<PAGE>

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

                                   FORM 10-QSB

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


For the quarterly period ended June 29, 2002 Commission file No. 0-11201
                               --------------                -----------

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


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


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


Registrant's telephone number including area code (973) 575-1300
                                                  --------------

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

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

Securities registered pursuant to Section 12(g) of the Exchange Act: None
                                                                     ----


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

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

           Class                                 Outstanding at August 9, 2002
-----------------------------                    -----------------------------
Common Stock ($.01 par value)                             3,139,518

<PAGE>




PART I.     FINANCIAL INFORMATION

ITEM 1.     Financial Statements

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


                                                       June 29,    December 29,
                                                         2002         2001
                                                      -----------  ------------
                                                      (Unaudited)   (Audited)
                                                      -----------  ------------
ASSETS
------
Current assets:
  Cash and cash equivalents .......................   $ 1,610,514  $ 1,844,434
  Accounts receivable, net.........................     4,827,260    5,632,008
  Income tax refunds receivable....................       213,496      195,323
  Inventories......................................     4,685,550    4,797,205
  Other current assets ............................       306,631      691,712
  Deferred tax assets .............................       548,000      548,000
                                                      -----------  -----------
      Total current assets ........................    12,191,451   13,708,682
                                                      -----------  -----------
Property, plant and equipment at cost..............    35,564,740   33,568,651
  Less accumulated depreciation and amortization...    15,874,754   14,605,751
                                                      -----------  -----------
    Property, plant and equipment, net.............    19,689,986   18,962,900

Other assets ......................................       838,477      676,073
Deferred tax assets, non-current...................     1,194,000    1,194,000
Goodwill...........................................     2,586,892    2,451,037
                                                      -----------  -----------
      Total Assets ................................   $36,500,806  $36,992,692
                                                      ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
  Current portion of long-term debt ...............   $   390,775  $ 4,368,565
  Accounts payable ................................     2,112,752    3,577,922
  Accrued liabilities .............................     1,370,714    1,620,305
  Income taxes payable.............................       153,205      268,274
                                                      -----------  -----------
      Total current liabilities ...................     4,027,446    9,835,066

Long-term debt, net of current portion ............     3,749,067    3,871,635
Deferred compensation .............................       139,136      155,768
Deferred liabilities...............................       183,538      118,597
Deferred tax liabilities ..........................       958,000      958,000
                                                      -----------  -----------
      Total liabilities ...........................     9,057,187   14,939,066
                                                      -----------  -----------
Commitments and contingencies

Stockholders' equity:
  Preferred stock, par value $.01 per share:
    Authorized: 1,000,000 shares
    No shares issued
  Common stock, par value $.01 per share:
    Authorized: 20,000,000 shares
    Issued:  3,190,229 and 2,859,249 shares .......        31,902       28,592
  Common stock warrants............................       837,200      837,200
  Additional paid-in capital ......................    17,783,905   14,327,586
  Retained earnings ...............................     9,620,083    9,531,445
  Accumulated comprehensive loss...................      (116,776)    (327,066)
                                                      -----------  -----------
                                                       28,156,314   24,397,757
  Less treasury stock, at cost:
    15,000 and 208,904 shares......................      (128,695)  (1,760,131)
  Less loan to officer-stockholder ................      (584,000)    (584,000)
                                                      -----------  -----------
     Total stockholders' equity ...................    27,443,619   22,053,626
                                                      -----------  -----------
     Total Liabilities and Stockholders' Equity ...   $36,500,806  $36,992,692
                                                      ===========  ===========

See accompanying notes.


                                     - 1 -

<PAGE>

                              MERRIMAC INDUSTRIES, INC.
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                              AND COMPREHENSIVE INCOME
                       -------------------------------------
                                   (Unaudited)
                                   -----------
<TABLE>
<CAPTION>
                                                          Quarters Ended              Six Months Ended
                                                      -----------------------      -------------------------
                                                       June 29,     June 30,        June 29,      June 30,
                                                         2002         2001            2002          2001
OPERATIONS                                            -----------------------      -------------------------
<S>                                                  <C>           <C>             <C>           <C>
Net sales ...................................         $6,462,328   $6,766,165      $13,312,915   $12,856,532
                                                      ----------   ----------      -----------   -----------
Costs and expenses:
  Cost of sales .............................          3,476,721    3,160,798        7,133,028     6,105,254
  Selling, general and administrative .......          2,286,887    2,460,016        4,630,667     4,732,690
  Research and development ..................            612,104      909,932        1,187,651     1,547,848
  Amortization of goodwill...................                 -        37,152               -         74,544
  Reincorporation charge.....................                 -            -                -        330,000
  Restructuring charge.......................            240,000           -           240,000            -
                                                      ----------   ----------      -----------   -----------
                                                       6,615,712    6,567,898       13,191,346    12,790,336
                                                      ----------   ----------      -----------   -----------

Operating income (loss)......................           (153,384)     198,267          121,569        66,196
Interest and other expense (income), net ....             40,815      (13,184)         102,931       (49,559)
                                                      ----------   ----------      -----------   -----------
Income (loss) before income taxes............           (194,199)     211,451           18,638       115,755
Provision (benefit) for income taxes ........           (140,000)      75,000          (70,000)       10,000
                                                      ----------   ----------      -----------   -----------
Net income (loss)............................         $  (54,199)  $  136,451      $    88,638   $   105,755
                                                      ==========   ==========      ===========   ===========

Basic and diluted net income (loss) per common share:

  Net income (loss).........................              $(.02)       $ .05            $ .03         $ .04
                                                          ======       =====            ======        =====

Weighted average number of
  shares outstanding:
  Basic .....................................          3,186,387    2,619,338        3,010,884     2,612,041
                                                       =========    =========        =========     =========
  Diluted....................................          3,186,387    2,761,152        3,092,809     2,796,835
                                                       =========    =========        =========     =========

COMPREHENSIVE INCOME

Net income (loss)............................         $  (54,199)  $  136,451      $    88,638   $   105,755
Comprehensive income:
  Foreign currency translation adjustment....            223,897      150,822          210,290       (54,262)
                                                      ----------   ----------      -----------   -----------
Comprehensive income ........................         $  169,698   $  287,273      $   298,928   $    51,493
                                                      ==========   ==========      ===========   ===========
</TABLE>
See accompanying notes.



                                      -2-

<PAGE>

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

                                                          Six Months Ended
                                                      -------------------------
                                                       June 29,       June 30,
                                                         2002           2001
                                                      -----------  ------------
Cash flows from operating activities:
  Net income ........................................ $   88,638    $  105,755
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
      Depreciation and amortization..................  1,231,355     1,099,594
      Amortization of goodwill ......................         -         74,544
      Amortization of deferred income................    (43,644)      (43,652)
      Deferred and other compensation................      4,371         5,286
      Deferred income taxes..........................        -              -
      Changes in operating assets and liabilities:
        Accounts receivable..........................    804,748        (3,156)
        Income tax refunds receivable................    (18,173)        9,700
        Inventories..................................    111,655      (818,228)
        Other current assets.........................    385,081      (168,014)
        Other assets.................................   (162,404)      109,684
        Accounts payable............................. (1,731,577)     (106,979)
        Accrued liabilities..........................   (249,591)     (427,278)
        Income taxes payable.........................   (115,069)     (158,972)
        Deferred compensation........................    (21,003)      (32,574)
        Other liabilities............................    108,585       118,837
                                                      ----------    ----------
Net cash provided by (used in) operating activities..    392,972      (235,453)
                                                      ----------    ----------
Cash flows from investing activities:
  Purchase of capital assets......................... (1,634,242)   (4,917,803)
                                                      ----------    ----------
Net cash used in investing activities................ (1,634,242)   (4,917,803)
                                                      ----------    ----------
Cash flows from financing activities:
  Borrowing under revolving credit facility..........         -      3,000,000
  Borrowing under lease facility.....................         -        419,192
  Borrowing under mortgage facility..................  2,500,000            -
  Repayment of borrowings............................ (6,632,317)      (76,039)
  Repurchase of common stock.........................   (128,695)           -
  Proceeds from the issuance of common stock, net....  5,110,347            -
  Proceeds from the exercise of stock options........    109,413       167,125
                                                       ----------    ----------
Net cash provided by financing activities............    958,748     3,510,278
                                                      ----------     ----------
Effect of exchange rate changes......................     48,602       (24,952)
                                                      ----------     ---------
Net decrease in cash and cash equivalents............   (233,920)   (1,667,930)
Cash and cash equivalents at beginning of year.......  1,844,434     3,425,390
                                                      ----------    ----------
Cash and cash equivalents at end of period........... $1,610,514    $1,757,460
                                                      ==========    ==========

Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Income taxes..................................... $   78,905    $  297,955
                                                      ==========    ==========
    Loan interest.................................... $  126,794    $   27,232
                                                      ==========    ==========

  Unpaid purchases of capital assets................. $  266,000    $       -
                                                      ==========    ==========

See accompanying notes.


                                      -3-

<PAGE>

                           MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.   Basis of presentation

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

B.   Contract revenue recognition

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

C.   Private placement of common stock

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

     In connection  with DuPont's  purchase of the Company's  Common Stock,  the
Company and DuPont also  entered  into a  registration  rights  agreement  which
provides DuPont with two demand registrations at any time following February 28,
2004  and the  right to  register  shares  on Form  S-3 up to twice  per year at
anytime after February 28, 2004.

D.   New accounting standards

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and  Hedging   Activities,"  which  established  new  accounting  and  reporting
standards  and requires  that every  derivative  instrument  (including  certain
derivative  instruments  embedded in other  contracts)  be recorded as assets or
liabilities in the balance sheet  measured at fair value.  SFAS No. 133 requires
that  changes  in the fair  value of  derivatives  be  recognized  currently  in
earnings unless specific hedge accounting  criteria are met. The Company adopted
the  provisions  of the Statement in 2001.  The Company does not currently  hold
derivative  instruments  or engage  in  hedging  activities  and  therefore  the
adoption  of SFAS No.  133 has not had any  impact  on the  Company's  financial
position, results of operations or cash flows.

     On June 30, 2001, the Financial  Accounting Standards Board issued SFAS No.
141,  "Business  Combinations" and SFAS No. 142,  "Goodwill and Other Intangible
Assets".  SFAS No. 141 requires all business  combinations  initiated after June
30,  2001 to be  accounted  for using the  purchase  method  of  accounting  and
eliminates  the  pooling  method of  accounting.  SFAS No.  141 will not have an
impact on the Company's  business since the Company has accounted for all of its
business combinations using the purchase method of accounting.


                                       -4-

<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     With the  adoption  of SFAS No. 142 by the Company on  December  30,  2001,
goodwill is no longer subject to  amortization  over its estimated  useful life.
However,  goodwill  will  be  subject  to at  least  an  annual  assessment  for
impairment and more frequently if circumstances  indicate a possible impairment.
The Company is required to perform a fair value-based  goodwill impairment test.
In  addition,  under  SFAS No.  142,  an  acquired  intangible  asset  should be
separately  recognized  if the benefit of the  intangible  is  obtained  through
contractual  or other  legal  rights,  or if the  intangible  asset can be sold,
transferred, licensed, rented, or exchanged. Intangible assets will be amortized
over their estimated  useful lives.  Any write-down of goodwill would be charged
to results of operations in the periods in which the recorded  value of goodwill
and certain intangibles is more than its fair value. On an annualized basis, the
Company  expects that the adoption of this  accounting  standard will reduce the
amortization of goodwill and intangibles by approximately $150,000 commencing in
2002,  unless  future  impairment  reviews  result in  periodic  write-downs  of
goodwill.  In  connection  with the  adoption of SFAS No.  142,  the Company has
completed the first of the impairment  tests of goodwill as of December 30, 2001
required by the standard  which  indicated  there was no impairment of goodwill.
The Company will perform the required annual  assessment  during the second half
of 2002.

     The following  information  provides the required disclosures and describes
the impact the  adoption of SFAS No. 142 had on the  Company  during the periods
reported:

     Goodwill:

     The changes in the carrying  amount of goodwill  for the six month  periods
ended June 29, 2002 and June 30, 2001 are as follows:

                                           2002           2001
                                        ----------     ----------
Balance, beginning of year              $2,451,037     $2,774,248
Goodwill amortized                              -         (74,544)
Foreign currency adjustment                135,855        (32,880)
                                        ----------     ----------
Balance, end of period                  $2,586,892     $2,666,824
                                        ==========     ==========


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

<TABLE>
<CAPTION>
                                                              Quarters Ended       Six Months Ended
                                                          --------------------   --------------------
                                                          June 29,   June 30,     June 29,   June 30,
                                                            2002       2001         2002       2001
                                                          --------------------   --------------------
<S>                                                       <C>        <C>         <C>        <C>
Reported net income (loss) for the period                 $(54,199)   $136,451    $88,638    $105,755
Add back: Amortization of goodwill                             -        37,152        -        74,544
                                                          --------   ---------    --------   --------
Adjusted net income (loss) for the periods                $(54,199)   $173,603    $88,638    $180,299
                                                          ========   =========    =======    ========

Basic net income (loss) per share:
   Reported net income (loss)                                $(.02)      $ .05      $ .03        $.04
   Amortization of goodwill                                     -          .02         -          .03
                                                             -----       -----      -----        ----
   Adjusted net income (loss)                                $(.02)       $.07      $ .03        $.07
                                                             =====       =====      =====        ====

Diluted net income (loss) per share:
   Reported net income (loss)                                $(.02)      $ .05      $ .03        $.04
   Amortization of goodwill                                     -          .01         -          .02
                                                             -----       -----      -----        ----
   Adjusted net income (loss)                                $(.02)       $.06      $ .03        $.06
                                                             =====       =====      =====        ====

</TABLE>

                                       -5-

<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations".  SFAS No. 143 requires that asset
retirement  obligations that are identifiable upon acquisition and construction,
and during the operating  life of a long-lived  asset be recorded as a liability
using the present  value of the estimated  cash flows.  A  corresponding  amount
would be  capitalized  as part of the asset's  carrying  amount and amortized to
expense  over the  asset's  useful  life.  The  Company is required to adopt the
provisions of SFAS No. 143 effective  January 5, 2003.  The Company is currently
evaluating the impact of adoption of this statement. The Company does not expect
that the adoption of SFAS No. 143 will have a material  impact on the  Company's
financial position or results of operations.

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

     In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No.
145,  "Rescission  of  FASB  Statements  No.  4, 44 and  62,  Amendment  of FASB
Statement No 13 and Technical  Corrections".  For most  companies,  SFAS No. 145
will require  gains and losses on  extinguishments  of debt to be  classified as
income or loss from continuing  operations rather than as extraordinary items as
previously  required under SFAS No. 4. Extraordinary  treatment will be required
for certain  extinguishments  as  provided in APB Opinion No. 30. The  statement
also amended SFAS No. 13 for certain sale-leaseback and sublease accounting. The
Company is required to adopt the provisions of SFAS No. 145 effective January 5,
2003.  The  Company  is  currently  evaluating  the impact of  adoption  of this
statement,  however,  the Company  does not expect that the adoption of SFAS No.
145 will have a material impact on the Company's  financial  position or results
of operations.

     In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting  for  Costs  Associated  with  Exit  or  Disposal  Activities,"  and
nullifies EITF Issue No. 94-3. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred,  whereas EITF No. 94-3 had  recognized the liability at the commitment
date to an exit plan.  The Company is required to adopt the  provisions  of SFAS
No. 146 effective  for exit or disposal  activities  initiated  after January 4,
2003.  The  Company  is  currently  evaluating  the impact of  adoption  of this
statement,  however,  the Company  does not expect that the adoption of SFAS No.
146 will have a material impact on the Company's  financial  position or results
of operations.

E.   Delaware reincorporation

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

     The   Company   incurred   $330,000  of  costs  in   connection   with  the
reincorporation  in Delaware.  Such expense was  reflected as a  reincorporation
charge in the accompanying  statement of operations in 2001. The reincorporation
charge, net of tax benefits, was $198,000 or $.07 per share in the first quarter
of 2001.

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



                                       -6-

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


F.   Inventories

     Inventories consist of the following:
                                                June 29,         December 29,
                                                  2002               2001
                                               ----------        -----------
     Finished goods ......................     $  416,867         $  490,135
     Work in process .....................      2,215,845          2,057,036
     Raw materials and purchased parts ...      2,052,838          2,250,034
                                               ----------         ----------
     Total                                     $4,685,550         $4,797,205
                                               ==========         ==========

     Total  inventories  are net of valuation  allowances  for  obsolescence  of
$957,000 at June 29, 2002 and $991,000 at December 29, 2001.

G.   Net income (loss) per common share

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

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

     The  calculation  of diluted net income per common share is similar to that
of basic net income per common share,  except that the  denominator is increased
to  include  the  number  of  additional  common  shares  that  would  have been
outstanding  if  all  potentially  dilutive  common  shares,  principally  those
issuable under stock options, were issued during the reporting period.

     Stock  options and  warrants were excluded from the  computation  of
diluted loss per share in the second quarter 2002 since they were antidilutive.

H.   Comprehensive income

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting  Comprehensive  Income.  SFAS No. 130 defines  comprehensive  income,
which  includes  items  in  addition  to  those  reported  in the  statement  of
operations,  and requires  disclosures  about the  components  of  comprehensive
income. Comprehensive income includes all changes in stockholders' equity during
a  period  except  those  resulting  from  investments  by or  distributions  to
stockholders.  The Company has determined the components of comprehensive income
(loss)  impacting  the Company  consists  primarily  of  cumulative  translation
adjustments.

I.   Accounting period

     The  Company's  fiscal year is the 52-53 week period ending on the Saturday
closest to December 31. The Company has quarterly dates that correspond with the
Saturday  closest  to the last day of each  calendar  quarter  and each  quarter
consists of 13 weeks in a 52-week year. Every fifth year, the additional week to
make a 53-week  year (fiscal year 1997 was the last and fiscal year 2002 will be
the next) is added to the fourth  quarter,  making  such  quarter  consist of 14
weeks.

J.   Transactions with management and loan to officer-stockholder

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

     On August  31,  2000,  in  connection  with an  amendment  of Mr.  Carter's
employment  agreement,  the Company  loaned Mr. Carter an  additional  $280,000.
Interest on the loan will be calculated at a variable interest rate based on the
prime  rate of the  Company's  lending  bank,  payable  in  accordance  with Mr.
Carter's  employment  agreement.  Each year the Company  will forgive 20% of the
amount due under this loan and the accrued  interest  thereon.  During 2001, the
amount of $56,000  principal and $23,000 of accrued  interest was forgiven.  For
fiscal year 2002, the Company  projects that $56,000 of principal and $18,000 of
accrued interest will be forgiven.


                                      -7-

<PAGE>

                           MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


K.   Current and long-term debt

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

<TABLE>
<CAPTION>

                                                                     June 29,     December 29,
                                                                       2002          2001
                                                                    ----------    ------------
<S>                                                                 <C>           <C>
  Fleet Bank (A):
     Revolving credit facility, interest 1/2% below prime ........  $      -      $4,000,000
     Mortgage loan, callable March 2007, interest 1/2% below prime   3,456,250     3,500,000

  The Bank of Nova Scotia (B):
     Capital leases, interest 7.0%, due October 2002..............     100,605       131,662
     Capital leases, interest 8.7%, due May 2005..................     235,010       248,191
     Capital leases, interest 7.3%, due April 2006................     189,916       197,033
     Capital leases, interest 7.9%, due June 2006.................     158,061       163,314
                                                                    ----------    ----------
                                                                     4,139,842     8,240,200
     Less current portion.........................................     390,775     4,368,565
                                                                    ----------    ----------
     Long-term portion............................................  $3,749,067    $3,871,635
                                                                    ==========    ==========

</TABLE>

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

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

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

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

     (B) Capital leases included in property,  plant and equipment,  net, have a
depreciated  cost of  approximately  $615,000 at June 29,  2002 and  $632,000 at
December 29, 2001.


                                       -8-

<PAGE>

                           MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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

     In  connection  with EHI's  purchase of the  Company's  Common  Stock,  the
Company and EHI also entered into a registration rights agreement which provides
EHI with two demand registrations at any time following April 7, 2002.

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

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

     In  connection  with the  purchase by EHI and the Adam Smith  Investors  of
Merrimac  Common  Stock  and  Warrants,  the  Company,  EHI and the  Adam  Smith
Investors also entered into registration rights agreements which provide EHI and
the  Adam  Smith  Investors  each  with  two  demand  registrations  at any time
following  October  26,  2002.

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


                                       -9-


<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


M.   Lease modification and facility sharing agreement

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

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

     The Company deferred  approximately  $102,000 of costs at December 30, 2000
incurred in connection  with entering into this agreement and other  incremental
costs,  for the purpose of providing  this customer  with trained  personnel and
certain other services  required for their dedicated  manufacturing  capability.
Such costs  classified in the balance sheet as other assets at December 30, 2000
were  recovered  through  the  $200,000  payment  received  in  January  2001 as
described  above.  In January 2002,  the Company  received the second payment of
$150,000  and the final  payment of $100,000 is due  January  2003.  At June 29,
2002,  the  unamortized  amount of $118,000 in payments  received is included in
deferred liabilities.

N.   Pro forma weighted average number of common shares outstanding

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

                                             Six Months Ended
                                             ----------------
                                               June 29, 2002
                                             ----------------

Basic and diluted:
Actual                                           3,010,884
Adjustments for sale of
Common Stock on February 28, 2002                  174,202
                                                 ---------
Basic - pro forma                                3,185,086
Effect of dilutive securities-
Stock options                                       81,925
                                                 ---------
Diluted - pro forma                              3,267,011
                                                 =========

                                      -10-

<PAGE>

                            MERRIMAC INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


O. Business segment data

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

     Electronic components: Design, manufacture and sale of electronic component
devices  offering  extremely  broad  frequency  coverage  and  high  performance
characteristics for communications,  defense and aerospace applications.  Of the
identifiable assets, 81% are located in the United States and 19% are located in
Costa Rica.

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

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

                                              June 29,        June 30,      June 29,        June 30,
                                                2002            2001          2002            2001
                                              ------------------------      ------------------------
                                              (In thousands of dollars)     (In thousands of dollars)
<S>                                           <C>            <C>            <C>             <C>
Industry segments:
    Sales to unaffiliated customers:
             Electronic components            $ 5,724         $ 5,700       $11,760         $10,318
             Microwave micro-circuitry            738           1,066         1,553           2,539
                                              -------         -------       -------          ------
             Consolidated                     $ 6,462         $ 6,766       $13,313         $12,857
                                              =======         =======       =======         =======

    Income before provision for income taxes:
      Operating income (loss):
             Electronic components            $   (91)        $   205       $   199         $   (96)
             Microwave micro-circuitry            (62)             (7)          (77)            162
      Interest and other income
        (expense), net                            (41)             13          (103)             50
                                              -------         -------       -------         -------
             Consolidated                     $  (194)        $   211       $    19         $   116
                                              =======         =======       =======         =======

      Identifiable assets:
             Electronic components                                          $29,812         $23,323
             Microwave micro-circuitry                                        5,078           5,350
             Corporate                                                        1,611           1,757
                                                                            -------         -------
             Consolidated                                                   $36,501         $30,430
                                                                            =======         =======
      Depreciation and amortization:
             Electronic components            $   566         $   474       $ 1,110         $   924
             Microwave micro-circuitry             52             130           121             250
                                              -------         -------       -------         -------
             Consolidated                     $   618         $   604       $ 1,231         $ 1,174
                                              =======         =======       =======         =======
      Capital expenditures, net:
             Electronic components            $   869         $ 3,608       $ 1,541         $ 4,516
             Microwave micro-circuitry             56             257            93             402
                                              -------         -------       -------         -------
             Consolidated                     $   925         $ 3,865       $ 1,634         $ 4,918
                                              =======         =======       =======         =======
</TABLE>
P. Restructuring and related charges

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

                                      -11-


<PAGE>

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


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


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

<TABLE>
<CAPTION>



                                                     Percentage of Net Sales     Percentage of Net Sales
                                                     -----------------------     -----------------------
                                                        Quarters Ended                Six Months Ended
                                                     -----------------------     -----------------------
                                                      June 29,    June 30,          June 29,    June 30,
                                                        2002        2001              2002        2001
                                                     ---------  ------------        --------    --------
<S>                                                      <C>       <C>                <C>        <C>
Net sales....................................            100.0%     100.0%            100.0%     100.0%
                                                         ------     ------            ------     ------
Costs and expenses:
  Cost of sales..............................             53.8       46.7              53.6       47.5
  Selling, general and administrative........             35.4       36.5              34.8       36.8
  Research and development...................              9.5       13.4               8.9       12.0
  Amortization of goodwill...................               -          .5                -          .6
  Reincorporation charge.....................               -          -                 -         2.6
  Restructuring charge.......................              3.7         -                1.8         -
                                                         ------     ------            ------     ------
                                                         102.4       97.1              99.1       99.5
                                                         ------     ------            ------     ------

Operating income (loss)......................             (2.4)       2.9                .9         .5
Interest and other expense (income), net.....               .6        (.2)               .8        (.4)
                                                         ------     ------            ------     ------

Income (loss) before income taxes............             (3.0)       3.1                .1         .9
Provision (benefit) for income taxes.........             (2.2)       1.1               (.6)        .1
                                                         ------    ------             ------     ------
Net income (loss)............................             ( .8%)      2.0%               .7%        .8%
                                                         ======    ======             ======     ======
</TABLE>
                                       -12-

<PAGE>

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


Critical Accounting Estimates and Policies

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

     The  following  is a summary of the  carrying  amounts of the  Multi-Mix(R)
Microtechnology  net assets  included in the  Company's  consolidated  financial
statements at June 29, 2002 and the related future  planned  purchases and lease
obligation commitments through January 2006.

         Net assets:
         Property, plant and equipment, at cost                     $13,874,000
         Less accumulated depreciation and amortization               1,608,000
                                                                    -----------
         Property, plant and equipment, net                          12,266,000
         Inventories                                                    981,000
         Other assets, net                                              636,000
                                                                    -----------
         Total net assets at June 29, 2002                          $13,883,000
                                                                    ===========

         Commitments:
         Planned equipment purchases for 2002                       $   600,000
         Lease obligations through January 2006                       1,035,000
                                                                    -----------
         Total commitments                                          $ 1,635,000
                                                                    -----------
         Total net assets and commitments                           $15,518,000
                                                                    ===========


     The  Company  anticipates  increasing  order  levels  during  2002  for its
Multi-Mix(R)  Microtechnology  products,  for  which  substantial  research  and
development  costs have been incurred.  Due to economic and market conditions in
the wireless  industry,  the  telecommunications  system service  providers have
significantly  reduced their capital  equipment  purchases  from our  customers.
These  circumstances  have caused the Company's  customers to delay Multi-Mix(R)
Microtechnology product purchases that had been anticipated for fiscal year 2001
and thus far during 2002. A continued  delay or reduction from planned levels in
new orders 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.  The Company  has made no such  determination  at this
time.

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

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

                                      -13-

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


     Inventories are valued at the lower of average cost or market.  Inventories
are periodically  reviewed for their projected  manufacturing  usage utilization
and, when slow-moving or obsolete inventories are identified,  a provision for a
potential  loss is made and  charged to  operations.  As of June 29,  2002,  the
Company  held  inventories  valued  at  $4,686,000  which  is net of a  $957,000
valuation allowance for obsolescence.

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


     Second  quarter  and the first six  months of 2002  compared  to the second
quarter and the first six months of 2001

     Consolidated results of operations for the second quarter of 2002 reflect a
decrease  in net sales from the second  quarter of 2001 of  $304,000  or 4.5% to
$6,462,000.  This decrease was primarily  attributable to a $328,000 decrease in
net sales of microwave  micro-circuitry  products from FMI partially offset by a
$25,000 increase in net sales of electronic components.  Consolidated results of
operations  for the first six months of 2002  reflect an  increase  in net sales
compared  to the first  six  months of the  prior  year of  $456,000  or 3.5% to
$13,313,000.  This increase was primarily  attributable to a $1,442,000 increase
in the net  sales of  electronic  components,  which was  partially  offset by a
$986,000 decrease in sales of microwave  micro-circuitry  products from FMI. The
decreases  during  the  second  quarter  and the first six months of 2002 in FMI
sales  reflected  softness  in the  telecommunications  sector  that FMI serves,
principally millimeter wave applications for wireless broadband solutions.

     Orders of  $6,710,000  were received  during the second  quarter of 2002, a
decrease of $209,000 or 3.0% compared to $6,919,000  in orders  received  during
the second quarter of 2001.  Orders  received  during the second quarter of 2002
exceeded the second quarter of 2002 sales level by approximately 3.8%. Orders of
$12,535,000  were  received  for the first six  months of 2002,  a  decrease  of
$1,941,000 or 13.4% compared to $14,476,000 in orders received for the first six
months of 2001. The first six months 2002 sales level exceeded  orders  received
during the first six months of 2002 by approximately 6.2%. As a result,  backlog
decreased by $778,000 or 6.6% to $11,079,000 at the end of the second quarter of
2002, compared to $11,857,000 at year-end 2001.

                                      -14-

<PAGE>

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


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

     Consolidated cost of sales increased $316,000 or 10.0%, and as a percentage
of net sales increased 7.1 percentage points to 53.8%, for the second quarter of
2002.  Consolidated  cost of  sales  increased  $1,028,000  or  16.8%,  and as a
percentage of net sales increased 6.1 percentage  points to 53.6%, for the first
six months of 2002.  Cost of sales  increased  $622,000 and  $1,684,000  for the
second quarter and the first six months of 2002, respectively, in the electronic
components  segment,  resulting from higher sales levels and manufacturing  cost
increases   that  were   attributable   to  increases   in  insurance   expense,
depreciation, rent and other occupancy expenses and unabsorbed overhead expenses
related to the expansion of the Company's  West  Caldwell,  New Jersey and Costa
Rica manufacturing  production  facilities.  Cost of sales declined $306,000 and
$656,000 for the second quarter and the first six months of 2002,  respectively,
in the microwave micro-circuitry segment,  resulting from the decline in segment
sales in the second  quarter  and the first six months of 2002 of  approximately
30.8% and 38.8%, respectively,  compared to the second quarter and the first six
months of 2001.

     Depreciation  expense  included in cost of sales for the second  quarter of
2002 was  $491,000,  an  increase of $67,000  compared to the second  quarter of
2001. For the second  quarter of 2002,  approximately  $276,000 of  depreciation
expense  was  associated  with  Multi-Mix(R)   Microtechnology  capital  assets.
Depreciation  expense  included in the cost of sales for the first six months of
2002 was $1,032,000, an increase of $174,000 compared to the first six months of
2001. For the first six months of 2002,  approximately  $551,000 of depreciation
expense was associated with Multi-Mix(R)  Microtechnology  capital assets. Other
increases  in  depreciation  expense were a result of higher  capital  equipment
purchases in the current and prior years and the  commencement  of  depreciation
expense  associated  with the  West  Caldwell,  New  Jersey  19,200  square-foot
building  expansion,  which was placed into service  during the first quarter of
2002.

                                      -15-

<PAGE>

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


     Consolidated  gross profit for the second  quarter and the first six months
of 2002 were  impacted  by the items  referred  to in the  above  discussion  of
consolidated cost of sales.  Consolidated gross profit for the second quarter of
2002 was $2,986,000 or 46.2% of sales compared to  consolidated  gross profit of
$3,605,000  or 53.3% of sales for the second  quarter of 2001.  Gross profit for
the second quarter of 2002 for the electronic  components  segment  decreased by
$597,000 or 18% to $2,635,000  which  represented  46.0% of segment net sales of
$5,724,000,  compared to a gross  profit of  $3,232,000  or 56.7% of segment net
sales of $5,700,000 in the second  quarter of 2001.  Gross profit for the second
quarter of 2002 for the microwave  micro-circuitry  segment decreased by $23,000
to $350,000 which represented  47.5% of segment net sales of $738,000,  compared
to $373,000 or 35.0% of segment net sales of $1,067,000 in the second quarter of
2001.  Consolidated gross profit for the first six months of 2002 was $6,180,000
or 46.4% of sales compared to  consolidated  gross profit of $6,752,000 or 52.5%
of sales for the first six months of 2001. Gross profit for the first six months
of 2002 for the electronic  components  segment decreased by $242,000 or 4.3% to
$5,441,000 which represented 46.3% of segment net sales of $11,760,000  compared
to gross profit of $5,683,000 or 55.5% of segment net sales of  $10,318,000  for
the first six months of 2001.  Gross profit for the first six months of 2002 for
the microwave micro-circuitry segment decreased by $329,000 or 30.9% to $738,000
which  represented  47.6% of  segment  net  sales  of  $1,553,000,  compared  to
$1,068,000 or 42.1% of segment net sales of $2,539,000  for the first six months
of 2001.

     Selling,  general and administrative  expenses of $2,287,000 for the second
quarter  of 2002  decreased  by  $210,000  or  8.4%,  and  when  expressed  as a
percentage of net sales, decreased by 1.5 percentage points to 35.4% compared to
the second  quarter of 2001.  The dollar  decreases  resulted  from lower  sales
commission  expenses due to lower sales for the second quarter of 2002 and lower
personnel  recruitment  costs  and  professional  fees.  Selling,   general  and
administrative expenses of $4,631,000 for the first six months of 2002 decreased
by $102,000 or 2.2%, and when expressed as a percentage of net sales,  decreased
by two percentage  points to 34.8% compared to the first six months of 2001. The
dollar  decreases  resulted  from  decreases  in  personnel  recruitment  costs,
marketing  expenses  and other  administrative  expenses,  which were  partially
offset by higher sales commission  expenses on increased sales for the first six
months of 2002.

     Research and  development  expenses for new products  were $612,000 for the
second  quarter of 2002, a decrease of $298,000 or 32.7%  compared to the second
quarter of 2001.  Except for  $106,000 of research and  development  expenses at
FMI, an increase of $34,000 over the second quarter of 2001,  substantially  all
of  the  research  and   development   expenses  were  related  to  Multi-Mix(R)
Microtechnology  and  Multi-Mix  PICO(TM)  products.  Research  and  development
expenses for new products  were  $1,188,000  for the first six months of 2002, a
decrease of $360,000 or 23.3%  compared to the first six months of 2001.  Except
for  $254,000  of  research  and  development  expenses  at FMI,  an increase of
$103,000  over the first six months of 2001,  substantially  all of the research
and  development  expenses  were  related to  Multi-Mix(R)  Microtechnology  and
Multi-Mix PICO(TM) products.

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

                                      -16-

<PAGE>

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


     Consolidated  operating  income for the second quarter of 2002 was $87,000,
before giving  effect to the $240,000  personnel  restructuring  charge and, the
Company  incurred an operating  loss for the second  quarter of 2002 of $153,000
after inclusion of the personnel  restructuring charge. We reported consolidated
operating  income of $198,000 for the second  quarter of 2001. For the first six
months of 2002, consolidated operating income was $362,000, before giving effect
to the  personnel  restructuring  charge  and,  after  including  the  personnel
restructuring charge, was $122,000.  Consolidated operating income for the first
six months of 2001 was $396,000 before the effect of charges associated with the
reincorporation  in  Delaware  of  $330,000  recorded  in the first  quarter  of
2001 and, after including the reincorporation charge, was $66,000.

     Operating income for the electronic  components segment was $107,000 before
giving  effect  to this  segment's  personnel  restructuring  charge  which  was
$198,000 for the second quarter of 2002,  and,  after this  segment's  personnel
restructuring  charge,  resulted  in an  operating  loss of $91,000  compared to
$205,000 of operating income in the second quarter of 2001. The Company incurred
an operating  loss for its microwave  micro-circuitry  segment of $20,000 before
giving effect to this segment's personnel restructuring charge which was $42,000
for the second quarter of 2002 and, after this segment's personnel restructuring
charge, was $62,000 which compares to an operating loss of $7,000 for the second
quarter  of 2001.  For the first six  months of 2002,  the  Company's  operating
income for its electronic  components  segment was $396,000 before the effect of
charges associated with the personnel  restructuring charge and, after inclusion
of the $198,000 second quarter  personnel  restructuring  charge,  was $198,000.
Before the effect of charges associated with the  reincorporation in Delaware of
$330,000  recorded  in the  first  quarter  of 2001,  operating  income  for the
electronic components segment for the first six months of 2001 was $234,000 and,
after the inclusion of the reincorporation charge, resulted in an operating loss
of $96,000.

     Net  interest  expense was $41,000  for the second  quarter of 2002,  which
compares to net interest  income of $13,000 for the second  quarter of 2001. Net
interest  expense was $103,000 for the first six months of 2002  compared to net
interest income of $50,000 for the first six months of 2001. Interest expense of
$23,000 was  capitalized to property,  plant and equipment in the second quarter
and the first six months of 2001.  Interest  expense  for the second  quarter of
2002 was principally  incurred on borrowings under our revolving credit facility
and a mortgage  loan in  connection  with capital  equipment  purchases  and the
building expansion  constructed during fiscal year 2001. Interest income for the
second  quarter of 2001 was  primarily  due to interest  earned on the  proceeds
received from the issuance of common stock in private  placements in fiscal year
2000 that offset interest expense.

     An income tax benefit of $140,000 was  recorded  for the second  quarter of
2002 with an  effective  tax benefit rate of 72.2%  compared to a provision  for
income  taxes of $75,000 for the second  quarter of 2001 with an  effective  tax
rate of 35.5%.  The principal  adjustments  to the statutory  Federal income tax
rate of 34% for the  second  quarter of 2002  relates to $29,000 in tax  credits
associated  with  research  and  development   expenditures  and  foreign  sales
corporation  tax  benefits  of  $17,000.  An income tax  benefit of $70,000  was
recorded  for the first six months of 2002  compared to a  provision  for income
taxes of $10,000 for the first six months of 2001. The principal  adjustments to
the  statutory  Federal  income tax rate of 34% for the first six months of 2002
relates to $63,000 in tax  credits  associated  with  research  and  development
expenditures and foreign sales corporation tax benefits of $30,000.

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


     During the period ended June 29, 2002,  the Company  completed the first of
the required  impairment  tests  required  under SFAS No. 142, which was adopted
effective December 30, 2001, related to goodwill.  Under the new rules, goodwill
is no longer subject to amortization but it is reviewed for potential impairment
upon adoption and  thereafter  annually or upon the  occurrence of an impairment
indicator.  The annual  amortization of goodwill,  which would have approximated
$150,000,  is no longer required.  Goodwill of approximately  $3,100,000,  which
arose  from  the   acquisition  of  FMI  in  1999,  was  being  amortized  on  a
straight-line  basis over twenty years.  Amortization of goodwill of $37,000 and
$75,000 were  recorded for the second  quarter and the first six months of 2001,
respectively.

     The Company  incurred a net loss for the second quarter of 2002 of $54,000,
after the after-tax  effect of the personnel  restructuring  charge of $150,000,
compared to net income of $136,000 recorded for the second quarter of 2001. On a
per share basis, we recorded a net loss of $.02 per share for the second quarter
of 2002, after the after-tax effects of the personnel restructuring charge which
equated to $.05 per share, compared to net income of $.05 per share reported for
the second quarter of 2001.

     Net income for the first six months of 2002 was $89,000 after giving effect
to the personnel  restructuring charge of $150,000.  For the first six months of
2001,  we reported net income of $106,000,  after the  after-tax  effects of the
first quarter 2001 reincorporation charge of $198,000.

     Net  income  was $.03 per  share for the  first  six  months of 2002  after
deducting the $.05 per share personnel  restructuring  charge. For the first six
months of 2001,  net income per  diluted  share of $.04 per share was  reported,
after the after-tax effects of a $.07 per share reincorporation  charge reported
in the first quarter of 2001.

     The  weighted  average  number of basic  shares  outstanding  increased  by
approximately 567,000 shares or 21.6% for the second quarter of 2002 compared to
the second quarter of 2001, and 399,000 shares or 15.3% for the first six months
of 2002 compared to the first six months of 2001,  primarily  resulting from the
issuance  of 528,000  new shares to DuPont  Electronic  Technologies  during the
first quarter of 2002.


Liquidity and Capital Resources

     The Company had liquid  resources  comprised  of cash and cash  equivalents
totaling  approximately  $1,600,000  at the end of the  second  quarter  of 2002
compared to approximately  $1,800,000 at the end of 2001. The Company's  working
capital was  approximately  $8,200,000 and its current ratio was 3.0 to 1 at the
end of  the  second  quarter  of  2002  compared  to  $4,000,000  and  1.4 to 1,
respectively, at the end of 2001.

     Our  operating  activities  provided  net  positive  cash flows of $393,000
during the first six months of 2002  compared to negative cash flows of $235,000
during  the first six  months  of 2001.  The  primary  reason  for the  positive
operating  cash flows resulted from  depreciation  and  amortization  charges of
$1,231,000 and decreases in accounts  receivable,  inventories and other current
assets.  These positive cash flows were offset primarily by payments made during
the first six months of 2002 that reduced  year-end  2001  accounts  payable and
accrued liabilities amounts.

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


     The Company made net capital  investments in property,  plant and equipment
of  $1,634,000  during  the first  six  months of 2002  (which  excludes  unpaid
invoices  for  additional  capital  investments  of $266,000 at June 29,  2002),
compared to net capital  investments  made in property,  plant and  equipment of
$4,918,000  during the first six months of 2001. These capital  expenditures are
related to new production  facilities and processing  equipment  capabilities in
connection with the  manufacturing  of new products and enhancements to existing
products. The depreciated cost of capital equipment associated with Multi-Mix(R)
Microtechnology  was  $12,266,000  at the end of the second  quarter of 2002, an
increase of $914,000 compared to $11,352,000 at the end of fiscal year 2001.

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

     During the first  quarter of 2002,  the  Company  obtained  an  increase of
$2,500,000  in the  Company's  lines of  credit  with  Fleet  Bank to a total of
$10,000,000,  $3,500,000 of which consists of a first mortgage callable in March
2007 on the Company's  West Caldwell,  New Jersey  manufacturing  facility.  The
$6,500,000  revolving  line of credit has been extended for one year to June 30,
2003. The Company  successfully  completed a private placement of 528,400 shares
of common  stock on February  28, 2002 that raised  $5,284,000  before  offering
expenses.  The Company repaid $5,000,000,  all of its then revolving borrowings,
to Fleet Bank from the proceeds of that offering.  The Company borrowed $500,000
on July 29,  2002 from its line of credit  with  Fleet  Bank and  currently  has
$6,000,000 available under this line of credit.

     Management  believes that its current  revolving credit facility,  together
with its  present  liquid  resources  and cash  flows  that are  expected  to be
provided by  operations,  should  provide  sufficient  resources  for  currently
contemplated  operations  during  fiscal  year 2002 and the first six  months of
fiscal year 2003.

     Capital  expenditures  for new projects and production  equipment  exceeded
depreciation  and  amortization  expenses  during the second  quarter of 2002 by
approximately  $307,000, and we anticipate that capital expenditures will exceed
depreciation and amortization  expenses in fiscal year 2002. The Company intends
to issue up to $700,000 of purchase order commitments for building modifications
and for capital  equipment from various  vendors.  The Company  anticipates that
such   equipment  will  be  purchased  and  become   operational   and  building
modifications will be completed during the second half of 2002.

     In February 2001, the Company  entered into a new five-year  lease in Costa
Rica for an approximately  36,200  square-foot  facility for  manufacturing  new
Multi-Mix(R)  Microtechnology  products.  The leasehold improvements and capital
equipment for this  manufacturing  facility were recently completed at a cost of
approximately  $4,800,000  and this facility was opened for production in August
2002.  The Company also leases an 8,200  square-foot  facility in Costa Rica and
the lease ends December 2004.

     The Company has been  authorized  by its Board of Directors  to  repurchase
shares of its Common Stock,  from time to time,  depending on market  conditions
and  availability  of resources.  During the second quarter of 2002, the Company
repurchased  15,000 shares of Common Stock at a cost of approximately  $129,000.
Subsequent  to the end of the second  quarter of 2002,  the Company  repurchased
43,200  additional  shares at a cost of approximately  $307,000.  No shares were
repurchased  during fiscal 2001 or fiscal 2000. All shares that were repurchased
prior to fiscal  year 2000 have been  reissued in private  placements  of common
stock during the current fiscal year and in fiscal year 2000.

                                      -19-

<PAGE>

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


Related Party Transactions

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

     On August  31,  2000,  in  connection  with an  amendment  of Mr.  Carter's
employment  agreement,  the Company  loaned Mr. Carter an  additional  $280,000.
Interest  on the loan  varies  and is based on the prime  rate of the  Company's
lending bank, payable in accordance with Mr. Carter's employment agreement. Each
year the  Company  will  forgive  20% of the  amount due under this loan and the
accrued  interest  thereon.  For fiscal  year 2002,  the Company  projects  that
$56,000 of principal and $18,000 of accrued interest will be forgiven.

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

     During the second  quarter and the first six months of 2002,  the Company's
General Counsel, KMZ Rosenman, was paid $124,000 and $226,000, respectively, for
providing legal services to the Company. A director of the Company is Counsel to
the Firm of KMZ Rosenman.

     During  2002,  the  Company  retained  Career  Consultants,   Inc.  and  SK
Associates to perform executive searches and to provide outplacement services to
the Company. The Company paid an aggregate of $8,500 and $17,500,  respectively,
to these companies during the second quarter and the first six months of 2002. A
director of the Company is the Chairman and Chief  Executive  Officer of each of
these companies.

     During the second  quarter and the first six months of 2002,  a director of
the  Company  was  paid  $9,000  and  $18,000,   respectively,   for   providing
financial-related consulting services to the Company.

     During the second  quarter and the first six months of 2002,  a director of
the  Company  was  paid  $9,000  and  $18,000,   respectively,   for   providing
technology-related consulting services to the Company.

     Each  director  who is not an employee  of the  Company  receives a monthly
director's fee of $1,500,  plus an additional $500 for each meeting of the Board
and of any Committees of the Board  attended.  The directors are also reimbursed
reasonable travel expenses  incurred in attending Board and Committee  meetings.
In addition,  pursuant to the 2001 Stock Option Plan, each non-employee director
is granted an  immediately  exercisable  option to purchase  2,500 shares of the
Common Stock of the Company on the date of each Annual Meeting of  Stockholders.
Each such grant is priced at the fair  market  value of the Common  Stock on the
date of such grant. On June 12, 2002, non-qualified stock options to purchase an
aggregate of 17,500 shares were issued to seven  directors at an exercise  price
of $9.90 per share.

                                      -20-

<PAGE>

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


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

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

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


Recent Accounting Pronouncements

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and  Hedging   Activities,"  which  established  new  accounting  and  reporting
standards  and requires  that every  derivative  instrument  (including  certain
derivative  instruments  embedded in other  contracts)  be recorded as assets or
liabilities in the balance sheet  measured at fair value.  SFAS No. 133 requires
that  changes  in the fair  value of  derivatives  be  recognized  currently  in
earnings unless specific hedge accounting  criteria are met. The Company adopted
the  provisions  of the Statement in 2001.  The Company does not currently  hold
derivative  instruments  or engage  in  hedging  activities  and  therefore  the
adoption  of SFAS No.  133 has not had any  impact  on the  Company's  financial
position, results of operations or cash flows.

                                      -21-

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


     On June 30, 2001, the Financial  Accounting Standards Board issued SFAS No.
141,  "Business  Combinations" and SFAS No. 142,  "Goodwill and Other Intangible
Assets".  SFAS No. 141 requires all business  combinations  initiated after June
30,  2001 to be  accounted  for using the  purchase  method  of  accounting  and
eliminates  the  pooling  method of  accounting.  SFAS No.  141 will not have an
impact on the Company's  business since the Company has accounted for all of its
business combinations using the purchase method of accounting.

     With the  adoption  of SFAS No. 142 by the Company on  December  30,  2001,
goodwill is no longer subject to  amortization  over its estimated  useful life.
However,  goodwill  will  be  subject  to at  least  an  annual  assessment  for
impairment and more frequently if circumstances  indicate a possible impairment.
The Company is required to perform a fair value-based  goodwill impairment test.
In  addition,  under  SFAS No.  142,  an  acquired  intangible  asset  should be
separately  recognized  if the benefit of the  intangible  is  obtained  through
contractual  or other  legal  rights,  or if the  intangible  asset can be sold,
transferred, licensed, rented, or exchanged. Intangible assets will be amortized
over their estimated  useful lives.  Any write-down of goodwill would be charged
to results of operations in the periods in which the recorded  value of goodwill
and certain intangibles is more than its fair value. On an annualized basis, the
Company  expects that the adoption of this  accounting  standard will reduce the
amortization of goodwill and intangibles by approximately $150,000 commencing in
2002,  unless  future  impairment  reviews  result in  periodic  write-downs  of
goodwill.  In  connection  with the  adoption of SFAS No.  142,  the Company has
completed the first of the impairment  tests of goodwill as of December 30, 2001
required by the standard  which  indicated  there was no impairment of goodwill.
The Company will perform the required annual  assessment  during the second half
of 2002.

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations".  SFAS No. 143 requires that asset
retirement  obligations that are identifiable upon acquisition and construction,
and during the operating  life of a long-lived  asset be recorded as a liability
using the present  value of the estimated  cash flows.  A  corresponding  amount
would be  capitalized  as part of the asset's  carrying  amount and amortized to
expense  over the  asset's  useful  life.  The  Company is required to adopt the
provisions of SFAS No. 143 effective  January 5, 2003.  The Company is currently
evaluating the impact of adoption of this statement. The Company does not expect
that the adoption of SFAS No. 143 will have a material  impact on the  Company's
financial position or results of operations.

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

                                      -22-
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


     In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No.
145,  "Rescission  of  FASB  Statements  No.  4, 44 and  62,  Amendment  of FASB
Statement No 13 and Technical  Corrections".  For most  companies,  SFAS No. 145
will require  gains and losses on  extinguishments  of debt to be  classified as
income or loss from continuing  operations rather than as extraordinary items as
previously  required under SFAS No. 4. Extraordinary  treatment will be required
for certain  extinguishments  as  provided in APB Opinion No. 30. The  statement
also amended SFAS No. 13 for certain sale-leaseback and sublease accounting. The
Company is required to adopt the provisions of SFAS No. 145 effective January 5,
2003.  The  Company  is  currently  evaluating  the impact of  adoption  of this
statement,  however,  the Company  does not expect that the adoption of SFAS No.
145 will have a material impact on the Company's  financial  position or results
of operations.

     In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting  for  Costs  Associated  with  Exit  or  Disposal  Activities,"  and
nullifies EITF Issue No. 94-3. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred,  whereas EITF No. 94-3 had  recognized the liability at the commitment
date to an exit plan.  The Company is required to adopt the  provisions  of SFAS
No. 146 effective  for exit or disposal  activities  initiated  after January 4,
2003.  The  Company  is  currently  evaluating  the impact of  adoption  of this
statement,  however,  the Company  does not expect that the adoption of SFAS No.
146 will have a material impact on the Company's  financial  position or results
of operations.

Forward-Looking Statements

     This quarterly report on Form 10-QSB contains statements relating to future
results of the Company (including certain  projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of  certain  risks and  uncertainties.  These  risks and  uncertainties
include,  but are not limited to:  general  economic  and  industry  conditions;
slower than anticipated penetration into the satellite  communications,  defense
and wireless  markets;  the risk that the benefits expected from the acquisition
of  Filtran  Microcircuits  Inc.  are  not  realized;  the  ability  to  protect
proprietary  information  and  technology;   competitive  products  and  pricing
pressures;  the risk  that the  Company  will not be able to  continue  to raise
sufficient  capital to expand its  operations as currently  contemplated  by its
business  strategy;   risks  relating  to  governmental  regulatory  actions  in
communications and defense programs; risks associated with demand for and market
acceptance of existing and newly developed products;  and inventory risks due to
technological  innovation and product  obsolescence,  as well as other risks and
uncertainties,  including but not limited to those detailed from time to time in
the Company's Securities and Exchange Commission filings.  These forward-looking
statements  are made only as of the date hereof,  and the Company  undertakes no
obligation  to update or revise  the  forward-looking  statements,  whether as a
result of new information

                                     -23-


<PAGE>
PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

     On June 12, 2002, the Company held its Annual Stockholders Meeting at which
the  stockholders  (i) elected three members to the Company's Board of Directors
and  (ii)  ratified  the  appointment  of  Ernst  & Young  LLP as the  Company's
independent  auditors  for the current  fiscal  year.  The  stockholders  of the
Company  elected  Mason N. Carter,  Albert H. Cohen and David B. Miller as Class
III Directors whose terms expire at the 2005 Annual Stockholders Meeting.

     The following sets forth the number of votes cast for, against or withheld,
as well as the number of  abstentions  and broker  non-votes,  voted upon at the
Company's June 12, 2002 Annual Stockholders Meeting:

Election of Directors.

                            For         Withheld
                         ---------      --------
Mason N. Carter          2,847,668       229,907
Albert H. Cohen          2,857,458       220,117
David B. Miller          2,859,529       218,046


Ratification of Ernst & Young LLP as the Company's independent auditors.

          For          Against      Abstained
       ---------       -------      ---------
       2,861,784        12,170       203,621

                                      -24-

<PAGE>



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

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

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

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

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

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

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

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

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

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



                                       -25-
<PAGE>

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


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

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

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

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

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

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

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

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

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

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




                                       -26-
<PAGE>


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


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

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

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

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

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

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

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

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

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

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



                                       -27-
<PAGE>


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

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

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

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

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

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

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

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


                                       -28-
<PAGE>


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

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

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

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

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

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

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

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

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

       11             Statement re: Computation of earnings per share.

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

-----------------------





                                       -29-
<PAGE>

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

(b) Reports on Form 8-K

       A Current Report on Form 8-K was filed on April 26, 2002, reporting the
       termination of the Company's relationship with its auditor Arthur
       Andersen LLP. The Company reported the hiring of Ernst & Young LLP to
       serve as the Company's independent auditors.



                                       -30-

<PAGE>

                                   SIGNATURES


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


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

    Date: August 13, 2002              By: /s/ Mason N. Carter
                                         -------------------------------------
                                         Mason N. Carter
                                         Chairman, President and
                                         Chief Executive Officer


    Date: August 13, 2002              By: /s/ Robert V. Condon
                                         -------------------------------------
                                         Robert V. Condon
                                         Vice President, Finance, Treasurer,
                                         Secretary and Chief Financial Officer



                                      -31-