave
frequencies. This 3-dimensional Multi-Mix(R) design consisting of stacked
circuit layers permits the manufacture of components and subsystems that are a
fraction of the size and weight of conventional microstrip and stripline
products.

Multi-Mix PICO(R)

In July 2001, Merrimac introduced its Multi-Mix PICO(R) Microtechnology. Through
Multi-Mix PICO(R) technology, Merrimac offers a group of products at a greatly
reduced size, weight and cost that includes hybrid junctions, directional
couplers, quadrature hybrids, power dividers and inline couplers, filters and
vector modulators along with 802.11a, 802.11b, and 802.11g Wireless LAN (Local
Area Network) modules. When compared to conventional multilayer quadrature
hybrids and directional coupler products, Multi-Mix PICO(R) is more than 84%
smaller in size, without experiencing loss of power or performance. Merrimac has
completed the development of integrated inline multi-couplers and is supplying
these Multi-Mix PICO(R) products to major base station customers.

Beginning in 2005 and continuing into 2006, Merrimac focused its design and
manufacturing efforts on Multi-Mix(R) multilayer subsystem products for sale to
several satcom and military customers during 2005 and 2006.

In addition, in 2005 Merrimac started the design of a high power amplifier for
use in basestation infrastructure, military and satcom applications. An
important part of basestation infrastructure equipment is the high power
transmit amplifier, which must provide extremely linear performance in order to
boost signals carrying voice, data and video services without distortion.

In 2006, the Company anticipates exploiting Multi-Mix(R) advanced high power
integration technology by offering new high-power subsystem assembly solutions
to wireless infrastructure OEMs for size, weight, and cost reduction of base
station power amplifiers. The Company believes the Resource Module will be the
foundation or building block for providing Total Integrated Platform Solutions
by attaching and embedding high-power semiconductor transistor die (such as;
LDMOS, SiC, GaN, SiGe, GaAs FET/MESFET and PHEMT) into 3D highly integrated
multilayer modules for use in wireless infrastructure high-power amplifiers,
tower top amplifiers, WiMAX base stations, radio transceivers and phased-array
radar transmitter elements. The Company believes the Resource Module offers a
very attractive value proposition that provides enabling solutions to a variety
of different commercial and military market applications.

Recently, Merrimac was granted a United States Patent for its Multi-Mix(R)
Resource Module along with another Patent for its Multi-Mix(R) Microtechnology
from the State Intellectual Property Office of the People's Republic of China
entitled "Method of Making Microwave Multifunction Modules Using Fluoropolymer
Composite Substrates".

Merrimac has delivered custom designed and high power Multi-Mix(R) components
for a Homeland Security and Public Safety integrated communications system to
assist in future civil and governmental inter-departmental communications. This
program offers a substantial future growth opportunity for Multi-Mix(R). In
addition, Multi-Mix PICO(R) orders for WiMAX customer premise equipment (CPE)
also increased in 2006. WiMAX is another growth area for Multi-Mix(R). WiMAX
provides wireless access technology for "last mile" broadband services for the
home, such as high-speed Internet and video on demand, offering size and cost
advantages.

Merrimac continues to make upgrades to existing military systems that require
more functionality and advanced capabilities in smaller and lightweight
equipment. Multi-Mix(R) Microtechnology provides leverage to a host of military
systems where size, weight and performance requirements are mission critical.
Ongoing collaborative efforts with our key account customers ensure the best
tradeoffs in size, cost, performance and power for their systems, while
utilizing advanced integration capabilities of Multi-Mix(R) Microtechnology.

Merrimac's strategy is to be a reliable supplier of high quality, technically
innovative signal processing products. Merrimac coordinates its marketing,
research and development and manufacturing operations to develop new products
and expand its markets. Merrimac's marketing and development activities focus on
identifying and producing prototypes for new military and commercial programs
and applications in aerospace, navigational systems, telecommunications and
cellular analog and digital wireless telecommunications electronics. Merrimac's
research and development efforts are targeted towards providing customers with
more complex, reliable, and compact products at lower costs.

                                       17



Filtran Microcircuits Inc.

Acquired by Merrimac in February 1999, Filtran Microcircuits Inc. ("FMI") is a
leading manufacturer of microwave micro-circuitry for the high frequency
communications industry. FMI produces microstrip, bonded stripline, and thick
metal-backed Teflon(R) (PTFE) microcircuits for RF applications including
satellite, aerospace, personal communications systems, fiber optic
telecommunications, automotive, navigational and defense applications worldwide.
FMI participates in the market for millimeter-wave applications. FMI also
supplies mixed dielectric multilayer and high speed interconnect circuitry to
meet customer demand for high performance and cost-effective packaging.

For more information regarding our electronics components and subsystems
business and the microwave micro-circuitry business done by FMI, please see Note
11 of the Notes to Consolidated Financial Statements.

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.

Any future demand for Multi-Mix(R) 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. However, the Company
expects that its defense and satellite customers should continue to maintain
their approximate current levels of orders for the remainder of fiscal year
2006, though there are no assurances they will do so. The Company also
anticipates increased levels of orders during fiscal year 2006 for its
Multi-Mix(R) Microtechnology products, based on inquiries from existing
customers, requests to quote from prospective and existing customers and market
research. 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. Accordingly, defense and military product
revenues may decrease and should not be expected to increase, at times of armed
conflicts or war. Certain defense orders from existing customers expected for
FMI have been delayed into the second half of 2006.

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, as discussed below, it could have difficulty
adjusting short-term expenditures and absorbing any excess capacity expenses. If
this were to occur, the Company's operating results for that quarter would be
negatively impacted. In order to remain competitive, the Company must
continually reduce its manufacturing costs through design and engineering
innovations and increases in manufacturing efficiencies. There can be no
assurance that the Company will be able to reduce its manufacturing costs.

The Company anticipates that depreciation and amortization expenses will exceed
capital expenditures in fiscal year 2006 by approximately $800,000. The Company
intends to issue commitments to purchase $1,500,000 of capital equipment from
various vendors for the remainder of 2006. The Company anticipates that such
equipment will be purchased and become operational during the remainder of 2006.
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 8, 2006. The Company anticipates the revolving
credit facility will be renewed.

Selling, general and administrative expenses consist of personnel costs for
administrative, selling and marketing groups, sales commissions to employees and
manufacturing representatives, travel, product marketing and promotion costs, as
well as legal, accounting, information technology and other administrative
costs. As discussed below, the Company expects to continue to make significant
and increasing expenditures for selling, general and administrative expenses,
especially in connection with implementation of its strategic plan for
generating and expanding sales of Multi-Mix(R) 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

                                       18




order to develop new products, enhance performance of existing products and
reduce the cost of current or new products.

The Company is currently anticipating a flat to declining level of sales and
operating income for 2006, primarily resulting from materially decreased
bookings in late 2005 and the first quarter of 2006 and resulting lower backlog
of the Company's traditional products, particularly products sold by its Filtran
subsidiary. The Company will continue to focus its Multi-Mix(R) Microtechnology
business strategy on development, manufacturing and marketing of the high power
amplifier Multi-Mix(R) Resource Module and ancillary products. Accordingly, to
support the Multi-Mix(R) initiative, the Company expects to make significant
investments in additional technical designing and engineering personnel
resources, resulting in increased annual compensation costs of up to
approximately $700,000, and additional assets and equipment of approximately
$400,000.

The adoption by the Company of SFAS No. 123R accounting, effective January 1,
2006, will add additional non-cash compensation expense from previously issued
stock options and Stock Purchase Plan offerings to the Company's future reported
results of operations. Such expenses have not been recorded in this manner prior
to 2006, in accordance with prior accounting requirements, and so future results
are not directly comparable to all pre-2006 accounting periods. Further,
additional non-cash share-based compensation charges to operating income will
result from future stock option grants, Stock Purchase Plan offerings and
restricted stock awards to co-workers and non-officer Directors under the
Company's various compensation plans. See Note 6 of Notes to Consolidated
Financial Statements.

As a result of this increased investment in our Multi-Mix(R) technology
initiative, the lower level of certain traditional sales currently being
experienced and anticipated, the adoption of the SFAS No. 123R accounting
standard and other future events described herein, the Company anticipates that
operating income, net income and net income per share could be adversely
affected during the remainder of 2006 and until our Multi-Mix(R) product line
sales increase as anticipated.


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(R)
Microtechnology, contract revenue recognition, inventory valuation, valuation of
goodwill and valuation of deferred tax assets.

                                       19



Impairment of long-lived assets

Following is a summary of the carrying amounts of the Multi-Mix(R)
Microtechnology net assets included in the Company's consolidated financial
statements at April 1, 2006 and the related future planned purchases and lease
obligation commitments through January 2011.

      Net assets:
      Property, plant and equipment, at cost                  $14,625,000
      Less accumulated depreciation and amortization            7,079,000
                                                              -----------

      Property, plant and equipment, net                        7,546,000
      Inventories                                                 493,000
      Other assets, net                                           165,000
                                                              -----------

      Total net assets at April 1, 2006                       $ 8,204,000
                                                              -----------

      Commitments:
      Planned equipment purchases for the remainder of 2006   $   950,000
      Lease obligations through January 2011                      885,000
                                                              -----------

      Total commitments                                       $ 1,835,000
                                                              -----------

      Total net assets and commitments                        $10,039,000
                                                              ===========

Approximately 35% of the property, plant and equipment may be utilized in other
areas of our electronic components and subsystems operations.

Any future demand for Multi-Mix(R) 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(R)
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(R) under SFAS No. 144, the Company has
determined no provision for impairment is required at this time. Management will
continue to monitor the recoverability of the Multi-Mix(R) assets.

Contract Revenue Recognition

The Company recognizes revenue in accordance with the provisions of Staff
Accounting Bulletin No. 104. Contract revenue and related costs on fixed-price
and cost-reimbursement contracts that require customization of products to
customer specifications are recorded when title transfers to the customer, which
is generally on the date of shipment. Prior to shipment, manufacturing costs
incurred on such contracts are recorded as work-in-process inventory.
Anticipated losses on contracts are charged to operations when identified.
Revenue related to non-recurring engineering charges is generally recognized
upon shipment of the related initial units produced or based upon contractually
established stages of completion.

The cost rates utilized for cost-reimbursement contracts are subject to review
by third parties and can be revised, which can result in additions to or
reductions from revenue. Revisions which result in reductions to revenue are
recognized in the period that the rates are reviewed and finalized; additions to
revenue are recognized in the period that the rates are reviewed, finalized,
accepted by the customer, and collectability from the customer is assured. The
Company submits financial information regarding the cost rates on cost-
reimbursement contracts for each fiscal year in which the Company performed work
on cost-reimbursement contracts. The Company does not record any estimates on a
regular basis for potential revenue adjustments, as there currently is no
reasonable basis on which to estimate such adjustments given the Company's very
limited experience with these contracts. No revenue was recognized related to
cost-reimbursement contracts during the first quarter of 2006 or 2005,
respectively.

Inventory Valuation

Inventories are valued at the lower of average cost or market. Inventories are
periodically reviewed for their projected manufacturing usage utilization and,
when slow-moving or obsolete inventories are identified, a provision for a
potential loss is made and charged to operations. Total inventories are net of
valuation allowances for obsolescence and cost overruns of $1,114,000 at April
1, 2006 and $1,084,000 at December 31, 2005.

Procurement of inventory is based on specific customer orders and forecasts.
Customers have

                                       20



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

Write offs or write downs of inventory generally arise from:

      o     declines in the market value of inventory;

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

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

Valuation of Goodwill

With the adoption of SFAS No. 142 by the Company on December 30, 2001, goodwill
is no longer subject to amortization over its estimated useful life. However,
goodwill is subject to at least an annual assessment for impairment and more
frequently if circumstances indicate a possible impairment. The Company
performed the annual assessment during the fourth quarter of 2005 and determined
there was no impairment.

Valuation of Deferred Tax Assets

The Company currently 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 it is more likely than not that all or a portion of a
deferred tax asset will not be realized. The Company's 2002 and 2003 net losses
weighed heavily in the Company's overall assessment. As a result of the
assessment, the Company established a full valuation allowance for its remaining
net domestic deferred tax assets at December 28, 2002. This assessment continued
unchanged in 2003, 2004, 2005 and the first quarter of 2006. In 2005 the Company
added a valuation allowance for certain Canadian deferred tax assets of
$270,000, because it believed that the probability of realization of such assets
was uncertain. Management believes that a valuation allowance is not required
for the remainder of FMI's recorded deferred tax assets as they are more likely
than not to be realized.

                  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
                                                          Quarters Ended
                                                     -------------------------
                                                     April 1,         April 2,
                                                       2006             2005
                                                     --------         --------
     Net sales                                          100.0%           100.0%
                                                     --------         --------
     Costs and expenses:
         Cost of sales                                   61.5             58.2
         Selling, general and administrative             39.9             31.9
         Research and development.                        6.0              7.4
                                                     --------         --------
                                                        107.4             97.5
     Operating income (loss).                            (7.4)             2.5
     Interest and other expense, net                      (.3)             (.7)
     Loss on disposition of capital assets                 --              (.5)
                                                     --------         --------
     Income (loss) before income taxes                   (7.7)             1.3
     (Benefit) provision for income taxes                 (.6)              .1
                                                     --------         --------
     Net income                                          (7.1)%            1.2%
                                                     ========         ========

                                       21



FIRST QUARTER OF 2006 COMPARED TO THE FIRST QUARTER OF 2005

Net sales.

Consolidated results of operations for the first quarter of 2006 reflect a
decrease in net sales from the first quarter of 2005 of $1,027,000 or 14.2% to
$6,231,000. This decrease was attributable to a $955,000 decrease in net sales
of electronic components and subsystems and was offset by an $11,000 increase in
sales of microwave micro-circuitry products from the Company's wholly-owned
subsidiary Filtran Microcircuits Inc. ("FMI") and an $83,000 increase in
intersegment sales. The decrease in net sales for the electronic components and
subsystems segment for 2006 is attributable to lower orders in late 2005 as
compared to late 2004 due to delays in 2005 in expected satellite and defense
programs from existing customers. Sales for the first quarter of 2006 would have
been favorably impacted by an additional $750,000 order, invoiced in March 2006
(and due for payment in May 2006), which the Company is holding in its own
facility at the customer's specific instructions for shipment in June 2006. This
order was completed and ready for shipment in March 2006 but cannot be
recognized as a sale under applicable revenue recognition requirements until the
order is actually shipped. The Company anticipates recognizing this order as
revenue in the second quarter of 2006.

The Company expects that its defense and satellite customers should continue to
maintain their approximate current levels of orders during fiscal year 2006,
though there are no assurances they will do so. 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. The Company also anticipates increased levels of orders during
fiscal year 2006 for its Multi-Mix(R) Microtechnology products, based on
inquiries from existing customers, requests to quote from prospective and
existing customers and market research.

Sales for the microwave micro-circuitry segment for the first quarter of 2006
were flat compared to the first quarter of 2005. New orders from existing
customers in the first quarter of 2006 resulting from the automotive and defense
markets have been delayed. FMI anticipates much of this new order volume to
renew later in 2006.

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

The following table presents key performance measures that we use to monitor our
operating results for the quarters ending April 1, 2006 and April 2, 2005:

                                      2006              2005
                                      ----              ----

     Beginning backlog            $ 13,139,000      $ 12,945,000

     Plus bookings                $  3,945,000      $  8,195,000

     Less net sales               $  6,231,000      $  7,258,000

     Ending backlog               $ 10,853,000      $ 13,882,000

     Book-to-bill ratio               0.63              1.13

Orders of $3,945,000 were received during the first quarter of 2006, a decrease
of $4,250,000 or 51.9% compared to $8,195,000 in orders received during the
first quarter of 2005 due to delays in expected satellite and defense programs.
Backlog decreased by $2,286,000 to $10,853,000 at the end of first quarter of
2006 compared to $13,139,000 at year-end 2005.

Any future demand for Multi-Mix(R) 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. However, the Company
expects that its defense and satellite customers should continue to maintain
their approximate current levels of orders for the remainder of fiscal year
2006, though there are no assurances they will do so. The Company also
anticipates increased levels of orders during fiscal year 2006 for its
Multi-Mix(R) Microtechnology products, based on inquiries from existing
customers, requests to quote from prospective and existing customers and market
research. Certain defense orders from existing customers expected for FMI have
been delayed into the second half of 2006.

                                       22




Cost of sales and Gross profit.

The following table provides comparative gross profit information, by product
segment, between the quarters ended April 1, 2006 and April 2, 2005.



                                      Quarter ended April 1, 2006            Quarter ended April 2, 2005
                                  ------------------------------------   -----------------------------------
                                                Increase/                             Increase/
                                               (Decrease)      % of                   (Decrease)     % of
                                               from prior     Segment                 from prior    Segment
                                      $          period      Net Sales       $          period     Net Sales
                                  ----------   ----------    ---------   ----------   ----------   ---------

Electronic Components and
Subsystems Gross Profit           $1,868,000   $ (804,000)     39.9%     $2,672,000   $ (270,000)    47.4%

Microwave Micro-Circuitry         $  533,000   $  171,000      32.4%     $  362,000   $  (44,000)    22.2%
Gross Profit

Consolidated Gross Profit         $2,401,000   $ (633,000)     38.5%     $3,034,000   $ (314,000)    41.8%


The decrease in gross profit for 2006 for the electronic components and
subsystems segment was due to the overall decrease in segment sales augmented by
an increase of intersegment purchases from FMI of $83,000 for the first quarter
of 2006 compared to the first quarter of 2005. The decrease in gross margin
percent to 39.9% in the first quarter of 2006 from 47.4% in the first quarter of
2005 for the electronic components and subsystems segment was due to an
increased percentage of lower margin product in the overall product mix.

Depreciation expense included in consolidated cost of sales for the first
quarter of 2006 was $607,000, a decrease of $81,000 compared to the first
quarter of 2005. For the first quarter of 2006, approximately $370,000 of
depreciation expense was associated with Multi-Mix(R) Microtechnology capital
assets. For the first quarter of 2005, approximately $380,000 of depreciation
expense was associated with Multi-Mix(R) Microtechnology capital assets.

FMI sales include intersegment sales of $97,000 and $14,000 in the first quarter
of 2006 and 2005, respectively. The increase in gross margin and gross margin
percent for the first quarter of 2006 compared to the first quarter of 2005 is
due to favorable material costs and production efficiencies.

Selling, general and administrative expenses.

Selling, general and administrative expenses of $2,486,000 for the first quarter
of 2006 increased by $175,000 or 7.5%, and when expressed as a percentage of net
sales, increased by 8.0 percentage points to 39.9% compared to the first quarter
of 2005. The increase in such expenses for the first quarter of 2006 was due to
higher marketing and administrative expenses offset by lower commissions related
to the lower sales level in the first quarter of 2006. The Company anticipates
that these expenses will increase in future periods in connection with
implementation of our strategic plan for Multi-Mix(R).

Research and development expenses.

Research and development expenses for new products were $372,000 for the first
quarter of 2006, a decrease of $169,000 or 31.2%, and when expressed as a
percentage of net sales, a decrease of 1.4 percentage points to 6.0% compared to
the first quarter of 2005. Except for $32,000 of expenses at FMI (a decrease of
$8,000 from such FMI expenses in the first quarter of 2005) substantially all of
the research and development expenses were related to Multi-Mix(R)
Microtechnology and Multi-Mix PICO(R) products. The Company anticipates that
these expenses will increase in future periods in connection with implementation
of our strategic plan for Multi-Mix(R).

Operating income (loss).

Consolidated operating loss for the first quarter of 2006 was $457,000 compared
to consolidated operating income of $182,000 for the first quarter of 2005. The
consolidated operating loss resulted from lower gross profit from the lower
sales level. Consolidated operating loss for the first quarter of 2006 includes
$44,000 of share-based compensation due to the adoption of SFAS No. 123R at
January 1, 2006.

For the first quarter of 2006, the Company's operating loss for its electronic
components and subassemblies segment was $627,000 compared to operating income
of $187,000 for the first quarter of 2005. For the first quarter of 2006,
operating income for the microwave micro-circuitry segment was $170,000 compared
to an operating loss of $5,000 for the first quarter of 2005.

                                       23



Interest and other expense, net.

Interest and other expense, net was $19,000 for the first quarter of 2006
compared to interest and other expense, net of $53,000 for the first quarter of
2004. Interest expense for the first quarter of 2006 and 2005 was principally
incurred on borrowings under the term loans which the Company consummated during
the fourth quarter of 2003. Despite the general rise in interest rates from 2005
to 2006, the reduction of interest and other expense was due to lower
outstanding debt balances during the first quarter of 2006 and the institution
of a cash management program in the fourth quarter of 2005 that generated
interest income on the Company's free cash balances.

Income taxes.

The current foreign tax of benefit for the quarter ended April 1, 2006
represents refundable Canadian provincial tax credits for which FMI, as a
technology company, has qualified.

The Company's effective tax rate for the quarter ended April 2, 2005 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.

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 2006
depending on change in ownership.

Net income.

Net loss for the first quarter of 2006 was $441,000 compared to net income of
$84,000 for the first quarter of 2005. Net loss per share for the first quarter
of 2006 was $.14 compared to net income of $.03 per diluted share for the first
quarter of 2005. Net loss for the first quarter of 2006 included a non-cash
charge of $44,000 or $.01 per share for share-based compensation expense
resulting from the adoption of SFAS No. 123R. Net loss for the first quarter of
2006 also included a tax benefit of $35,000 or $.01 per share representing
refundable Canadian provincial technology tax credits for which the Company has
qualified and lower net interest expense. Net income for the first quarter of
2005 included a loss on the disposition of capital assets of $36,000 or $.01 per
share.


LIQUIDITY AND CAPITAL RESOURCES

The Company had liquid resources comprised of cash and cash equivalents totaling
approximately $3,300,000 at the end of the first quarter of 2006 compared to
approximately $4,100,000 at the end of 2005. The Company's working capital was
approximately $9,200,000 and its current ratio was 2.4 to 1 at the end of the
first quarter of 2006 compared to $9,800,000 and 3.2 to 1, respectively, at the
end of 2005. At April 1, 2006, the Company had available borrowing capacity
under its revolving line of credit of $2,800,000.

The Company's operating activities utilized operating cash flows of $221,000
during the first quarter of 2006 compared to generating $333,000 of operating
cash flows during the first quarter of 2005. The primary uses of operating cash
flows for the first quarter of 2006 were the net loss of $441,000 which was
reduced by depreciation and amortization of $663,000 and share-based
compensation of $44,000, an increase in accounts receivable of $83,000 and an
increase in inventories of $515,000 offset by an aggregate increase in accounts
payable, customer deposits and accrued liabilities of $76,000 and a decrease in
other current assets of $39,000. The primary sources of operating cash flows for
the first quarter of 2005 were the quarterly net income of $83,000 which was
reduced by depreciation and amortization of $764,000, the reduction of accounts
receivable of $252,000, offset by an increase in inventories of $363,000, an
aggregate decrease in accounts payable, customer deposits and accrued
liabilities of $389,000 and an increase in other current assets of $86,000.

The Company made net cash investments in property, plant and equipment of
$552,000 during the first quarter of 2006 compared to net cash investments made
in property, plant and equipment of $245,000 during the first quarter of 2005.
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(R) Microtechnology was $7,546,000 at the end of the
first quarter of 2006, an increase of $100,000 compared to $7,446,000 at the end
of fiscal year 2005.

                                       24



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 8, 2006. The Company anticipates the revolving
credit facility will be renewed.

The financing agreement with CIT consists of a $5,000,000 revolving line of
credit, that is temporarily reduced by $250,000 until certain conditions are
met; a $1,500,000 machinery and equipment term loan ("Term Loan A") and a
$2,750,000 real estate term loan ("Term Loan B"). In connection with this
financing agreement, the Company was required to place, over the life of the
loan, $1,500,000 as restricted cash collateral with CIT. The revolving line of
credit, which expires October 8, 2006, is subject to an availability limit under
a borrowing base calculation (85% of eligible accounts receivable as defined in
the financing agreement plus 100% of the $1,500,000 restricted cash). At April
1, 2006, the Company had available borrowing capacity under its revolving line
of credit of $2,800,000. The revolving line of credit bears interest at the
prime rate plus 1/2 percent (currently 8.50%). The principal amount of Term Loan
A is payable in 60 equal monthly installments of $25,000 and bears interest at
the prime rate plus one percent (currently 9.00%). The principal amount of Term
Loan B is payable in 84 equal monthly installments of $32,738 and bears interest
at the prime rate plus one percent (currently 9.00%). As of April 1, 2006, the
Company, under the terms of its agreement with CIT, had elected to convert
$650,000 of Term Loan A and $1,750,000 of Term Loan B from their prime rate base
to LIBOR-based interest rate loans. The current LIBOR interest rate options were
renewed on October 11, 2005 for six months at an interest rate of 7.54% and
expired April 12, 2006. The new LIBOR interest rate options were renewed for six
months at 8.4543% and will expire October 13, 2006. The revolving line of credit
and the term loans are secured by substantially all of the Company's 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 and other
covenants.

The provisions of the financing agreement require the Company to maintain
certain financial and other covenants. At April 1, 2006 the Company was not in
compliance with one of these covenants. Due to the covenant violation, the
Company has classified the amounts owed under the financing agreement with CIT
as current liabilities at April 1, 2006.

FMI has a revolving credit agreement in place with The Bank of Nova Scotia for
up to $500,000 (Canadian) at the prime rate plus 3/4%. No borrowings were
outstanding under this agreement at April 1, 2006.

FMI has a $1,800,000 (Canadian) revolving lease line with the Bank of Nova
Scotia, whereby the Company can obtain funding for previous production equipment
purchases via a sale/leaseback transaction. As of April 1, 2006, $570,000
(Canadian) has been utilized under this facility. Such leases are payable in
monthly installments for up to five years and are secured by the related
production equipment. Interest rates (typically prime rate plus one percent) are
set at the closing of each respective sale/leaseback transaction. During the
first quarter of 2006, FMI obtained $160,000 (US) in connection with the
sale/leaseback of certain production equipment. The related equipment was
originally purchased by the Company in 2005.

Capital leases included in property, plant and equipment, net, have a
depreciated cost of approximately $806,000 at April 1, 2006 and $678,000 at
December 31, 2005.

Depreciation and amortization expenses exceeded capital expenditures for
production equipment during the first quarter of 2006 by approximately $110,000,
and the Company anticipates that depreciation and amortization expenses will
exceed capital expenditures in fiscal year 2006 by approximately $800,000. The
Company intends to issue commitments to purchase $1,500,000 of capital equipment
from various vendors for the remainder of 2006. The Company anticipates that
such equipment will be purchased and become operational during the second half
of 2006.

The functional currency for the Company's wholly-owned subsidiary FMI is the
Canadian dollar. The changes in accumulated other comprehensive income for the
first quarter of 2006 and 2005 reflect the changes in the exchange rates between
the Canadian dollar and the United States dollar for those respective periods.
The functional currency for the Company's Costa Rica operations is the United
States dollar.


RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, SFAS No. 151, "Inventory Costs (An amendment of ARB No. 43,
Chapter 4)", was issued. SFAS No. 151 amends Accounting Research Bulletin
("ARB") No. 43, Chapter 4, to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials (spoilage) should be
recognized as current-period charges. In addition, SFAS No. 151 requires that
allocation of fixed production overhead to inventory be based on normal capacity
of the production facilities. The Company adopted SFAS No. 151 on January 1,
2006. The adoption of

                                       25



SFAS No. 151 did not have a material impact on its financial position and
results of operations.

The FASB has issued FASB Staff Position No. 109-1, "Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities by the American Jobs Creation Act of 2004." On
October 22, 2004, the American Jobs Creation Act of 2004 (the "Act") was signed
into law by the President. This Act includes tax relief for domestic
manufacturers by providing a tax deduction for up to 9 percent (when fully
phased in) of the lesser of (a) "qualified production activities income," or (b)
taxable income (after the deduction for the utilization of any net operating
loss carryforwards). As a result of this Act, an issue has arisen as to whether
this deduction should be accounted for as a special deduction or a tax rate
reduction under SFAS No. 109. The FASB staff believes that the domestic
manufacturing deduction is based on the future performance of specific
activities, including the level of wages. Accordingly, the FASB staff believes
that the deduction provided for under the Act should be accounted for as a
special deduction in accordance with SFAS No. 109 and not as a tax rate
reduction. The Company will be utilizing its net operating loss carryforwards to
offset domestic taxable income, thus the Company does not anticipate this
provision will have an impact on its financial position and results of
operations in 2006.

In May 2005, SFAS No. 154, "Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3," was issued. This
statement provides guidance on the accounting for and reporting of accounting
changes and error corrections. This standard applies to voluntary changes in
existing accounting principles and to new accounting standards that do not
specify the transition requirements upon adoption of those standards. Except for
changes in depreciation methods, this standard will require retrospective
application of the new accounting principle to previous periods reported rather
than presenting the cumulative effect of the change as of the beginning of the
period of the change. Changes in depreciation methods will be applied on a
prospective basis, meaning the effects of the change will be reflected only in
current and future periods. Corrections of errors will be reported by restating
previously issued financial statements. The Company adopted SFAS No. 154 as of
the beginning of the 2006 fiscal year. The adoption of SFAS No. 154 did not have
a material impact on its financial position or results of operations.

On November 10, 2005, the FASB issued FASB Staff Position 123(R)-3 ("FSP
123R-3"), "Transition Election Related to Accounting for the Tax Effects of
Share-based Payment Awards", that provides an elective alternative transition
method of calculating the pool of excess tax benefits available to absorb tax
deficiencies recognized subsequent to the adoption of SFAS 123R (the "APIC
Pool") to the method otherwise required by paragraph 81 of SFAS 123R. The
Company may take up to one year from the effective date of this FSP to evaluate
its available alternatives and make its one-time election. The Company is
currently evaluating the alternative methods; however, neither alternative would
have an impact on the Company's results of operations or financial condition for
the quarter ended April 1, 2006, due to the fact that the Company is currently
using prior period net operating losses and has not realized any tax benefits
under SFAS 123R.


RELATED PARTY TRANSACTIONS

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

On August 31, 2000, in connection with an amendment of Mr. Carter's employment
agreement, the Company loaned Mr. Carter an additional $280,000. Interest on the
loan varies and is based on the prime rate, payable in accordance with Mr.
Carter's employment agreement. Each year the Company is required to forgive 20%
of the amount due under this loan and the accrued interest thereon. During 2005,
the Company forgave $56,000 of principal and $3,000 of accrued interest and paid
a tax gross-up benefit of $4,300. This loan was fully satisfied in 2005.

On March 29, 2006, the Company entered into an agreement with Mr. Carter to
purchase 42,105 shares of the Company's common stock owned by Mr. Carter at a
purchase price of $9.50 per share (the closing price of the common stock on
March 29, 2006) resulting in a total purchase price for the shares of $399,998.
As a condition to the Company's obligation to purchase the shares, concurrent
with the Company's payment of the purchase price Mr. Carter will pay to the
Company $400,000 (plus any accrued and unpaid interest) in full satisfaction of
Mr. Carter's promissory

                                       26



note in favor of the Company dated July 29, 2002. This transaction was closed on
April 24, 2006.

During the first quarter of 2006, the Company's outside general counsel Katten
Muchin Rosenman LLP was paid $93,000 for providing legal services to the
Company. During the first quarter of 2005, Katten Muchin Rosenman LLP was paid
$100,000. A director of the Company is counsel to Katten Muchin Rosenman LLP but
does not share in the fees that the Company pays to such law firm and his
compensation is not based on such fees.

During 2006 and 2005 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 to these companies during the
first quarter of 2006 and $2,000 to these companies during the first quarter of
2005. A director of the Company is the chairman and chief executive officer of
these companies.

During the first quarter of 2006 and 2005, a director of the Company was paid
$9,000 for providing technology-related consulting services to the Company.

During the first quarter of 2006, DuPont Electronic Technologies ("DuPont"), a
stockholder and the employer of a director, was paid $15,000 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.
During the first quarter of 2005, DuPont was paid $17,000. A director of the
Company is an officer of DuPont, but does not share in any of these payments.

On December 13, 2004 Infineon Technologies AG ("Infineon"), at such time the
beneficial owner of approximately 15% of the Company's common stock, sold
475,000 shares of the Company's common stock to four purchasers in a
privately-negotiated transaction. Two purchasers in such transaction, K Holdings
LLC and Hampshire Investments, Limited, each of which is affiliated with Ludwig
G. Kuttner, purchased shares representing an aggregate of approximately 9.6% of
the Company's common stock. Mr. Kuttner is a nominee for election to the
Company's Board of Directors at its 2006 Annual Meeting of Stockholders.
Infineon also assigned to each purchaser certain registration rights to such
shares under the existing registration rights agreements Infineon had with the
Company. In connection with the transaction, the Company and Infineon terminated
the Stock Purchase and Exclusivity Letter Agreement dated April 7, 2000, as
amended, which provided that the Company would design, develop and produce
exclusively for Infineon certain Multi-Mix(R) 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 the four purchasers above hold registration rights which currently
give them the right to register an aggregate of 1,003,413 shares of Common Stock
of the Company.

                                       27



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 ending December 31, 2005, which is incorporated herein by reference. Our
exposure to market risk has not changed materially since December 31, 2005.


ITEM 4. CONTROLS AND PROCEDURES

As of April 1, 2006 (the end of the period covered by this report), the
Company's management carried out an evaluation, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of April 1, 2006, the Company's disclosure controls and
procedures were effective.

In designing and evaluating the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934),
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We believe that our disclosure
controls and procedures provide such reasonable assurance.

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

                                       28



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.


ITEM 1A. RISK FACTORS.

There have been certain material changes to our risk factors from those
presented in our Form 10-K for fiscal 2005. Our risk factors, as revised, are
provided below for your convenience.

You should carefully consider the matters described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Our business operations may be impaired by
additional risks and uncertainties of which we are unaware or that we currently
consider immaterial.

Our business, results of operations or cash flows may be adversely affected if
any of the following risks actually occur. In such case, the trading price of
our common stock could decline, and you may lose part or all of your investment.

The market for our products, in particular our Multi-Mix(R) products, is new and
rapidly evolving. If we are not able to develop or enhance our products, or to
respond to customer needs, our net sales will suffer.

      Our future success depends in large part on our ability to develop and
market our new line of Multi-Mix(R) modules, filters, couplers and delay lines
products, particularly to the wireless basestation and defense sectors. We will
also need to continually enhance our existing core products (passive RF and
microwave component assemblies, power dividers and other micro circuitry
products), lower product cost and develop new products that maintain
technological competitiveness. Our core products must meet changing customer,
regulatory and particular technological requirements and standards, and our
Multi-Mix(R) products especially must respond to the changing needs of our
customers, particularly our OEM customers. These customer requirements might or
might not be compatible with our current or future product offerings. We might
not be successful in modifying our products and services to address these
requirements and standards and our business could suffer.

Multi-Mix(R) Microtechnology and Multi-Mix PICO(R) Products.

      We have made capital investments of approximately $14.6 million in our
proprietary line of Multi-Mix(R) Microtechnology products.

      While we have generated revenues and developed a customer base for our
Multi-Mix(R) products, if a competitive product or decreased consumer demand for
our Multi-Mix(R) products resulted in significant decrease in those revenues,
our ability to recover our investment in our Multi-Mix(R) Microtechnology
product assets could be negatively impacted and result in a write off of the
carrying value of these assets and an impairment charge to our earnings.

      In addition, we have invested significant engineering, research and
development, personnel and other resources in developing our Multi-Mix Zapper(R)
product line, introduced in June 2004. While revenues to date have not been
material, we intend to incur significant additional expenses, including sales
and marketing costs, in implementing our strategic plan to commercialize various
applications of our Multi-Mix(R) technologies. These products are direct drop-in
replacements for competing technologies used in virtually all wireless
basestations. There are competing technologies already in the marketplace, and
in order to obtain market share we will have to convince customers to convert to
our products from those that are already in use.

      We may seek to enter into joint ventures, research and development,
distribution and other arrangements with third party OEM's, defense contractors,
universities and research institutions and others in order to successfully
market our Multi-Mix(R) products. In fact, we may find it necessary to enter
into such arrangements if our own resources are inadequate to develop recurring
revenues and a sustained commercial market for these products. There can be no
assurance we will be able to enter into such arrangements, or do so on
commercially attractive terms, if necessary.

                                       29



      Our business plan anticipates significant future revenues from our
Multi-Mix(R) products. Any future demand for Multi-Mix(R) 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(R) 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. 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. If we are unable to generate significant future revenues from
these Multi-Mix(R) products or identify alternative uses, sufficient to recover
our investment, we could have to write down the carrying value of these assets,
thereby incurring an impairment charge to earnings, which would significantly
harm our operations and financial condition.

Dependence on Limited Number of Suppliers

      Electronic devices, components and made-to-order assemblies used in the
Company's traditional (i.e., non-Multi-Mix) products are generally obtained from
a number of suppliers, although certain components are obtained from a limited
number of suppliers. Some devices or components are standard items while others
are manufactured to the Company's specifications by its suppliers.

      Except as described below, the Company believes that most raw materials
used in manufacturing its products are available from alternative suppliers. We
do not have binding agreements or commitments with our suppliers for the
quantity and prices of our raw materials. Our reliance on suppliers, especially
sole source or limited suppliers, involves the risks of adequate capacity and
reduced control over delivery schedules and costs. While there may be
alternative qualified suppliers for some of these components, substitutes for
certain materials are not readily available. Any significant interruption in
delivery of such items could have an adverse effect on the Company's operations.

      Manufacturing of our Multi-Mix products requires certain components and
raw materials that currently are only available from a sole supplier or limited
number of suppliers, particularly for products intended for specific
applications. The Company's Multi-Mix products utilize certain substrate
materials in the fusion bonding process, currently obtained from a single
vendor. Although there may be alternative types of substrates that are under
evaluation, the Company has designed its current Multi-Mix products utilizing
the current source of supply, and use of alternative substrates could result in
design, engineering, manufacturing, performance and cost challenges and delays.

      In addition, certain Multi-Mix products utilizing high power RF circuitry
designed for telecommunications/wireless base station infrastructure
applications require the use of LDMOS transistors which are not currently
generally commercially available in the configurations required by the Company.
The Company's Multi-Mix Resource Module would require such commercially
unavailable components when used for commercial high power amplifier base
station infrastructure applications but does not depend on these components for
military and other commercial applications for which a variety of components are
available in the proper configuration from a number of alternative sources. In
order to commercialize this high power base station LDMOS application of the (R)
Resource Module, the Company would need to establish a supply relationship with
a vendor willing to provide commercial quantities of the needed components in a
configuration that that would maximize the value of the patented Multi-Mix
Resource Module for this market. Although discussions are on-going with LDMOS
transistor providers, there is no assurance we will be able to do so, in which
case would be unable to manufacture commercial quantities of (R) products for
high power base station infrastructure applications.

      Any difficulty in obtaining sufficient quantities of such raw materials on
a timely basis, and at economic prices, could result in design and engineering
changes and expenses, shipment delays and/or our inability to manufacture
certain Multi-Mix products. Significant increases in the costs of such materials
could also have a material adverse effect on our value proposition and marketing
efforts with potential customers and our results of operations and
profitability.

Our products are intended for use in various sectors of the satellite, defense
and telecommunications industries, which produces technologically advanced
products with short life cycles.

                                       30



      Factors affecting the satellite, defense and telecommunications
industries, in particular the short life cycle of certain products, could
seriously harm our customers and reduce the volume of products they purchase
from us. These factors include:

      -     the inability of our customers to adapt to rapidly changing
            technology and evolving industry standards that result in short
            product life cycles;

      -     the inability of our customers to develop and market their products,
            some of which are new and untested; and

      -     the potential that our customers' products may become obsolete or
            the failure of our customers' products to gain widespread commercial
            acceptance.

The expenses relating to our products might increase, which could reduce our
gross margins.

      In the past, developing engineering solutions, meeting research and
development challenges and overcoming production and manufacturing issues have
resulted in additional expenses. These expenses create pressure on our average
selling prices and may result in decreased margins of our products. We expect
that this will continue. In the future, competition could increase, and we
anticipate this may result in additional pressure on our pricing. We also may
not be able to increase the price of our products in the event that the cost of
components or overhead increase. Changes in exchange rates between the United
States and Canadian dollars, and other currencies, might result in further
disparity between our costs and selling price and hurt our ability to maintain
gross margins.

We carry inventory and there is a risk we may be unable to dispose of certain
items.

      We procure inventory 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 we may be able to use some of these excess components and
raw materials in other products we manufacture, a portion of the cost of this
excess inventory may not be recoverable from customers, nor may any excess
quantities be returned to the vendors. We also may not be able to recover the
cost of obsolete inventory from vendors or customers.

      Write offs or write downs of inventory generally arise from:

      -     declines in the market value of inventory;

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

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

      Our products and therefore our inventories are subject to technological
risk. At any time either new products may enter the market or prices of
competitive products may be introduced with more attractive features or at lower
prices than ours. There is a risk we may be unable to sell our inventory in a
timely manner and avoid it becoming obsolete. As of April 1, 2006, our
inventories including raw materials, work-in-process and finished goods, were
valued at $4.2 million reflecting reductions due to valuation allowances for
obsolescence of approximately $1.1 million against these inventories. In the
event we are required to substantially discount our inventory or are unable to
sell our inventory in a timely manner, we would be required to increase our
valuation allowances and our operating results could be substantially adversely
affected.

We generally do not obtain long-term volume purchase commitments from customers,
and, therefore, cancellations, reductions in production quantities and delays in
production by our customers could adversely affect our operating results.

      We generally do not obtain firm, long-term purchase commitments from our
customers. Customers may cancel their orders, choose not to exercise options for
further product purchases, reduce production quantities or delay production for
a number of reasons. In the event our customers experience significant decreases
in demand for their products and services, our customers may cancel orders,
delay the delivery of some of the products that we manufactured or place
purchase orders for fewer products than we previously anticipated. Even when our
customers are contractually obligated to purchase products from us, we may be
unable or, for

                                       31



other business reasons, choose not to enforce our contractual rights.
Cancellations, reductions or delays of orders by customers would:

      -     adversely affect our operating results by reducing the volumes of
            products that we manufacture for our customers;

      -     delay or eliminate recoupment of our expenditures for inventory
            purchased in preparation for customer orders; and

      -     lower our asset utilization, which would result in lower gross
            margins.

Products we manufacture may contain design or manufacturing defects that could
result in reduced demand for our services and liability claims against us.

      We manufacture products to our customers' specifications that are highly
complex and may at times contain design or manufacturing defects. Defects have
been discovered in products we manufactured in the past and despite our quality
control and quality assurance efforts, defects may occur in the future. Defects
in the products we manufacture, whether caused by design, manufacturing or
component defects, may result in delayed shipments to customers or reduced or
cancelled customer orders. Should these defects occur in large quantities or
frequently, our business reputation may also be tarnished. In addition, these
defects may result in liability claims against us. Even if customers are
responsible for the defects, we may assume responsibility for any costs or
payments.

We are subject to risks of currency fluctuations.

      A portion of our business is conducted in currencies other than the U.S.
dollar. Changes in exchange rates among other currencies and the U.S. dollar
will affect our cost of sales, operating margins and revenues. Our Canadian
operations were adversely impacted in fiscal 2005 as a result of changes in the
Canadian and U.S. Dollar exchange rates. We cannot predict the impact of future
exchange rate fluctuations. In addition, certain of our subsidiaries that have
non-U.S. dollar functional currencies transact business in U.S. dollars.

We rely on a small number of customers for a substantial portion of our net
sales, and declines in sales to these customers could adversely affect our
operating results.

      Sales to our five largest customers accounted for 47.3% of our net sales
in the fiscal year ended December 31, 2005 and our three largest customers,
Israel Aircraft Industries Ltd., Lockheed Martin Corporation and Raytheon
Company, accounted for 11.2%, 10.9% and 10.5%, respectively, of our 2005 sales.
We depend on the continued growth, viability and financial stability of our
customers, substantially all of which operate in an environment characterized by
rapid technological change, short product life cycle, consolidation, and pricing
and margin pressures. We expect to continue to depend upon a relatively small
number of customers for a significant percentage of our revenue. Consolidation
among our customers may further concentrate our business in a limited number of
customers and expose us to increased risks relating to dependence on a small
number of customers. In addition, a significant reduction in sales to any of our
large customers or significant pricing and margin pressures exerted by a key
customer would adversely affect our operating results. In the past, some of our
large customers have significantly reduced or delayed the volume of products
ordered from us as a result of changes in their business, consolidation or
divestitures or for other reasons. We cannot be certain that present or future
large customers will not terminate their arrangements with us or significantly
change, reduce or delay the amount of products ordered from us, any of which
would adversely affect our operating results.

      A substantial portion of our revenues are related to the defense and
military communications sectors. However, 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. Accordingly, our
defense and military product revenues may decrease, and should not be expected
to increase, at times of armed conflicts or war.

Variations in our quarterly operating results could occur due to factors
including changes in demand for our products, the timing of shipments and
changes in our mix of net revenues.

      Our quarterly net revenues, expenses and operating results have varied in
the past and might vary significantly from quarter to quarter in the future.
Quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance, and should not be relied on to predict our
future performance. Our short-term expense levels and manufacturing and
production facilities infrastructure overhead are relatively fixed and are based
on our expectations of future net revenues. If we were to experience a reduction
in net revenues in a

                                       32



quarter, we could have difficulty adjusting our short-term expenditures and
absorbing our excess capacity expenses. If this were to occur, our operating
results for that quarter would be negatively impacted. Other factors that might
cause our operating results to fluctuate on a quarterly basis include:

      -     customer decisions to defer, accelerate or cancel orders;

      -     timing of shipments of orders for our products;

      -     changes in the mix of net revenues attributable to higher-margin and
            lower-margin products;

      -     changes in product mix which could cause unexpected engineering or
            research and development costs;

      -     announcements or introductions of new products by our competitors;

      -     engineering or production delays due to product defects or quality
            problems and production yield issues; and

      -     dynamic defense budgets which could cause military program delays or
            cancellations.

Recent changes in accounting for equity-related compensation could impact our
financial statements.

      On December 16, 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based
Payment" ("SFAS 123R"). SFAS 123R is a revision of Financial Accounting
Standards No. 123, as amended, "Accounting for Stock-Based Compensation" ("SFAS
123") and supersedes Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". SFAS 123R eliminates the alternative to use the
intrinsic value method of accounting that was provided in SFAS 123, which
generally resulted in no compensation expense being recorded in the financial
statements related to the issuance of equity awards to employees. SFAS 123R
requires the Company to measure all employee stock-based compensation awards
using a fair value method and to record such expense in the consolidated
financial statements, as opposed to the pro forma note presentation previously
used. The Company adopted SFAS 123R at the beginning of its first quarter in
fiscal 2006, and will apply the provisions of the statement prospectively for
any newly issued, modified or settled award after the date of initial adoption,
as well as for any awards that were granted prior to the adoption date for which
the requisite service period has not been provided as of the adoption date. We
intend to continue to use the Black-Scholes option pricing model to calculate
total stock compensation expense. The Company expects the adoption of this
statement will have a non-cash material effect on its financial statements, but
the Company cannot reasonably estimate the impact of the adoption because
certain assumptions used in the calculation of the value of share-based payments
may change. As of December 31, 2005 the total future compensation cost related
to non-vested stock options and the employee stock purchase plan not yet
recognized in the consolidated statement of operations was $185,000. Of that
total, $119,000, $57,000 and $9,000 are expected to be recognized in 2006, 2007
and 2008, respectively.

Competition.

      The microwave component and subsystems industry continues to be highly
competitive. The Company competes against many companies, both foreign and
domestic, many of which are larger and have greater financial and other
resources. Direct competitors for Merrimac in the commercial market are Anaren,
Sirenza, Vari-L, Radiall and Sochen. Major competitors for Merrimac in the
military market are Anaren, M/A Com, L-3 Communications (Narda), Sage, TRM and
KW Microwave. Major competitors for Filtran in the microwave micro-circuitry
market are Labtech, MPC and Precision Instruments. As a direct supplier to OEMs,
the Company also faces significant competition from the in-house capabilities of
its customers. However, the current trend in the wireless marketplace has been
for the OEMs to outsource more design and production work, thereby freeing up
their internal resources for other use. Thus, the Company believes that internal
customer competition exists predominantly in its defense and satellite
businesses.

      In the wireless market, increased price pressure from the Company's
customers is a continuing challenge. It is anticipated that this pricing
pressure will continue indefinitely.

      The principal competitive factors are technical performance, reliability,
ability to produce in volume, on-time delivery and price. Based on these
factors, the Company believes that it competes favorably in its markets. The
Company believes that it is particularly strong in the areas of technical
performance and on-time delivery in the wireless marketplace. The Company
believes that it competes favorably on price as well.

      The RF Microwave components industry is highly competitive and has become
more so as defense spending has changed program spending profiles. Furthermore,
current Department of

                                       33



Defense efforts are shifting funds to support troops engaged in existing
hostilities around the world. We compete against numerous U.S. and foreign
providers with global operations, as well as those who operate on a local or
regional basis. In addition, current and prospective customers continually
evaluate the merits of manufacturing products internally. Changes in the
industries and sectors we service could significantly harm our ability to
compete, and consolidation trends could result in larger competitors that may
have significantly greater resources with which to compete against us.

      We may be operating at a cost disadvantage compared to manufacturers who
have greater direct buying power from component suppliers, distributors and raw
material suppliers or who have lower cost structures. Our manufacturing
processes are generally not subject to significant proprietary protection, and
companies with greater resources or a greater market presence may enter our
market or increase their competition with us. Increased competition could result
in price reductions, reduced sales and margins or loss of market share.

Intellectual property.

      Substantial litigation regarding intellectual property rights exists in
our industry. We do not believe our intellectual properties infringe those of
others, and are not aware that any third party is infringing our intellectual
property rights. A risk always exists that third parties, including current and
potential competitors, could claim that our products, or our customers'
products, infringe on their intellectual property rights or that we have
misappropriated their intellectual property. We may discover that a third party
is infringing upon our intellectual property rights, or has been issued an
infringing patent.

      Infringement suits are time consuming, complex, and expensive to litigate.
Such litigation could cause a delay in the introduction of new products, require
us to develop non-infringing technology, require us to enter into royalty or
license agreements, if available, or require us to pay substantial damages. We
have agreed to indemnify certain customers for infringement of third-party
intellectual property rights. We could incur substantial expenses and costs in
case of a successful indemnification claim. A significant negative impact would
result if a successful claim of infringement were made against us and we could
not develop non-infringing technology or license the infringed or similar
technology on a timely and cost-effective basis.

      The Company's success depends to a significant degree upon the
preservation and protection of its product and manufacturing process designs and
other proprietary technology. To protect its proprietary technology, the Company
generally limits access to its technology, treats portions of such technology as
trade secrets, and obtains confidentiality or non-disclosure agreements from
persons with access to the technology. The Company's agreements with its
employees prohibits employees from disclosing any confidential information,
technology developments and business practices, and from disclosing any
confidential information entrusted to the Company by other parties. Consultants
engaged by the Company who have access to confidential information generally
sign an agreement requiring them to keep confidential and not disclose any
non-public confidential information.

      The Company currently has 18 active patents. The Company plans to pursue
intellectual property protection in foreign countries, primarily in the form of
international patents, in instances where the technology covered is considered
important enough to justify the added expense. By agreement, Company employees
who initiate or contribute to a patentable design or process are obligated to
assign their interest in any potential patent to the Company.

Our executive officers, engineers, research and development and technical
personnel are critical to our business, and without them we might not be able to
execute our business strategy.

      Our financial performance depends substantially on the performance of our
executive officers and key employees. We are dependent in particular on Mason N.
Carter, who serves as our Chief Executive Officer, Reynold Green, our Chief
Operating Officer, Robert Condon, who serves as our Chief Financial Officer and
James Logothetis, our Chief Technology Officer. We are also dependent upon our
other highly skilled engineering, research and development and technical
personnel, due to the specialized technical nature of our business. If we lose
the services of any of our key personnel and are not able to find replacements
in a timely manner, our business could be disrupted, other key personnel might
decide to leave, and we might incur increased operating expenses associated with
finding and compensating replacements.

Government regulation.

      The Company's products are incorporated into telecom and wireless
communications systems that are subject to regulation domestically by various
government agencies, including the

                                       34



Federal Communications Commission and internationally by other government
agencies. In addition, because of its participation in the satellite and defense
industry, the Company is subject to audit from time to time for compliance with
government regulations by various governmental agencies. The Company is also
subject to a variety of local, state and federal government regulations relating
to environmental laws, as they relate to toxic or other hazardous substances
used to manufacture the Company's products. The Company believes that it
operates its business in material compliance with applicable laws and
regulations. However, any failure to comply with existing or future laws or
regulations could have a material adverse affect on the Company's business,
financial condition and results of operations.

Export controls.

      The Company's products are subject to the Export Administration
Regulations ("EAR") administered by the U.S. Department of Commerce and may, in
certain instances, be subject to the International Traffic in Arms Regulations
("ITAR") administered by the U.S. Department of State. EAR restricts the export
of dual-use products and technical data to certain countries, while ITAR
restricts the export of defense products, technical data and defense services.
The Company believes that it has implemented internal export procedures and
controls in order to achieve compliance with the applicable U.S. export control
regulations. However, the U.S. government agencies responsible for administering
EAR and ITAR have significant discretion in the interpretation and enforcement
of these regulations, and it is possible that these regulations could adversely
affect the Company's ability to sell its products to non-U.S. customers.

Risks of international operations.

      A significant percentage of the Company's revenues is derived from the
operations of its wholly-owned subsidiaries in Costa Rica and Canada. These
revenues are subject to the risks normally associated with international
operations which include, without limitation, fluctuating currency exchange
rates, changing political and economic conditions, difficulties in staffing and
managing foreign operations, greater difficulty and expense in administering
business abroad, complications in complying with foreign laws and changes in
regulatory requirements, and cultural differences in the conduct of business.

      While the Company believes that current political and economic conditions
in Canada and Costa Rica are relatively stable, such conditions may adversely
change so as to effect underlying business assumptions about the current
opportunities which exist for doing business in those countries. In particular,
the government in Costa Rica could change, the currency exchange rate between
the U.S. and Canadian dollars may change adversely (as occurred in 2005 and
2004), or the cost of labor and/or goods and services necessary to the
operations of the Company may increase.

Recently enacted changes in the Securities Laws and Regulations are likely to
increase costs.

      The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") has required
changes in some of our corporate governance, securities disclosure and
compliance practice. In response to the requirements of the Sarbanes-Oxley Act,
the SEC and the American Stock Exchange have promulgated new rules in a variety
of subjects. Compliance with these new rules has increased our legal and
accounting costs, and we expect these increased costs to continue indefinitely.
These developments may also make it more difficult for us to attract and retain
qualified members of our board of directors or qualified executive officers.

If we receive other than an unqualified opinion on the adequacy of our internal
control over financial reporting as of December 29, 2007 and future year-ends as
required by Section 404 of the Sarbanes-Oxley Act, investors could lose
confidence in the reliability of our financial statements, which could result in
a decrease in the value of our common stock.

      As required by Section 404 of the Sarbanes-Oxley Act, the SEC adopted
rules requiring public companies to include a report of management on the
company's internal control over financial reporting in their annual reports on
Form 10-K or 10-KSB that contains an assessment by management of the
effectiveness of the Company's internal control over financial reporting. In
addition, the public accounting firm auditing a company's financial statements
must attest to and report on both management's assessment as to whether the
company maintained effective internal control over financial reporting and on
the effectiveness of the company's internal control over financial reporting.

      We are currently undergoing a comprehensive effort to comply with Section
404 of the Sarbanes-Oxley Act. If we are unable to complete our assessment in a
timely manner or if our independent auditors issue other than an unqualified
opinion on the design, operating

                                       35



effectiveness or management's assessment of internal control over financial
reporting, this could result in an adverse reaction in the financial markets due
to a loss of confidence in the reliability of our financial statements, which
could cause the market price of our shares to decline.


ITEM 6. EXHIBITS

Exhibits:

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

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

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

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

      4(c)      Amendment No. 2 dated as of April 7, 2000, to the Stockholder
                Rights Agreement dated as of March 9, 1999, between Merrimac and
                ChaseMellon Stockholder Services, L.L.C., as Rights Agent, is
                hereby incorporated by reference to Exhibit 1(b) to Merrimac's
                Current Report on Form 8-K filed with the Securities and
                Exchange Commission on April 10, 2000.

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

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

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

      4(g)      Amendment No. 6, dated September 18, 2002, to the Rights
                Agreement, between Merrimac and Mellon Investor Services LLC, as
                Rights Agent is hereby incorporated by reference to Exhibit 99.3
                to Merrimac's Form 8-K filed with the Securities and Exchange
                Commission on October 10, 2002.

      4(h)      Amendment No. 7, dated December 13, 2004, to the Rights
                Agreement, between Merrimac and Wachovia Bank, National
                Association, as successor Rights Agent, is hereby incorporated
                by reference to Exhibit 4.1 to Merrimac's Form 8-K filed with
                the Securities and Exchange Commission on December 13, 2004.

      10(a)     Registration Rights Agreement dated as of April 7, 2000, between
                Merrimac and Ericsson Holding International, B.V. is hereby
                incorporated by reference to Exhibit 10(b) to Merrimac's
                Quarterly Report on Form 10-QSB for the period ending July 1,
                2000.

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

                                       36



      EXHIBIT
      NUMBER    DESCRIPTION OF EXHIBIT
      -------   ----------------------
      10(c)     Registration Rights Agreement, dated February 28, 2002 between
                Merrimac and DuPont Chemical and Energy Operations, Inc., a
                subsidiary of E.I. DuPont de Nemours and Company is hereby
                incorporated by reference to Exhibit 99.3 to Merrimac's Form 8-K
                filed with the Securities and Exchange Commission on March 6,
                2002.

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

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

      10(f)     1997 Long-Term Incentive Plan of Merrimac is hereby incorporated
                by reference to Exhibit A to Merrimac's Proxy Statement filed
                with the Securities and Exchange Commission on April 11, 1997.*

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

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

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

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

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

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

      10(m)     Amended Promissory Note dated as of May 4, 1998, executed by
                Mason N. Carter in favor of Merrimac is hereby incorporated by
                reference to Exhibit 10(l) to Merrimac's Annual Report on Form
                10-KSB for the year ending January 2, 1999.*

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

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

      10(p)     Separation Agreement dated as of December 31, 1998, between
                Merrimac and Eugene W. Niemiec is hereby incorporated by
                reference to Exhibit 10(p) to Merrimac's Annual Report on Form
                10-KSB for the year ending January 2, 1999.*

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

                                       37




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

      10(s)     2001 Key Employee Incentive Plan is hereby incorporated by
                reference to Exhibit 4.01 to Merrimac's Form S-8 (No. 333-63434)
                dated June 20, 2001.*

      10(t)     2001 Stock Option Plan is hereby incorporated by reference to
                Exhibit 4.01 to Merrimac's Form S-8 (No. 333-63436) dated June
                20, 2001.*

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

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

      10(w)     Financing Agreement, dated October 8, 2003, between Merrimac and
                The CIT Group/Business Credit, Inc. is hereby incorporated by
                reference to Exhibit 10(qq) to Merrimac's Form 10-QSB for the
                period ending September 27, 2003.

      10(x)     Trademark and Patent Security Agreement, dated October 8, 2003,
                between Merrimac and The CIT Group/Business Credit, Inc. is
                hereby incorporated by reference to Exhibit 10(rr) to Merrimac's
                Form 10-QSB for the period ending September 27, 2003.

      10(y)     Mortgage and Security Agreement, dated October 8, 2003, by
                Merrimac in favor of The CIT Group/Business Credit, Inc. is
                hereby incorporated by reference to Exhibit 10(ss) to Merrimac's
                Form 10-QSB for the period ending September 27, 2003.

      10(z)     Merrimac Severance Plan, as adopted March 29, 2006 is hereby
                incorporated by reference to Exhibit 10(z) to Merrimac's Form
                10-K for the period ending December 31, 2005.*

      10(aa)    Stock Purchase Agreement, dated March 29, 2006, between Merrimac
                and Mason N. Carter is hereby incorporated by reference to
                Exhibit 10(aa) to Merrimac's Form 10-K for the period ending
                December 31, 2005.

      31.1+     Chief Executive Officer's Certificate, pursuant to Section 302
                of the Sarbanes-Oxley Act of 2002.

      31.2+     Chief Financial Officer's Certificate, pursuant to Section 302
                of the Sarbanes-Oxley Act of 2002.

      32.1+     Chief Executive Officer's Certificate, pursuant to 18 U.S.C.
                Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.

      32.2+     Chief Financial Officer's Certificate, pursuant to 18 U.S.C.
                Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.

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

+     Indicates that exhibit is filed as an exhibit hereto.

                                       38



                                   SIGNATURES

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

                            MERRIMAC INDUSTRIES, INC.


Date: May 16, 2006                      By: /s/ Mason N. Carter
                                            -------------------
                                        Mason N. Carter
                                        Chairman, President and
                                        Chief Executive Officer


Date: May 16, 2006                      By: /s/ Robert V. Condon
                                            --------------------
                                        Robert V. Condon
                                        Vice President, Finance and
                                        Chief Financial Officer


                                       39`