UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.   20549





FORM
10-Q





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





For the
quarterly period ended October 3, 2009





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





For the
transition period
from            to




Commission
File No. 0-11201





Merrimac
Industries, Inc.


(Exact
Name of Registrant as Specified in Its Charter)




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





41
FAIRFIELD PLACE


WEST
CALDWELL, NEW JERSEY 07006


(Address
of Principal Executive Offices) (Zip Code)





(973)
575-1300


(Registrant’s
Telephone Number)





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





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x
          No   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈
           No  ̈





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





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


Yes  ̈
           No x





As of
November 4, 2009, there were 2,992,456
shares of Common Stock, par value $.01 per share,
outstanding.





MERRIMAC
INDUSTRIES, INC.





INDEX





PagePART
      I.
                                            FINANCIAL
      INFORMATIONItem
      1.
                                            Financial
      StatementsCondensed
      Consolidated Statements of Operations for the Quarters and Nine Months
      Ended October 3, 2009 and September 27, 2008 (Unaudited)
                                            1Condensed
      Consolidated Balance Sheets-October 3, 2009 (Unaudited) and January 3,
      2009
                                            2Condensed
      Consolidated Statement of Stockholders’ Equity for the Nine Months Ended
      October 3, 2009 (Unaudited)
                                            3Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended October 3,
      2009 and September 27, 2008 (Unaudited)
                                            4Notes
      to Unaudited Condensed Consolidated Financial Statements
                                            5Item
      2.
                                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                            17Item
      3.
                                            Quantitative
      and Qualitative Disclosures about Market Risk
                                            24Item
      4(T).
                                            Controls
      and Procedures
                                            25PART
      II.
                                            OTHER
      INFORMATIONItem
      1.
                                            Legal
      Proceedings
                                            25Item
      1A.
                                            Risk
      Factors
                                            25Item
      5.
                                            Other
      Information
                                            25Item
      6.
                                            Exhibits
                                            25Signatures
                                            
                                            26





PART I.
FINANCIAL INFORMATION





ITEM 1.
FINANCIAL STATEMENTS





MERRIMAC
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





Quarters Ended
                
                
                Nine Months EndedOctober
      3,
                
                
                September
      27,
                
                
                October
      3,
                
                
                September
      27,2009
                
                
                2008
                
                
                2009
                
                
                2008(Restated)
                
                
                
                
                
                (Restated)Net
      sales
                
                $
                8,271,178
                
                
                $
                8,327,790
                
                
                $
                23,966,766
                
                
                $
                21,575,742Costs
      and expenses:Cost
      of sales
                
                
                4,276,310
                
                
                
                5,323,091
                
                
                
                13,222,933
                
                
                
                13,958,812Selling,
      general and administrative
                
                
                2,450,671
                
                
                
                2,398,255
                
                
                
                7,122,290
                
                
                
                6,993,520Research
      and development
                
                
                101,665
                
                
                
                105,114
                
                
                
                318,187
                
                
                
                852,513Gain
      on sale of asset
                
                
                -
                
                
                
                -
                
                
                
                (40,579
                )
                
                
                -6,828,646
                
                
                
                7,826,460
                
                
                
                20,622,831
                
                
                
                21,804,845Operating
      income (loss)
                
                
                1,442,532
                
                
                
                501,330
                
                
                
                3,343,935
                
                
                
                (229,103
                )Interest
      and other expense, net
                
                
                (68,210
                )
                
                
                (17,336
                )
                
                
                (202,252
                )
                
                
                (126,516
                )Income
      (loss) from continuing operations net of income taxes
                
                
                1,374,322
                
                
                
                483,994
                
                
                
                3,141,683
                
                
                
                (355,619
                )Provision
      for income taxes
                
                
                443,279
                
                
                
                10,000
                
                
                
                686,014
                
                
                
                10,000Income
      (loss) from continuing operations
                
                
                931,043
                
                
                
                473,994
                
                
                
                2,455,669
                
                
                
                (365,619
                )Income
      (loss) from discontinued operations, afterincome
      taxes
                
                
                -
                
                
                
                (10,956
                )
                
                
                50,505
                
                
                
                (65,992
                )Net
      income (loss)
                
                $
                931,043
                
                
                $
                463,038
                
                
                $
                2,506,174
                
                
                $
                (431,611
                )Income
      (loss) per common share from continuing operations – basic
                
                $
                0.31
                
                
                $
                0.16
                
                
                $
                0.83
                
                
                $
                (0.13
                )Income
      (loss) per common share from discontinued operations –
    basic
                
                $
                -
                
                
                $
                -
                
                
                $
                0.01
                
                
                $
                (0.02
                )Net
      income (loss) per common share – basic
                
                $
                0.31
                
                
                $
                0.16
                
                
                $
                0.84
                
                
                $
                (0.15
                )Income
      (loss) per common share from continuing operations –
    diluted
                
                $
                0.31
                
                
                $
                0.16
                
                
                $
                0.82
                
                
                $
                (0.13
                )Income
      (loss) per common share from discontinued operations –
    diluted
                
                $
                -
                
                
                $
                -
                
                
                $
                0.02
                
                
                $
                (0.02
                )Net
      income (loss) per common share – diluted
                
                $
                0.31
                
                
                $
                0.16
                
                
                $
                0.84
                
                
                $
                (0.15
                )Weighted
      average number of shares outstanding-basic
                
                
                2,986,022
                
                
                
                2,948,037
                
                
                
                2,966,501
                
                
                
                2,940,112Weighted
      average number of shares outstanding-diluted
                
                
                3,013,986
                
                
                
                2,965,537
                
                
                
                3,000,131
                
                
                
                2,940,112





See
accompanying notes.


1


MERRIMAC
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





October
      3,
                
                
                January
      3,2009
                
                
                2009(UNAUDITED)
                
                
                (NOTE
      1)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                3,219,940
                
                
                $
                1,191,768Accounts
      receivable, net of allowance for doubtful accounts of
    $30,000
                
                
                7,559,992
                
                
                
                5,765,575Inventories,
      net
                
                
                5,604,220
                
                
                
                4,899,706Other
      current assets
                
                
                840,012
                
                
                
                542,320Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                
                
                3,249,726
                
                
                
                1,880,338Total
      current assets
                
                
                20,473,890
                
                
                
                14,279,707Property,
      plant and equipment
                
                
                38,179,022
                
                
                
                37,765,928Less
      accumulated depreciation and amortization
                
                
                30,433,635
                
                
                
                28,556,441Property,
      plant and equipment, net
                
                
                7,745,387
                
                
                
                9,209,487Other
      assets
                
                
                437,398
                
                
                
                543,217Total
      assets
                
                $
                28,656,675
                
                
                $
                24,032,411LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of long-term debt
                
                $
                291,667
                
                
                $
                291,667Accounts
      payable
                
                
                700,737
                
                
                
                794,351Accrued
      liabilities
                
                
                1,704,998
                
                
                
                1,432,124Customer
      deposits
                
                
                2,137,761
                
                
                
                654,133Income
      taxes payable
                
                
                213,565
                
                
                
                17,448Total
      current liabilities
                
                
                5,048,728
                
                
                
                3,189,723Long-term
      debt, net of current portion
                
                
                2,306,945
                
                
                
                2,611,111Deferred
      liabilities
                
                
                50,621
                
                
                
                64,254Total
      liabilities
                
                
                7,406,294
                
                
                
                5,865,088Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, par value $.01 per share:Authorized:  1,000,000
      sharesNo
      shares issued
                
                
                –
                
                
                
                –Common
      stock, par value $.01 per share:
                  20,000,000
      shares authorized; 3,355,361 and 3,315,229 shares issued; and 2,992,456
      and 2,952,324
                  shares
      outstanding, respectively
                
                
                33,554
                
                
                
                33,153Additional
      paid-in capital
                
                
                20,956,407
                
                
                
                20,379,924Retained
      earnings
                
                
                3,382,584
                
                
                
                876,41024,372,545
                
                
                
                21,289,487Less
      treasury stock, at cost – 362,905 shares at October 3, 2009 and January 3,
      2009
                
                
                (3,122,164
                )
                
                
                (3,122,164
                )Total
      stockholders’ equity
                
                
                21,250,381
                
                
                
                18,167,323Total
      liabilities and stockholders’ equity
                
                $
                28,656,675
                
                
                $
                24,032,411





See
accompanying notes.


2


MERRIMAC
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


NINE
MONTHS ENDED OCTOBER 3, 2009


(UNAUDITED)





Common
      Stock
                  
                  
                  Additional
                    Paid-in
                  
                  
                  Retained
                  
                  
                  TreasuryStockShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Earnings
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  TotalsBalance,
      January 3, 2009
                  
                  
                  3,315,229
                  
                  
                  $
                  33,153
                  
                  
                  $
                  20,379,924
                  
                  
                  $
                  876,410
                  
                  
                  362,905
                  
                  
                  $
                  (3,122,164
                  )
                  
                  $
                  18,167,323Net
      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,506,174
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,506,174Share-based
      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  344,856
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  344,856Exercise
      of stock options
                  
                  
                  31,632
                  
                  
                  
                  316
                  
                  
                  
                  231,712
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  232,028Vesting
      of restricted stock
                  
                  
                  8,500
                  
                  
                  
                  85
                  
                  
                  
                  (85
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Balance,
      October 3, 2009
                  
                  
                  3,355,361
                  
                  
                  $
                  33,554
                  
                  
                  $
                  20,956,407
                  
                  
                  $
                  3,382,584
                  
                  
                  
                  362,905
                  
                  
                  $
                  (3,122,164
                  )
                  
                  $
                  21,250,381





See
accompanying notes.


3


MERRIMAC
INDUSTRIES, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)




Nine Months EndedOctober 3,
                      2009
                    
                    
                    September 27,
                      2008Cash
      flows from operating activities:
                    
                    
                    
                    
                    RestatedNet
      income (loss)
                    
                    $
                    2,506,174
                    
                    
                    $
                    (431,611
                    )Income
      (loss) from discontinued operations
                    
                    
                    50,505
                    
                    
                    
                    (65,992
                    )Income
      (loss) from continuing operations
                    
                    
                    2,455,669
                    
                    
                    
                    (365,619
                    )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                    
                    
                    1,933,210
                    
                    
                    
                    1,907,668Gain
      on sale of assets
                    
                    
                    (40,579
                    )
                    
                    
                    –Amortization
      of deferred financing costs
                    
                    
                    85,402
                    
                    
                    
                    24,120Share-based
      compensation
                    
                    
                    344,856
                    
                    
                    
                    375,837Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (1,794,417
                    )
                    
                    
                    (1,592,848
                    )Inventories
                    
                    
                    (704,514
                    )
                    
                    
                    (15,207
                    )Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                    
                    
                    (1,369,388
                    )
                    
                    
                    (1,185,909
                    )Other
      current assets
                    
                    
                    (297,692
                    )
                    
                    
                    48,944Other
      assets
                    
                    
                    20,417
                    
                    
                    
                    69,311Accounts
      payable
                    
                    
                    (93,614
                    )
                    
                    
                    (38,436
                    )Accrued
      liabilities
                    
                    
                    272,874
                    
                    
                    
                    (126,234
                    )Customer
      deposits
                    
                    
                    1,483,628
                    
                    
                    
                    157,065Income
      taxes payable
                    
                    
                    196,117
                    
                    
                    
                    10,000Deferred
      liabilities
                    
                    
                    (13,633
                    )
                    
                    
                    2,215Net
      cash provided by (used in) operating activities of continuing
      operations
                    
                    
                    2,478,336
                    
                    
                    
                    (729,093
                    )Income
      (loss) from discontinued operations
                    
                    
                    50,505
                    
                    
                    
                    (65,992
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    2,528,841
                    
                    
                    
                    (795,085
                    )Cash
      flows from investing activities:Purchases
      of property, plant and equipment
                    
                    
                    (485,733
                    )
                    
                    
                    (671,780
                    )Cash
      proceeds from sale of asset
                    
                    
                    57,202
                    
                    
                    
                    664,282Net
      cash used in investing activities
                    
                    
                    (428,531
                    )
                    
                    
                    (7,498
                    )Cash
      flows from financing activities:Borrowings
      under revolving credit facility
                    
                    
                    -
                    
                    
                    
                    1,000,000Repayment
      of long-term debt
                    
                    
                    (304,166
                    )
                    
                    
                    (616,667
                    )Restricted
      cash returned
                    
                    
                    -
                    
                    
                    
                    250,000Proceeds
      from the exercise of stock options
                    
                    
                    232,028
                    
                    
                    
                    28,331Proceeds
      from Stock Purchase Plan sales
                    
                    
                    -
                    
                    
                    
                    59,435Net
      cash (used in) provided by financing activities
                    
                    
                    (72,138
                    )
                    
                    
                    721,099Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    2,028,172
                    
                    
                    
                    (81,484
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    1,191,768
                    
                    
                    
                    2,004,471Cash
      and cash equivalents at end of period
                    
                    $
                    3,219,940
                    
                    
                    $
                    1,922,987Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
      on credit facilities
                    
                    $
                    222,651
                    
                    
                    $
                    173,762Income
      taxes
                    
                    $
                    490,000
                    
                    
                    $
                    –




See
accompanying notes.


4




MERRIMAC
INDUSTRIES, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS
OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnote disclosures otherwise required by
accounting principles generally accepted in the United States of America for a
full fiscal year. The financial statements do, however, reflect all adjustments
of a normal recurring nature, which are in the opinion of management, necessary
for a fair presentation of the financial position of Merrimac Industries, Inc.
(“Merrimac” or the “Company”) as of October 3, 2009 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.





The
consolidated balance sheet at January 3, 2009 has been derived from the audited
financial statements at that date but does not include all the information
required by accounting principles generally accepted in the United States of
America for complete financial statements.  For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 20, 2009 for the year ended January 3, 2009.  See
the summary of Significant Accounting Policies in the Company’s 2008 Annual
Report on Form 10-K for a discussion of the accounting policies utilized by the
Company.





Merrimac’s
financial statements are presented in accordance with accounting standards set
by the Financial Accounting Standards Board, commonly referred to as the
“FASB.”  The FASB sets generally accepted accounting principles
(“GAAP”) that the Company follows to ensure that reports of the Company’s
financial condition, results of operations, and cash flows are presented on a
consistent basis.  References to GAAP issued by the FASB in these
footnotes are to the FASB Accounting Standards Codification, sometimes referred
to as the Codification or ASC (“ASC”).




We
evaluated subsequent events through November
9, 2009, the date of financial statement issuance.





2.
RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





In April
2009, the Company’s management determined that there were misstatements in the
Company’s previously reported fiscal year 2008 quarterly financial
statements.  These misstatements were due to a combination of factors
and primarily affected work in process inventories and cost of goods sold as
well as having a minor impact on accrued liabilities and selling, general and
administrative expenses.  The main factors causing the misstatements
were control deficiencies following the Company-wide conversion to an enterprise
resource planning (ERP) software system and as a result of changes in personnel
in the Company’s financial operations department.  The unaudited
condensed impact of the errors found affected all three previously reported
quarters of fiscal year 2008 and the restatement of the quarterly consolidated
financial statements were presented in the Company’s fiscal year 2008 Form 10-K.
The condensed consolidated statement of operations for the quarter and nine
months ended September 27, 2008 and condensed consolidated statements of cash
flows for the nine months ended September 27, 2008 presented herein are the
restated condensed consolidated financial statements and throughout this
Form 10-Q, where applicable, the restated condensed consolidated financial
statements for the quarter ended and nine months ended September 27, 2008 are
presented.




3.
DISCONTINUED OPERATIONS





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





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


5




MERRIMAC
INDUSTRIES, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




The
operating results of FMI, which were formerly represented as Merrimac’s
microwave micro-circuitry segment for the quarters and nine months ended October
3, 2009 and September 27, 2008 are summarized as follows:





Quarter Ended
                  
                  
                  Nine Months EndedOctober 3,
                    2009
                  
                  
                  September 27,
                    2008
                  
                  
                  October 3,
                    2009
                  
                  
                  September 27,
                    2008Net
      sales
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Income
      (loss) from discontinued operations before provision for income
      taxes
                  
                  $
                  -
                  
                  
                  $
                  (10,956
                  )
                  
                  $
                  50,505
                  
                  
                  $
                  (65,992
                  )Provision
      for income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Income
      (loss) from discontinued operations
                  
                  $
                  
                  
                  
                  $
                  (10,956
                  )
                  
                  $
                  50,505
                  
                  
                  $
                  (65,992
                  )


6


4.
CONTRACT REVENUE RECOGNITION





The
Company derives its revenues from sales of the following: customized products,
which include amounts billable for non-recurring engineering services and in
some instances the production and delivery of prototypes, and the subsequent
production and delivery of units under short-term, firm-fixed price contracts;
the design, documentation, production and delivery of a series of complex
components under long-term firm-fixed price contracts; and the delivery of
off-the-shelf standard products.





The
Company accounts for all contracts, except those for the sale of off-the-shelf
standard products, in accordance with the Revenue Recognition Topic of the ASC
(“Revenue Recognition Topic”). Sales of off-the-shelf standard products and
related costs of sales are recorded when title transfers to our customer, which
is generally on the date of shipment, provided persuasive evidence of an
arrangement exists, the sales price is fixed or determinable and collection of
the related receivable is probable.





The
Company recognizes all amounts billable under short-term contracts, including
those involving non-recurring engineering (“NRE”) services for customization of
products, in net sales and all related costs in cost of sales under the
completed-contract method when the customized units are delivered. The Company
periodically enters into contracts with customers for the development and
delivery of a prototype prior to the shipment of units. Under those
circumstances, the Company recognizes all amounts billable for NRE services in
net sales and all related costs in cost of sales when the prototype is delivered
and recognizes all of the remaining amounts billable and the related costs when
the units are delivered.





Periodically,
the Company has complex, long-term contracts for the engineering design,
development and production of space electronics products for which revenue is
recognized under the percentage-of-completion method. Sales and related contract
costs for design and documentation services under this type of contract are
recognized based on the cost-to-cost method. Sales and related contract costs
for products delivered under these contracts are recognized on the
units-of-delivery method. The Company has one contract which is primarily
related to the design and development (and to a lesser extent, the production of
space electronics) for which revenue under the entire contract is recognized
under the percentage-of-completion method using the cost-to-cost method. For
such contract, the Company has recognized costs and estimated earnings in excess
of billings of approximately $3,250,000 at October 3, 2009.





Pursuant
to the Revenue Recognition Topic, anticipated losses on all contracts are
charged to operations in the period when the losses become known.





5.
ACCOUNTING PERIOD





The
Company's fiscal year is the 52-53 week period ending on the Saturday closest to
December 31. The Company has quarterly dates that correspond with the Saturday
closest to the last day of each calendar quarter and each quarter consists of 13
weeks in a 52-week year. Periodically, the additional week to make a 53-week
year is added to the fourth quarter, making such quarter consist of 14 weeks
(fiscal year 2014 will be the next 53 week year).





6. RECENT
ACCOUNTING PRONOUNCEMENTS





In
October 2008, the FASB issued guidance that clarifies the methods of measurement
of a financial asset in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active.  The guidance
is effective for prior periods for which financial statements have not been
issued.  The guidance is summarized in the Fair Value Measurements and
Disclosures Topic of the ASC.  Management currently believes that the
guidance will have no material impact on the Company’s consolidated financial
statements.





In April
2009, the FASB issued accounting guidance for estimating the fair value of a
financial asset when the volume and level of activity for the asset or liability
have significantly decreased and reemphasized that regardless of market
conditions, the fair value measurement is an exit price concept as defined in
the FASB’s guidance issued in October, 2008 and noted above.  This
guidance further amended earlier pronouncements on this topic to require interim
disclosures of the valuation techniques and related inputs used to measure fair
value and any changes to those valuation techniques and inputs.  This
pronouncement also provided additional guidance on defining the major categories
of equity and debt securities measured at fair value in meeting the disclosure
requirements for these types of assets.  This guidance is to be
applied prospectively beginning in the second quarter of fiscal year
2009.  This guidance is summarized in the Fair Value Measurements and
Disclosures Topic of the ASC.  The adoption of this guidance by the
Company did not have a material impact on the Company’s financial
statements.




7


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


In April
2008, the FASB issued guidance regarding the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset.  The intent of this guidance is to
improve the consistency between the useful life of a recognized asset and the
period of expected cash flows used to measure the fair value of the asset under
generally accepted accounting principles in the United States of
America.  The guidance is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years.  This guidance is summarized in the Intangibles –
Goodwill and Other Topic of the ASC.  The adoption of this guidance by
the Company did not have a material impact on the Company’s financial
statements.





In
December 2007, the FASB issued a pronouncement that established principles and
requirements for how an acquiring company recognized and measured in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquired company and the goodwill
acquired.  The pronouncement also established disclosure requirements
to enable the evaluation of the nature and financial effects of the business
combination.  The pronouncement is effective for fiscal periods
beginning after December 15, 2008.  The pronouncement is summarized in
the Business Combinations Topic of the ASC.  The adoption of this
pronouncement by the Company did not have a material impact on the Company’s
consolidated financial statements.





In April
2009, the FASB issued guidance to address application issues raised by
preparers, auditors, and members of the legal profession on initial recognition
and measurements, subsequent measurement and accounting, and disclosure of
assets and liabilities arising from contingencies in a business
combination.  The guidance shall be effective for assets or
liabilities arising from contingencies in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  This guidance is
summarized in the Business Combinations Topic of the ASC.  The
adoption of this guidance by the Company did not have a material impact on the
Company’s consolidated financial statements.





In
December 2007, the FASB issued a pronouncement establishing accounting and
reporting standards of ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent’s ownership
interest and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated.  The pronouncement also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interest of the noncontrolling
owners.  The pronouncement is effective for fiscal periods beginning
after December 15, 2008.  The pronouncement is summarized in the
Consolidation Topic of the ASC.  The adoption of this pronouncement by
the Company did not have a material impact on the Company’s consolidated
financial statements.





In March
2008, the FASB issued a pronouncement changing the disclosure requirements for
derivative instruments and hedging activities.  Entities are required
to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under the pronouncement and its related interpretations, and (c)
how derivative instruments and related hedge items affect an entity’s financial
position, financial performance, and cash flows.  The pronouncement is
effective for fiscal years beginning after November 15, 2008.  The
pronouncement is summarized in the Derivative and Hedging Topic of the
ASC.  The adoption of this pronouncement by the Company did not have a
material impact on the Company’s consolidated financial statements.





In
November 2008, the FASB ratified guidance put forth by the Emerging Issues Task
Force that relates to all investments accounted for under the equity method of
accounting.  The guidance states that an entity shall measure its
equity investment initially at cost.  Contingent consideration should
only be included in the initial measurement of the equity method investment if
it is required to be recognized by specific authoritative guidance other than
that specified under the Business Combinations Topic of the
ASC.  However, if any equity method investment agreement involves a
contingent consideration arrangement in which the fair value of the investor’s
share of the investee’s net assets exceeds the investor’s initial cost, a
liability should be recognized.  An equity method investor is required
to recognize other-than-temporary impairments of an equity method investment and
shall account for a share issuance by the investee as if the investor had sold a
proportionate share of its investment.  Any gain or loss to the
investor resulting from an investee’s share issuance shall be recognized in
earnings.  The guidance shall be effective in fiscal years beginning
on or after December 15, 2008, and interim periods within those fiscal years and
shall be applied prospectively.  The guidance is summarized in the
Investments – Equity Method and Joint Ventures Topic of the ASC.  The
adoption of this guidance by the Company did not have a material impact on the
Company’s consolidated financial statements.





In May
2009, the FASB issued a pronouncement establishing general standards for
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be
issued.  The pronouncement, among other things, sets forth the period
after the balance sheet date during which management should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements and the disclosures an entity should make about events or
transactions that occurred after the balance sheet date.  The
pronouncement was effective for the Company beginning July 4,
2009.  The pronouncement is summarized in the Subsequent Events Topic
of the ASC.  The adoption of this pronouncement by the Company did not
have a material impact on the Company’s interim or annual financial statements
or the disclosures in those financial statements.




8


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


In June
2009, the FASB issued a pronouncement that establishes the FASB ASC as the
single sole source of authoritative generally accepted accounting principles
recognized by the FASB to be applied by non-governmental
entities.  The Codification does not change current GAAP, but is
intended to simplify user access to all authoritative GAAP by providing all the
authoritative literature related to a particular topic in one
place.  Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants.  The pronouncement is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009.  The Company has updated references to GAAP
in its consolidated financial statements issued for the period ended October 3,
2009.  The adoption of this pronouncement did not impact the Company’s
consolidated results of operations or financial position.





In June
2009, the FASB issued guidance relating to the determination of which entities,
if any, have a controlling financial interest in a variable interest entity
(“VIE”) from a quantitative based risk and rewards calculation.  The
original calculation method was replaced with a qualitative approach that
focuses on identifying which entities have the power to direct the activities
that most significantly impact the VIE’s economic performance and the obligation
to absorb losses of the VIE or the right to receive benefits from the
VIE.  The update also requires ongoing assessments as to whether an
entity is the primary beneficiary of a VIE, modifies the presentation of
consolidated VIE assets and liabilities, and requires additional disclosures
about a company’s involvement in VIE’s.  This guidance is effective
for financial statements issued for interim and annual periods ending after
November 15, 2009.  The guidance is summarized in the Consolidation
Topic of the ASC.  Management is currently evaluating the effect that
adoption of this guidance will have, if any, on the Company’s consolidated
results of operations and financial position.





In
September 2009, the FASB issued guidance relating to measurement of the fair
value of certain investments, including those with fair values that are not
readily determinable, on the basis of the net asset value per share of the
investment (or its equivalent) if such net asset value is calculated in a manner
consistent with the measurement principles in Financial Services Topic of the
ASC as of the entity’s measurement date (measurement of all or substantially all
of the underlying investments of the investee in accordance with the Fair Value
Measurements and Disclosures guidance).  The guidance also requires
enhanced disclosures about the nature and risks of investments within its scope
that are measured at fair value on a recurring or nonrecurring
basis.  This guidance is effective for the Company beginning October
4, 2009.  The guidance is summarized in the Fair Value Measurements
and Disclosures Topic of the ASC.  Management is currently evaluating
the effect that adoption of this guidance will have, if any, on the Company’s
consolidated results of operations and financial position.





In
October 2009, the FASB issued guidance removing the
objective-and-reliable-evidence-of-fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, replaces references to
“fair value” with “selling price” to distinguish from the fair value
measurements required under the Fair Value Measurements and Disclosures
guidance, provides a hierarchy that entities must use to estimate the selling
price, eliminates the use of the residual method for allocation, and expands the
ongoing disclosure requirements.  This update is effective for
financial statements beginning on or after June 15, 2010 and can be applied
prospectively or retrospectively.  The guidance is summarized in the
Revenue Recognition Topic of the ASC.  Management is currently
evaluating the effect that adoption of this guidance will have, if any, on the
Company’s consolidated results of operations and financial
position.





7.
SHARE-BASED COMPENSATION





On
January 1, 2006, the start of the first quarter of fiscal 2006, the Company
adopted the provisions of the Equity Topic and Compensation-Stock Compensation
Topic of the ASC as they relate to share-based compensation (“Equity and
Compensation Topic”) which requires that the costs resulting from all
share-based payment transactions be recognized in the financial statements at
their fair values. The Company adopted the Equity and Compensation Topics using
the modified prospective application method under which the provisions of the
Equity and Compensation Topics apply to new awards and to awards modified,
repurchased, or cancelled after the adoption date. Additionally, compensation
cost for the portion of the awards for which the requisite service has not
been rendered that are outstanding as of the adoption date is recognized in the
consolidated statement of operations over the remaining service period after the
adoption date based on the award's original estimate of fair
value.





Because
of the Company’s net operating loss carryforwards, no tax benefits resulting
from the exercise of stock options have been recorded, thus there was no effect
on cash flows from operating or financing activities.




9


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The
components of share-based compensation expense in the statements of operations
are as follows:





Quarters Ended
                
                Nine Months EndedOctober 3,
                  2009
                
                September 27,
                  2008
                
                October 3,
                  2009
                
                September 27,
                  2008Stock
      options
                
                $
                107,000
                
                
                $
                95,000
                
                
                $
                294,000
                
                
                $
                293,000Restricted
      stock
                
                
                17,000
                
                
                
                17,000
                
                
                
                51,000
                
                
                
                64,000Employee
      stock purchase plan
                
                
                -
                
                
                
                6,000
                
                
                
                -
                
                
                
                19,000Total
      share-based compensation
                
                $
                124,000
                
                
                $
                118,000
                
                
                $
                345,000
                
                
                $
                376,000





For the
quarters and nine months ended October 3, 2009 and September 27, 2008,
share-based compensation expense was allocated as follows:




Quarters Ended
                
                Nine Months EndedOctober 3,
                  2009
                
                September 27,
                  2008
                
                October 3,
                  2009
                
                September 27,
                  2008Cost
      of sales
                
                $
                48,000
                
                
                $
                45,000
                
                
                $
                129,000
                
                
                $
                135,000Selling,
      general and administrative
                
                
                76,000
                
                
                
                73,000
                
                
                
                216,000
                
                
                
                241,000Total
      share-based compensation
                
                $
                124,000
                
                
                $
                118,000
                
                
                $
                345,000
                
                
                $
                376,000





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




The
following weighted average assumptions for options granted in the quarter and
nine months ended October 3, 2009 and September 27, 2008 were
utilized:





2009
                  
                  
                  2008Expected
      option life (years)
                  
                  
                  6.0
                  
                  
                  
                  6.0Expected
      volatility
                  
                  
                  63.71
                  %
                  
                  
                  37.56
                  %Risk-free
      interest rate
                  
                  
                  2.53
                  %
                  
                  
                  3.14
                  %Expected
      dividend yield
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %





The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility.




Share-Based
Compensation Plans:





At
October 3, 2009, the Company maintains share-based compensation arrangements
under the following plans: (i) 1997 Long Term Incentive Plan; (ii) 2001 Stock
Option Plan; (iii) 2006 Stock Option Plan; (iv) 2006 Key Employee Incentive
Plan; and (v) 2006 Non-Employee Directors' Stock Plan (see Note 7 of Form
10-K).





The 2006
Stock Option Plan authorizes the grant of an aggregate of 500,000 shares of
common stock to employees, directors and consultants of the
Company.  Under the 2006 Stock Option Plan, the Company may grant to
eligible individuals incentive stock options, as defined in Section 422 of the
Internal Revenue Code of 1986 (the “Code”), and/or non-qualified stock options.
The purpose of the 2006 Stock Option Plan is to attract, retain and motivate
employees, compensate consultants, and to enable employees, consultants and
directors, including non-employee directors, to participate in the long-term
growth of the Company by providing for or increasing the proprietary interests
of such persons in the Company, thereby assisting the Company to achieve its
long-range goals.





At
October 3, 2009, there were 448,350 options granted under the 2006 Stock Option
Plan; 132 were exercised and 448,218 options were outstanding of which 196,282
were exercisable. Options are granted at the closing price of the Company’s
shares on the American Stock Exchange on the date immediately prior to grant,
pursuant to the 2006 Stock Option Plan.  Options available for grant
under the 2006 Stock Option Plan were 51,650 at October 3, 2009.





10


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


At
October 3, 2009, there were 67,200 options outstanding under the 1997 Long Term
Incentive Plan and the 2001 Stock Option Plan, of which all were
exercisable.  No options are available for future grant under the 1997
Long Term Incentive Plan or the 2001 Stock Option Plan.  Under the
1993 Stock Option Plan, there were no options outstanding or available for
future grant.





A summary
of all stock option activity and information related to all options outstanding
for the nine months ended October 3, 2009 follows:





Weighted-
                    Average
                    Exercise
                    Price
                  
                  
                  Number
                    of
                    Shares
                  
                  
                  Average
                    Contractual
                    Term (Years)
                  
                  
                  Aggregate
                    Intrinsic
                    ValueOutstanding at January
      3, 2009
                  
                  $
                  9.12
                  
                  
                  
                  435,400Granted
                  
                  
                  7.83
                  
                  
                  
                  177,850Exercised
                  
                  
                  7.34
                  
                  
                  
                  (31,632
                  )
                  
                  
                  
                  
                  
                  $
                  96,000Expired
                  
                  
                  8.01
                  
                  
                  
                  (49,400
                  )Forfeited
                  
                  
                  9.60
                  
                  
                  
                  (16,800
                  )Outstanding
      at October 3, 2009
                  
                  $
                  8.87
                  
                  
                  
                  515,418
                  
                  
                  
                  7.8
                  
                  
                  $
                  72,000Exercisable
      at October 3, 2009
                  
                  $
                  9.62
                  
                  
                  
                  263,482
                  
                  
                  
                  6.3
                  
                  
                  $
                  28,000





As of
October 3, 2009, the total future compensation cost related to nonvested stock
options not yet recognized in the statement of operations was
$1,010,000.  Of that total, $155,000, $394,000, $283,000 and $178,000,
are expected to be recognized in 2009, 2010, 2011 and 2012, respectively. As of
October 3, 2009, there is no future compensation cost related to the employee
stock purchase plan. There were 93,190 and 116,213 options vested during the
nine months ended October 3, 2009 and September 27, 2008,
respectively.





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





The
Company issued a grant of 9,000 shares of restricted stock, 1,500 shares each,
to its six non-employee directors, on June 24, 2009 and June 26, 2008. The
per-share price of the grant was $7.82 and $5.15, respectively (the closing
price of the Company’s shares on The American Stock Exchange on the date
immediately prior to the grant, pursuant to the terms of the plan). One third of
such restricted stock vests on each anniversary of the grant date over a
three-year period.  Share-based compensation expense for the quarter
and nine months ended October 3, 2009, related to the grants of restricted
stock, was approximately $17,000 and $51,000, respectively, which was based on a
straight-line amortization. Share based compensation expense for the quarter and
nine months ended September 27, 2008, related to the grants of restricted stock,
was approximately $17,000 and $64,000, respectively, which was based on a
straight-line amortization. Restricted shares of common stock available for
grant under the 2006 Non-Employee Directors’ Stock Plan were 62,500 at October
3, 2009.





A summary
of unvested restricted stock activity and information related to all restricted
stock outstanding follows:





Weighted-Average
                    Grant-Day Fair Value
                  
                  
                  SharesOutstanding
      at January 3, 2009
                  
                  $
                  7.36
                  
                  
                  
                  17,500Granted
                  
                  
                  7.82
                  
                  
                  
                  9,000Vested
                  
                  
                  8.07
                  
                  
                  
                  (8,500
                  )Outstanding
      at October 3, 2009
                  
                  $
                  7.26
                  
                  
                  
                  18,000





As of
October 3, 2009, the total future compensation cost related to the 2006
Non-Employee Directors’ Stock Plan not yet recognized in the statement of
operations was $108,000.  Of that total, $17,000, $51,000, $30,000 and
$10,000 are expected to be recognized in 2009, 2010, 2011 and 2012,
respectively.





The
Company elected to adopt the detailed method provided in the Equity and
Compensation Topics for calculating the beginning balance of the additional
paid-in capital pool (“APIC pool”) related to the tax effects of employee
stock-based compensation, and to determine the subsequent impact on the APIC
pool and consolidated statements of cash flows of the tax effects of employee
stock-based compensation awards that are outstanding upon adoption of the
provisions of the Equity and Compensation Topics.




11


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


8.
INVENTORIES





Inventories
are stated at the lower of cost or market, using the average cost method. Cost
includes materials, labor and manufacturing overhead related to the purchase and
production of inventories.





Inventories
consist of the following:





October 3,
                    2009
                  
                  
                  January 3,
                    2009Finished
      goods
                  
                  $
                  585,178
                  
                  
                  $
                  700,174Work
      in process
                  
                  
                  2,112,775
                  
                  
                  
                  1,837,324Raw
      materials and purchased parts
                  
                  
                  2,906,267
                  
                  
                  
                  2,362,208Totals
                  
                  $
                  5,604,220
                  
                  
                  $
                  4,899,706




9.
CURRENT AND LONG-TERM DEBT





The
Company was obligated under the following debt instruments at October 3, 2009
and January 3, 2009:





October 3,
                                2009
                              
                              
                              January 3,
                                2009Wells
      Fargo Bank N.A.:Revolving
      line of credit, 1.00% above prime (prime having a 5% floor limit for loan
      purposes)
                              
                              $
                              
                              
                              
                              $
                              Equipment
      loan, due September 29, 2011, 1.00% above prime (prime having a 5% floor
      limit for loan purposes) 6.00% at October 3, 2009
                              
                              
                              279,167
                              
                              
                              
                              458,333Mortgage
      loan, due September 29, 2011, 1.50% above prime (prime having a 5% floor
      limit for loan purposes) or LIBOR plus 3.5%, 6.50% at October 3,
      2009
                              
                              
                              2,319,445
                              
                              
                              
                              2,444,4452,598,612
                              
                              
                              
                              2,902,778Less
      current portion
                              
                              
                              291,667
                              
                              
                              
                              291,667Long-term
      portion
                              
                              $
                              2,306,945
                              
                              
                              $
                              2,611,111





On
September 29, 2008, the Company entered into a credit facility with Wells Fargo
Bank, N.A. (“WFB”) (the “Wells Fargo Credit Facility”) which replaced the credit
facility with Capital One, N.A. On September 30, 2008, the Company repaid all
outstanding amounts under the credit facility with Capital One, N.A. with the
proceeds of the Wells Fargo Credit Facility.  The Wells Fargo Credit
Facility consists of a three-year $5,000,000 collateralized revolving credit
facility, a three-year $500,000 equipment term loan and a three-year $2,500,000
real estate term loan.  The revolving line of credit is subject to an
availability limit under a borrowing base calculation of 85% of eligible
domestic accounts receivable with a sublimit of $5,000,000 and 30% of eligible
inventories with a sublimit of $400,000.  The revolving line of credit
is also subject to a minimum borrowing base availability of
$500,000.  As of October 3, 2009, the Company had a borrowing base of
approximately $3,730,000 and availability under the credit facility as of
October 3, 2009 of approximately $3,230,000. The revolving line of credit
expires September 29, 2011.  The revolving line of credit bears
interest at the prime rate plus one percent, with the prime rate having a floor
limit of 5% for loan purposes.  The Company may request a LIBOR quote
for an initial minimum of $1,000,000 with subsequent requests at a minimum of
$500,000.  No more than three such requests may be active at any point
in time.  LIBOR advances bear interest at the LIBOR rate plus 3.25%
for a credit advance, or 3.50% for a term loan.   The equipment
loan is required to be repaid in equal monthly installments of $13,900 based on
a four-year amortization period.  The real estate loan is required to
be paid in equal monthly installments of $10,400 amortized over a 180 month time
period, with any unpaid principal and interest due and payable on the
termination date of September 29, 2011.




Interest
expense for the nine months ended October 3, 2009 was approximately
$223,000.





In the
second quarter of 2009, the Company sold equipment for approximately $57,000 and
all of the proceeds were used to pay down the Wells Fargo equipment
loan.





The Wells
Fargo Credit Facility is collateralized by substantially all of the Company’s
assets.




12


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The
credit facility requires the Company to maintain certain financial covenants,
including a minimum debt service coverage ratio of not less than 1.1 to 1.0 and
minimum net income.  For the quarter ended October 3, 2009 and for the
quarters ended October 3, 2009 and beyond, net income is not to be less than 75%
of the Company’s projected net income or not more than 100% of the Company’s
projected net loss.  Additionally, the credit facility prohibits
incurring or contracting to incur capital expenditures exceeding $600,000 in the
year ending January 2, 2010 and $600,000 in each subsequent year.  The
Company also must also not permit the amount due from its affiliate in Costa
Rica, Multi-Mix Microtechnology S.R.L., to exceed $5,000,000 through the quarter
ending October 3, 2009 and each fiscal quarter thereafter.  The credit
agreement contains other standard covenants related to the Company’s operations,
including prohibitions on the creation of additional liens, the incurrence of
additional debt, the payment of dividends, the sale of certain assets and other
corporate transactions, without Wells Fargo’s consent.  The Company
was in compliance with all of its financial covenants as of October 3,
2009.





At
October 3, 2009 and January 3, 2009, the fair value of the Company's debt
approximates carrying value. The fair value of the Company's long-term debt is
estimated based on current interest rates.





10.
WARRANTIES





The
Company's standard catalog items, as well as products sold under contracts, have
warranty obligations. With the exception of a very limited number of contracts,
all of the Company’s products have a one-year warranty.  For items
sold with extended warranties, estimated warranty costs for each contract are
determined based on the contract terms and technology-specific issues. The
Company accrues estimated warranty costs at the time of sale and any additional
amounts are recorded when such costs are probable and can be reasonably
estimated. Warranty expense was approximately $19,000 and $12,000 for the
quarters ended October 3, 2009 and September 27, 2008,
respectively.  Warranty expense was approximately $26,000
and $77,000 for the nine months ended October 3, 2009 and September 27,
2008, respectively. The warranty reserve was $165,000 and $200,000 at October 3,
2009 and January 3, 2009, respectively.





11.
INCOME TAXES




The
Company recorded a tax provision of $443,000 for the quarter ended October 3,
2009, based on income from continuing operations before taxes of
$1,374,000.  In 2008, the Company recorded a tax provision of
$10,000 for the quarter ended September 27, 2008 based on income from continuing
operations before taxes of $484,000.  The Company’s effective tax rate
for the quarters ended October 3, 2009 and September 27, 2008 was 32% and 2%,
respectively.  The provision for income taxes is based on Federal,
state and foreign income taxes, and has been reduced due to the utilization of
net operating loss carryovers.




The
Company recorded a $686,000 provision for income taxes for the nine months ended
October 3, 2009 based on income from continuing operations before taxes of
$3,142,000.  For the nine months ended September 27, 2008, the Company
recorded a tax provision of $10,000 based on the loss from continuing operations
before taxes of $356,000.  The Company’s effective tax rate for the
nine months ended October 3, 2009 and September 27, 2008 is 22% and 0%,
respectively.  The provision for income taxes is based on federal, state
and foreign income taxes, and has been reduced due to the utilization of net
operating loss carryovers.




As of
January 3, 2009, the Company had deferred tax assets of approximately $1.1
million related to net operating loss carryforwards a portion of which has been
used to reduce the Company’s taxable income in the first nine months of 2009.
The Company had net operating loss carryforwards of approximately $3.2 million
as of January 3, 2009 and based on the nine months income from continuing
operations before income taxes the Company anticipates it will fully utilize the
net operating loss carryforwards in 2009.  A valuation allowance is
required when management assesses that it is more likely than not that all or a
portion of a deferred tax asset will not be realized. The Company's 2002, 2003,
2006 and 2007 net losses have weighed heavily in the Company's overall
assessments. As a result of the original assessment, the Company established a
full valuation allowance for its remaining U.S. net deferred tax assets. This
assessment continued unchanged from 2003 through the third quarter of 2009. The
Company will continue to evaluate the realizability of its deferred tax assets
and liabilities on a periodic basis, and will adjust such amounts in light of
changing facts and circumstances.





Internal
Revenue Service Code Section 382 places a limitation on the utilization of net
operating loss carryforwards when an ownership change, as defined in the tax
law, occurs.  Generally, an ownership change occurs when there is a
greater than 50 percent change in ownership.  If such a change should
occur, the actual utilization of net operating loss carryforwards, for tax
purposes, would be limited annually to a percentage of the fair market value of
the Company at the time of such change.  The Company may become
subject to these limitations in 2009 depending on the extent of the changes in
its ownership.




On
December 31, 2006, the Company adopted the provision of the Incomes Taxes Topic
of the ASC (“Income Tax Topic”), which clarifies the accounting for uncertainty
in tax positions.  As of that date the Company had no uncertain tax
positions and did not record any additional benefits or
liabilities.  At October 3, 2009 and January 3, 2009, the Company had
no uncertain tax positions and did not record any additional benefits or
liabilities.  The Company will recognize any accrued interest or
penalties related to unrecognized tax benefits within the provision for income
taxes.




13
 MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




12.
BUSINESS SEGMENT DATA





The
Company's continuing operations are conducted primarily through one business
segment, electronic components and subsystems. This segment involves the design,
manufacture and sale of electronic component devices offering extremely broad
frequency coverage and high performance characteristics for communications,
defense and aerospace applications. Of the identifiable assets, 89% are located
in the United States and 11% are located in Costa Rica.





13. NET
INCOME (LOSS) PER COMMON SHARE





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





The
calculation of diluted net income (loss) per common share is similar to that of
basic net income (loss) per common share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, principally those
issuable under stock options, were issued during the reporting period to the
extent they are not anti-dilutive, using the treasury stock method.





Because
of the net loss for the nine months ended September 27, 2008 approximately
430,000 shares underlying stock options were excluded from the calculation of
diluted net loss per share, respectively, as the effect would be anti-dilutive.
For the quarter and nine months ended October 3, 2009, 315,668 shares underlying
options were excluded from the calculation of diluted net income per share
because the options did not have any intrinsic value.


14




MERRIMAC
INDUSTRIES, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The
weighted average number of shares outstanding basic and diluted is as
follows:





Quarter Ended
                  
                  
                  Nine Months EndedOctober 3,
                    2009
                  
                  
                  September 27,
                    2008
                  
                  
                  October 3,
                    2009
                  
                  
                  September 27,
                    2008Net
      income (loss) for basic and diluted computations
                  
                  $
                  931,043
                  
                  
                  $
                  463,038
                  
                  
                  $
                  2,506,174
                  
                  
                  $
                  (431,611
                  )Weighted
      average number of shares outstanding - basic
                  
                  
                  2,986,022
                  
                  
                  
                  2,948,037
                  
                  
                  
                  2,966,501
                  
                  
                  
                  2,940,112Dilutive
      effect of options and restricted stock
                  
                  
                  27,964
                  
                  
                  
                  17,500
                  
                  
                  
                  33,630
                  
                  
                  -Weighted
      average number of shares outstanding - diluted
                  
                  
                  3,013,986
                  
                  
                  
                  2,965,537
                  
                  
                  
                  3,000,131
                  
                  
                  
                  2,940,112Earnings
      per common shareBasic
                  
                  $
                  0.31
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.84
                  
                  
                  $
                  (0.15
                  )Diluted
                  
                  $
                  0.31
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.84
                  
                  
                  $
                  (0.15
                  )




14.
RELATED PARTY TRANSACTIONS





During
the third quarter and first nine months of 2009, the Company's outside general
counsel Katten Muchin Rosenman LLP was paid $50,000 and $211,000, respectively,
for providing legal services to the Company. During the third quarter and first
nine months of 2008, the Company's outside general counsel Katten Muchin
Rosenman LLP was paid $73,000 and $242,000, respectively, for providing legal
services to the Company. A director of the Company is counsel to Katten Muchin
Rosenman LLP but does not share in the fees that the Company pays to such law
firm and his compensation is not based on such fees.





During
2009 and 2008, the Company retained Career Consultants, Inc. and SK Associates
to perform executive searches and to provide other services to the Company. The
Company paid an aggregate of $0 and $17,000 to these companies during the third
quarter and first nine months of 2009, respectively.  The Company paid
an aggregate of $1,000 and $4,000 to these companies during the third quarter
and first nine months of 2008, respectively. A director of the Company is the
chairman and chief executive officer of these companies.





During
each of the third quarter and first nine months of 2009 and 2008, a director of
the Company was paid $9,000 and $27,000, respectively, for providing
technology-related consulting services to the Company.





The
Company has an agreement with DuPont Electronic Technologies (“DuPont”), a
stockholder and the employer of a director, for providing technological and
marketing-related personnel and services on a cost-sharing basis to the Company
under the Technology Agreement dated February 28, 2002. No payments were made to
DuPont during the third quarter and the first nine months of 2009 or 2008. A
director of the Company is an officer of DuPont, but does not share in any of
these payments.





DuPont
and two entities affiliated with Ludwig Kutner, one of our directors, hold
registration rights, which currently give them the right in perpetuity to
register an aggregate of 1,003,413 shares of Common Stock of the Company. There
are no settlement alternatives and the registration of the shares of Common
Stock would be on a "best efforts" basis.




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




15


MERRIMAC
INDUSTRIES, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


15.  STOCKHOLDER
RIGHTS PLAN





On March
5, 1999, the Board of Directors of the Company approved a stockholder rights
plan and declared a dividend of one common share purchase right (a "Right") for
each outstanding share of Common Stock of the Company. The dividend was payable
on March 19, 1999 (the "Record Date") to stockholders of record as of the close
of business on that date. Each Right will entitle the holder to purchase from
the Company, upon the occurrence of certain events, one share of Common Stock
for $25.00.





Generally,
if any person or group acquires beneficial ownership of 12.5% or more of the
Company's outstanding Common Stock, each Right (other than Rights held by such
acquiring person or group) will be exercisable, at the $25.00 purchase price,
for a number of shares of Common Stock having a market value of $50.00. Upon an
acquisition of the Company, each Right (other than Rights held by the acquirer)
will generally be exercisable, at the $25.00 purchase price, for a number of
shares of common stock of the acquirer having a market value of $50.00. In
certain circumstances, each Right may be exchanged by the Company for one share
of Common Stock. On March 19, 2009 the plan was amended to extend the expiration
date, from March 19, 2009 to December 31, 2009 unless earlier exchanged or
redeemed at $0.01 per Right.





16.  LEGAL
PROCEEDINGS





On March
10, 2008, a statement of claim in Ontario Superior Court of Justice was filed by
nineteen former FMI employees against the Company, FMI and FTG, which sought
damages for wrongful dismissal for approximately $1,000,000 (Canadian $977,000)
following the sale of FMI’s assets to FTG. The former FMI employees alleged that
an employment contract existed between FMI and the plaintiffs and sought
additional damages for termination of the alleged contract.  On August
18, 2009 the Company agreed to settle the claim for a total of $66,595 (Canadian
$70,000) of which $47,568 (Canadian $50,000) was paid for by the Company’s
Employment Practices Liability insurance policy that extends coverage to the
Company’s subsidiaries.  The total amount paid by the Company related
to this matter including the settlement amount, legal fees and the deductible
amount of the insurance policy was $44,027.




17. FAIR
VALUE OF FINANCIAL INSTRUMENTS




The
carrying amounts of financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable approximated fair value as of October
3, 2009 and January 3, 2009 because of the relative short maturity of these
instruments. At October 3, 2009 and January 3, 2009, the fair value of the
Company's debt approximates carrying value. The fair value of the Company's
long-term debt is estimated based on
current interest rates.


16


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





FORWARD-LOOKING
STATEMENTS





This
Quarterly Report on Form 10-Q contains statements relating to future results of
Merrimac (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995.   In this report, the words “we”, “us” and
“our” refer to Merrimac and its subsidiaries.  Actual results may
differ materially from those projected as a result of certain risks and
uncertainties. These risks and uncertainties include, but are not limited to:
risks associated with demand for and market acceptance of existing and newly
developed products as to which the Company has made significant investments,
particularly its Multi-Mix® products; risks associated with adequate capacity to
obtain raw materials and reduced control over delivery schedules and costs due
to reliance on sole source or limited suppliers; slower than anticipated
penetration into the satellite communications, defense and wireless markets;
failure of our Original Equipment Manufacturer or OEM customers to successfully
incorporate our products into their systems; changes in product mix resulting in
unexpected engineering and research and development costs; delays and increased
costs in product development, engineering and production; reliance on a small
number of significant customers; the emergence of new or stronger competitors as
a result of consolidation movements in the market; the timing and market
acceptance of our or our OEM customers' new or enhanced products; general
economic and industry conditions; the ability to protect proprietary information
and technology; competitive products and pricing pressures; our ability and the
ability of our OEM customers to keep pace with the rapid technological changes
and short product life cycles in our industry and gain market acceptance for new
products and technologies; risks relating to governmental regulatory actions in
communications and defense programs; and inventory risks due to technological
innovation and product obsolescence, as well as other risks and uncertainties as
are detailed from time to time in the Company's Securities and Exchange
Commission filings. The words “believe,” “expect,” “plan,” “anticipate,” and
“intend” and similar expressions identify forward-looking statements. These
forward-looking statements are made only as of the date of the filing of this
Form 10-Q, and the Company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.




OVERVIEW





Continuing
operations.




Merrimac
Industries, Inc. was originally incorporated as Merrimac Research and
Development, a New York corporation, in 1954. In 1994 we were reincorporated as
a New Jersey corporation and subsequently reincorporated as a Delaware
corporation in 2001.




We
design, manufacture and sell electronic components, integrated circuits and
subsystems offering extremely broad frequency coverage, high performance
characteristics and extraordinary thermal management. Our operations are
conducted through two operating facilities located in West Caldwell, New Jersey
and San Jose, Costa Rica.




We are a
versatile technology company specializing in radio frequency and microwave
applications solutions. We specialize in Multi-Mix®, stripline, microstrip,
discreet element, bonded stripline and thick metal-backed Teflon® and mixed
dielectric multilayer circuit technologies for defense, aerospace and commercial
applications.  Of special significance has been the combination of two
or more of these technologies into single components and integrated
multifunction subassemblies to achieve a unique and proprietary solution
offering superior performance and reliability while minimizing package size and
weight. Our components and integrated assemblies are found in applications as
diverse as satellites, military and commercial aircraft, radar, radio systems,
medical diagnostic instruments communications systems and wireless connectivity.
We maintain ISO 9001:2000 and AS 9100 registered quality assurance programs. Our
components range in price from $0.50 to more than $10,000 and our subsystems
range from $500 to more than $1,500,000.




Strategically,
we position our marketing, research and development, and manufacturing
operations to develop new products and expand our existing markets. Our research
and development efforts, driven by our marketing strategy, are targeted at
providing customers with more complex, reliable, and compact products
competitively priced.




Our
Multi-Mix® product development is focused on the military and space market
segments.  While we will carefully monitor and be alert to commercial
opportunities for our Multi-Mix® technology, where the customer is willing to
compensate us for our design work, we will limit the speculative funding of this
commercial segment.  The self-funded investment that we have
previously made has created a library of pre-engineered designs, especially in
RF Module Amplifiers, which provide platform families for both commercial and
military final customization.




We market
and sell our products domestically and internationally through a direct sales
force as well as independent domestic and international sales
organizations.  We develop and offer for sale products built to
specific customer specifications, as well as standard catalog
items.




17




We had a
strong backlog at the end of 2007 and a high volume of orders throughout 2008,
which resulted in a significant increase in sales in 2008 of 33.5%. The higher
sales volume in 2008 generated a 25.9% improvement in gross profit, which
combined with reductions in our research and development costs and our efforts
to keep selling, general and administrative expenses from growing relative to
sales, restored us to profitability in fiscal year 2008. We continue to have a
strong backlog and a high volume of orders in 2009 and expect an increase in
sales in 2009 over 2008. Due to the expected sales increase and our efforts to
keep overall costs down we anticipate that we will remain profitable in
2009.




Our cost
of sales consists of materials, salaries and related expenses, and outside
services for manufacturing and certain engineering personnel and manufacturing
overhead. Our products are designed and manufactured in our facilities located
in West Caldwell, NJ and Costa Rica. Our manufacturing and production facilities
infrastructure overhead are relatively fixed and are based on our expectations
of future net revenues. Should we experience a reduction in net revenues in a
quarter, we could have difficulty adjusting short-term expenditures and
absorbing any excess capacity expenses. If this were to occur, our operating
results for that quarter would be negatively impacted. In order to remain
competitive, we must continually reduce our manufacturing costs through design
and engineering innovations and increases in manufacturing efficiencies. There
can be no assurance that we will be able to reduce our manufacturing
costs.





We
anticipate that depreciation and amortization expenses will exceed capital
expenditures in fiscal year 2009 by approximately $2,000,000. We intend to issue
commitments to purchase approximately $110,000 of capital equipment from various
vendors for the remainder of 2009 and we anticipate that such equipment will be
purchased and become operational during the remainder of 2009.  Our planned
equipment purchases and other commitments are expected to be funded through cash
resources and cash flows expected to be generated from operations, and
supplemented by our $5,000,000 revolving credit facility with Wells
Fargo.





Selling,
general and administrative expenses consist of personnel costs for
administrative, selling and marketing groups, sales commissions to employees and
manufacturing representatives, travel, product marketing and promotion costs, as
well as legal, accounting, information technology and other administrative
costs. In 2009 we may need to increase our expenditures for selling, general and
administrative expenses, especially in connection with the implementation of our
strategic plan for generating and expanding sales of Multi-Mix®
products.





Research
and development expenses consist of materials, salaries and related expenses of
certain engineering personnel, and outside services related to product
development projects. We charge all research and development expenses to
operations as incurred. We believe that continued investment in research and
development is critical to our long-term business success.  We intend
to continue to invest in research and development programs in future periods
focusing our efforts on Multi-Mix® process enhancements for military and space
market applications.  However, overall we expect to reduce our
research and development expenditures in fiscal 2009 as a result of limiting our
investment in speculative funding of the commercial segment.





We
anticipate 2009 orders from our defense and satellite customers will increase
compared to fiscal year 2008 levels. Nevertheless, in times of armed conflict or
war, military spending is concentrated on armaments build up, maintenance and
troop support, and not on the research and development and specialty
applications that are the Company’s core strengths and revenue
generators.





Discontinued
operations.





Filtran
Microcircuits Inc. (“FMI”) was established in 1983, and we acquired FMI in
February 1999. FMI is a manufacturer of microwave micro-circuitry for the high
frequency communications industry. FMI has been engaged in the production of
microstrip, bonded stripline, and thick metal-backed Teflon® (PTFE)
microcircuits for RF applications including satellite, aerospace, PCS, fiber
optic telecommunications, automotive, navigational and defense applications
worldwide. FMI has supplied mixed dielectric multilayer and high speed
interconnect circuitry to meet customer demand for high performance and
cost-effective packaging.





Our
management determined, and the Board of Directors approved on August 9, 2007,
that we should divest our FMI operations with the view to enable us to
concentrate our resources on RF Microwave and Multi-Mix® Microtechnology product
lines to generate sustainable, profitable growth. Beginning with the third
quarter of 2007, we reflected FMI as a discontinued operation and we
reclassified prior financial statements to reflect the results of operations,
financial position and cash flows of FMI as discontinued
operations.







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





The
operating results of FMI, formerly represented as our microwave micro-circuitry
segment, on the condensed consolidated financial statements for the quarters and
nine months ended October 3, 2009 and September 27, 2008 are summarized as
follows:




18





Quarter Ended
                                        
                                        
                                        Nine Months EndedOctober 3,
                                          2009
                                        
                                        
                                        September 27,
                                          2008
                                        
                                        
                                        October 3,2009
                                        
                                        
                                        September 27,
                                          2008Net
      sales
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Income
      (loss) from discontinued operations before provision for income
      taxes
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (10,956
                                        )
                                        
                                        $
                                        50,505
                                        
                                        
                                        $
                                        (65,992
                                        )Provision
      for income taxes
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Income
      (loss) from discontinued operations
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (10,956
                                        )
                                        
                                        $
                                        50,505
                                        
                                        
                                        $
                                        (65,992
                                        )





CRITICAL
ACCOUNTING ESTIMATES AND POLICIES





Our
management makes certain assumptions and estimates that impact the reported
amounts of assets, liabilities and stockholders' equity, and sales and expenses.
These assumptions and estimates are inherently uncertain. The management
judgments that are currently the most critical are related to the accounting for
our investments in Multi-Mix® Microtechnology, contract revenue recognition,
inventory valuation and valuation of deferred tax assets. Below is a further
description of these policies as well as the estimates involved.





Contract
Revenue Recognition





We derive
our revenues from sales of the following: customized products, which include
amounts billable for non-recurring engineering services and in some instances
the production and delivery of prototypes, and the subsequent production and
delivery of units under short-term, firm-fixed price contracts; the design,
documentation, production and delivery of a series of complex components under
long-term firm-fixed price contracts; and the delivery of off-the-shelf standard
products.





We
account for all contracts, except those for the sale of off-the-shelf standard
products, in accordance with the Revenue Recognition Topic of the ASC (“Revenue
Recognition Topic”).





We
recognize all amounts billable under short-term contracts, including those
involving non-recurring engineering (“NRE”) services for customization of
products, in net sales and all related costs in cost of sales under the
completed-contract method when the customized units are delivered. We
periodically enter into contracts with customers for the development and
delivery of a prototype prior to the shipment of units. Under those
circumstances, we recognize all amounts billable for NRE services in net sales
and all related costs in cost of sales when the prototype is delivered and
recognizes all of the remaining amounts billable and the related costs when the
units are delivered.





Periodically,
we have complex, long-term contracts for the engineering design, development and
production of space electronics products for which revenue is recognized under
the percentage-of-completion method. Sales and related contract costs for design
and documentation services under this type of contract are recognized based on
the cost-to-cost method. Sales and related contract costs for products delivered
under these contracts are recognized on the units-of-delivery method. We have
one contract, which is primarily related to the design and development (and to a
lesser extent, the production of space electronics) for which revenue under the
entire contract is recognized under the percentage-of-completion method using
the cost-to-cost method. For such contract, we have recognized revenues, costs
and estimated earnings in excess of billings of approximately $3,250,000 at
October 3, 2009.





Pursuant
to the Revenue Recognition Topic, anticipated losses on all contracts are
charged to operations in the period when the losses become known.





Sales of
off-the-shelf standard products and related costs of sales are recorded when
title transfers to our customer, which is generally on the date of shipment,
provided persuasive evidence of an arrangement exists, the sales price is fixed
or determinable and collection of the related receivable is
probable.





Inventory
Valuation





Inventories
are valued at the lower of average cost or market. Inventories are periodically
reviewed for their projected manufacturing usage utilization and, when
slow-moving or obsolete inventories are identified, they are charged to
operations.




19





Procurement
of inventories is based on specific customer orders and forecasts. Customers
have certain rights of modification with respect to these orders and forecasts.
As a result, customer modifications to orders and forecasts affecting
inventories previously procured by us and our purchases of inventories beyond
customer needs may result in excess and obsolete inventories for the related
customers. Although we may be able to use some of these excess components and
raw materials in other products we manufacture, a portion of the cost of this
excess inventories may not be recoverable from customers, nor may any excess
quantities be returned to the vendors. We also may not be able to recover the
cost of obsolete inventories from vendors or customers.





Write
offs or write-downs of inventories generally arise from:





·
            declines in the market value of
      inventories;


·
            changes in customer demand for
      inventories, such as cancellation of orders;
  and


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




Valuation
of Deferred Tax Assets





As of
October 3, 2009, we have significant deferred tax assets resulting from net
operating loss carryforwards, tax credit carryforwards and deductible temporary
differences, a portion of which has been used to reduce our income tax in the
first nine months of 2009. A valuation allowance is required when management
assesses that it is more likely than not that all or a portion of a deferred tax
asset will not be realized. The Company's 2002, 2003, 2006 and 2007 net losses
have weighed heavily in the Company's overall assessments. We established a full
valuation allowance for our remaining U.S. net deferred tax assets as a result
of our assessment at December 28, 2002. This assessment continued unchanged from
2003 through the third quarter of 2009.





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





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS SUMMARY


(UNAUDITED)





Percentage
      of Net Sales
                
                
                Percentage
      of Net SalesQuarters Ended
                
                
                Nine Months EndedOctober
      3,
                
                
                September
      27,
                
                
                October
      3,
                
                
                September
      27,2009
                
                
                2008
                
                
                2009
                
                
                2008Restated
                
                
                
                
                
                RestatedNet
      sales
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %Costs
      and expenses:Cost
      of sales
                
                
                51.7
                
                
                
                63.9
                
                
                
                55.2
                
                
                
                64.7Selling,
      general and administrative
                
                
                29.6
                
                
                
                28.8
                
                
                
                29.7
                
                
                
                32.4Research
      and development
                
                
                1.3
                
                
                
                1.3
                
                
                
                1.3
                
                
                
                4.0Gain
      on sale of asset
                
                
                -
                
                
                
                -
                
                
                
                (0.2
                )
                
                
                -82.6
                
                
                
                94.0
                
                
                
                86.0
                
                
                
                101.1Operating
      income (loss)
                
                
                17.4
                
                
                
                6.0
                
                
                
                14.0
                
                
                
                (1.1
                )Interest
      and other expense, net
                
                
                (0.8
                )
                
                
                (0.2
                )
                
                
                (0.8
                )
                
                
                (0.6
                )Income
      (loss) from continuing operations before income taxes
                
                
                16.6
                
                
                
                5.8
                
                
                
                13.2
                
                
                
                (1.7
                )Provision
      for income taxes
                
                
                5.3
                
                
                
                0.1
                
                
                
                2.9
                
                
                
                -Income
      (loss) from continuing operations
                
                
                11.3
                
                
                
                5.7
                
                
                
                10.3
                
                
                
                (1.7
                )Income
      (loss) from discontinued operations after income taxes
                
                
                -
                
                
                
                (0.1
                )
                
                
                0.2
                
                
                
                (0.3
                )Net
      income (loss)
                
                
                11.3
                %
                
                
                5.6
                %
                
                
                10.5
                %
                
                
                (2.0
                )%


20




THIRD
QUARTER AND FIRST NINE MONTHS OF 2009 COMPARED TO THE THIRD QUARTER AND FIRST
NINE MONTHS OF 2008





Net
sales.





Net sales
in the third quarter of 2009 were relatively flat compared to the third quarter
of 2008. Net sales decreased $57,000 or 0.7% to $8,271,000, from the third
quarter of 2008 net sales of $8,328,000.  Net sales for the first nine
months of 2009 increased $2,391,000 or 11.1% to $23,967,000 compared to
$21,576,000 for the first nine months of 2008.  The increase in net
sales for the first nine months of 2009 is primarily due to our focused strategy
concentrating on aerospace and defense markets.  This strategy has
resulted in more orders from our key aerospace and defense customers including
increased sales of Multi-Mix® products to defense industry related
customers.





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





The
following table presents key performance measures that we use to monitor our
operating results for the nine months ended October 3, 2009 and September 27,
2008:





Nine Months EndedOctober 3,
                  2009
                
                
                September 27,
                  2008Beginning
      backlog
                
                $
                20,967,000
                
                
                $
                17,991,000Plus
      orders
                
                
                27,789,000
                
                
                
                24,688,000Less
      net sales
                
                
                23,967,000
                
                
                
                21,576,000Ending
      backlog
                
                $
                24,789,000
                
                
                $
                21,103,000Book-to-bill
      ratio
                
                
                1.16
                
                
                
                1.14





Orders of
$27,789,000 were received during the first nine months of 2009, an increase of
$3,101,000 or 12.6% compared to $24,688,000 in orders received during the first
nine months of 2008. Backlog increased by $3,686,000 or 17.5% to
$24,789,000 at the end of the first nine months of 2009 compared to $21,103,000
at the end of the first nine months of 2008. The book-to-bill ratio as of
the end of the first nine months of 2009 was 1.16 to 1 compared to 1.14 to
1 for the first nine months of 2008. We continue to receive a consistently high
level of orders that are in line with our projections and we expect our book-
to-bill ratio to exceed 1.0 to 1 for 2009.





The
backlog of unfilled orders includes amounts based on signed contracts as well as
agreed letters of intent, which we have determined are legally binding and
likely to proceed.  Although backlog represents only business that is
considered likely to be performed, cancellations or scope adjustments may and do
occur.  The elapsed time from the award of a contract to completion of
performance may be up to approximately four years.  The dollar amount
of backlog is not necessarily indicative of our future earnings related to the
performance of such work due to factors outside our control, such as changes in
project schedules, scope adjustment or project cancellations.  We
cannot predict with certainty the portion of backlog to be performed in a given
year.  Backlog is adjusted quarterly to reflect project cancellations,
deferrals, revised project scope and cost, and sales of subsidiaries, if
any.





Cost
of sales and gross profit.





Gross
profit and gross profit percentage increased for both the third quarter and
first nine months of 2009 compared to the same periods in 2008. Gross profit for
the third quarter of 2009 increased $990,000 or 32.9%, to $3,995,000 compared to
$3,005,000 for the third quarter of 2008.  Gross profit percentage for
the third quarter of 2009 was 48.3% compared to 36.1% for the third quarter of
2008. Gross profit for the first nine months of 2009 increased 41.1% or
$3,127,000 to $10,744,000 from $7,617,000 in the first nine months of 2008.
Gross profit percentage for the first nine months of 2009 was 44.8% compared to
35.3% for the first nine months of 2008.





The
increase in consolidated gross profit in the third quarter was due to the
increase in gross profit percentage.  The improved gross profit
percentage in the third quarter of 2009 compared to the third quarter of 2008
was primarily due to several orders that shipped in third quarter of 2009 with
above average gross profit margins while the same quarter last year had four
large orders that shipped with very low gross profit margins.  The
increase in consolidated gross profit in the first nine months of 2009 compared
to the same period in 2008 was due to the combination of improved gross profit
percentage and an increase in net sales.  The increase in net sales
also had a favorable impact on our gross profit percentage in the third quarter
and first nine months of 2009, allowing us to better absorb fixed manufacturing
costs.





21





Selling,
general and administrative expenses.





Selling,
general and administrative expenses were $2,451,000 for the third quarter of
2009, an increase of $52,000 or 2.2%, compared to $2,398,000 in the third
quarter of 2008.  The increase in expenses for the third quarter of
2009 was primarily due to an increase in commissions that was offset in part by
the restructuring charges incurred in the third quarter of 2008 that did not
recur in 2009. When expressed as a percentage of net sales, selling, general and
administrative expenses increased from 28.8% of sales in the third quarter of
2008 to 29.6% of sales in the third quarter of 2009. For the first nine months
of 2009, selling, general and administrative expenses were $7,122,000 compared
to $6,994,000 in the first nine months of 2008 an increase of $129,000 or 1.8%.
The increase in such expenses for the first nine months of 2009 was primarily
due to higher professional fees and commissions that were largely offset by
decreases in selling, marketing and proposal expenses. When expressed as a
percentage of net sales, selling, general and administrative expenses decreased
from 32.4% of sales in the first nine months of 2008 to 29.7% of sales in the
first nine months of 2009.





Research
and development expenses.





Research
and development costs decreased in both the third quarter and first nine months
of 2009.  Research and development costs in the third quarter of 2009
were $102,000 compared to $105,000 in 2008, a decrease of $3,000 or 3.3%.
Research and development costs for the first nine months of 2009 were $318,000
compared to $853,000 in 2008, a decrease of $534,000 or 62.7%. The decrease
reflects our decision to focus our research and development efforts on military
and space applications and reduce our investment in speculative commercial
applications. Substantially all of the research and development expenses were
related to Multi-Mix® Microtechnology process enhancements.





Operating
income (loss).




Operating
income for the third quarter and first nine months of 2009 was $1,443,000
and $3,344,000, respectively, compared to an operating income of $501,000 for
the third quarter of 2008 and an operating loss of $229,000 in the first nine
months of 2008. The improvement in operating income for the third quarter 2009
was primarily due to the improved gross profit resulting from increased gross
profit percentages.  The improvement in operating income for the first
nine months of 2009 was due to a combination of improved gross profit, resulting
from the increase in net sales and improved gross profit percentages, and the
decrease in research and development costs compared to the first nine months of
2008.





Interest
and other expense, net.





Interest
and other expense, net was $68,000 for the third quarter of 2009 compared to
interest and other expense, net of $17,000 for the third quarter of 2008.
Interest and other expense, net was $202,000 for the first nine months of 2009
compared to interest and other expense, net of $127,000 for the first nine
months of 2008. The interest expense was principally incurred on borrowings
under the term loans, which were financed by Wells Fargo in the third quarter
and first nine months of 2009 and Capital One in the third quarter and first
nine months of 2008. The increase in interest expense in the third quarter and
first nine months of 2009 compared to the third quarter and first nine months of
2008 was primarily due to increased amortization of loan costs for the Wells
Fargo Credit Facility compared to the amortization of the Capital One loan
costs.




Income
taxes.





Provision
for income tax expense was $443,000 and $686,000 in the third quarter and first
nine months of 2009 compared to $10,000 in each of the third quarter and first
nine months of 2008. The provision for income taxes in the third quarter and
first nine months of 2009 is based on the expectation that we will fully utilize
our net operating loss carryforwards in 2009.





As of
January 3, 2009, we had deferred tax assets of approximately $1.1 million
related to net operating loss carryforwards, a portion of which has been used to
reduce our taxable income in the first nine months of 2009. A valuation
allowance is required when management assesses that it is more likely than not
that all or a portion of a deferred tax asset will not be realized. Our 2002,
2003, 2006 and 2007 net losses have weighed heavily in our overall assessments.
As a result of the original assessment, we established a full valuation
allowance for our remaining U.S. net deferred tax assets. This assessment
continued unchanged from 2003 through the first nine months of
2009.





On
December 31, 2006, we adopted the provisions of the Income Taxes Topic of the
ASC (“Income Taxes Topic”), which clarifies the accounting for uncertainty in
tax positions.  As of that date we had no uncertain tax positions and
did not record any additional benefits or liabilities.  At October 3,
2009 and September 27, 2008, we had no uncertain tax positions and did not
record any additional benefits or liabilities.  We will recognize any
accrued interest or penalties related to unrecognized tax benefits within the
provision for income taxes.




22





Internal
Revenue Service Code Section 382 places a limitation on the utilization of net
operating loss carryforwards when an ownership change, as defined in the tax
law, occurs.  Generally, an ownership change occurs when there is a
greater than 50 percent change in ownership.  If such a change should
occur, the actual utilization of net operating loss carryforwards, for tax
purposes, would be limited annually to a percentage of our fair market value at
the time of such change.  We may become subject to these limitations
in 2009 depending on the extent of the changes in our ownership.





Discontinued
operations.





Income
from discontinued operations was $0 and $51,000 in the third quarter and first
nine months of 2009, respectively, compared to a loss from discontinued
operations of $11,000 and $66,000 in the third quarter and first nine months of
2008, respectively. Accordingly the income from discontinued operations for the
third quarter and first nine months of 2009 was $0.00 and $0.01 per share,
basic, respectively, compared to a loss from discontinued operations for
the third quarter and first nine months of 2008 of $0.00 and $0.02 per
share, basic, respectively. Income from discontinued operations for the third
quarter and first nine months of 2009 was $0.00 and $0.02 per share, diluted,
respectively, compared to a loss from discontinued operations for the third
quarter and first nine months of 2008 of $0.00 and $0.02 per share, diluted,
respectively. Although there was income from discontinued operations for the
first nine months of 2009, there may be some costs later in the year of 2009
that pertain to discontinued operations.





Net
income (loss).





For the
reasons set forth above, net income for the third quarter and first nine months
of 2009 was $931,000 and $2,506,000, respectively, compared to a net income of
$463,000 for the third quarter of 2008 and a net loss of $432,000 in the first
nine months of 2008. Net income per share, basic and diluted for the third
quarter of 2009 was $0.31 compared to net income per share, basic and diluted of
$0.16 for the third quarter of 2008.   For the first nine months
of 2009 net income per share basic and diluted was $0.84, compared to a net loss
per share, basic and diluted, of $0.15 for the first nine months of
2008.





LIQUIDITY
AND CAPITAL RESOURCES





We had
liquid resources comprised of cash and cash equivalents totaling approximately
$3,220,000 at the end of the first nine months of 2009 compared to approximately
$1,192,000 at the end of 2008. The cash position increased primarily as a result
of our operating income during the last three quarters and an increase in
customer deposits. Our working capital was approximately $15,425,000 at the end
of the first nine months of 2009 compared to $11,100,000 in 2008.  Our
current ratio was 4.1 to 1 at the end of the first nine months of 2009 compared
to 4.5 to 1 in 2008.  At October 3, 2009, we had available borrowing
capacity under our revolving line of credit of $1,240,000.





Our
operating activities from continuing operations provided cash flows of
$2,478,000 during the first nine months of 2009 compared to a use of $729,000 of
operating cash flows during the first nine months of 2008. The cash provided by
operating activities in the first nine months of 2009 was mainly due to the net
income from continuing operations of $2,456,000, depreciation and amortization
of $1,933,000 and an increase in customer deposits of
$1,484,000.  These were offset in part by an increase in accounts
receivable of $1,794,000, resulting from higher sales, an increase in
inventories of $705,000 needed to meet production needs and increase in costs
and estimated earnings in excess of billing of $1,369,000. The primary uses
of operating cash flows from continuing operations for the first nine months of
2008 were an increase in accounts receivable of $1,593,000, an increase in costs
and estimated earnings in excess of billing of $1,186,000 and the net loss
from continuing operations of $366,000.  These were offset in part by
depreciation and amortization of $1,908,000.





In the
first nine months of 2009, our net cash used in investing activities was
$429,000 compared to the net cash used in investing activities of $7,000 in the
first nine months of 2008.  The cash used in investing activities in
the first nine months of 2009 was attributable to the net cash investments in
property, plant and equipment of $486,000, which was offset in part by proceeds
from the sale of assets of $57,000.  In 2008, the net cash used in
investing activities was due to the net cash investments in property, plant and
equipment of $672,000 which was largely offset by the cash proceeds from the
sale of discontinued operations of $664,000. The capital expenditures in the
first nine months of 2009 and 2008 were primarily related to new production and
test equipment.





Our
net cash used in financing activities was $72,000 in the first nine months of
2009 compared to net cash provided by financing activities of $721,000 in
2008.  In 2009, the net cash used in financing activities was a result
of the repayment of long-term debt of $304,000, which was largely offset by the
proceeds from the exercise of stock options of $232,000.  In 2008, the
net cash provided by financing activities was primarily due to borrowings of
$1,000,000 under the revolving line of credit and the return of restricted cash
of $250,000.  These were offset in part by the repayment of long-term
debt of $617,000.





We expect
our planned equipment purchases and other commitments to be funded through cash
resources and cash flows expected to be generated from operations and
supplemented by our $5,000,000 revolving credit facility.




23




On
September 29, 2008, we entered into a credit facility with Wells Fargo Bank,
N.A. (“WFB”) (the “Wells Fargo Credit Facility”) which replaced our credit
facility with Capital One, N.A. On September 30, 2008, we repaid all outstanding
amounts under the credit facility with Capital One, N.A. with the proceeds of
the Wells Fargo Credit Facility.  The Wells Fargo Credit Facility
consists of a three-year $5,000,000 collateralized revolving credit facility, a
three-year $500,000 equipment term loan and a three-year $2,500,000 real estate
term loan.  The revolving line of credit is subject to an availability
limit under a borrowing base calculation of 85% of eligible domestic accounts
receivable with a sublimit of $5,000,000 and 30% of eligible inventories with a
sublimit of $400,000.  The revolving line of credit is also subject to
a minimum borrowing base availability of $500,000.  As of October 3,
2009, we had a borrowing base of approximately $3,730,000 and availability under
the credit facility as of October 3, 2009 of approximately $3,230,000. The
revolving line of credit expires September 29, 2011.  The revolving
line of credit bears interest at the prime rate plus one percent, with the prime
rate having a floor limit of 5% for loan purposes.  We may request a
LIBOR quote for an initial minimum of $1,000,000 with subsequent requests at a
minimum of $500,000.  No more than three such requests may be active
at any point in time.  LIBOR advances bear interest at the LIBOR rate
plus 3.25% for a credit advance, or 3.50% for a term loan.   The
equipment loan is required to be repaid in equal monthly installments of $13,900
based on a four-year amortization.  The real estate loan is required
to be paid in equal monthly installments amortized over a 180 month time period,
with any unpaid principal and interest due and payable on the termination date
of September 29, 2011. The two term loans require mandatory prepayment
subject to a prepayment fee of 1%-2% of the outstanding balance should the
appraised value of the collateral fall below certain levels.





The
equipment term loan bears interest at the prime (with a floor of 5%) rate plus
1%.  The real estate term loan bears interest at the prime rate (with
a floor of 5%) plus 1.50% or LIBOR plus 3.50%.





The Wells
Fargo Credit Facility is collateralized by substantially all of our
assets.





The
credit facility requires us to maintain certain financial covenants, including a
minimum debt service coverage ratio of not less than 1.1 to 1.0 and minimum net
income.  For the quarter ended October 3, 2009 and for the quarters
ending October 3, 2009 and beyond, net income is not to be less than 75% of our
projected net income and not more than 100% of our projected net
loss.  Additionally, the credit facility prohibits us from incurring
or contracting to incur capital expenditures exceeding $600,000 in the year
ending January 2, 2010 and $600,000 in each subsequent year-end.  We
also must also not permit the amount due from our affiliate in Costa Rica,
Multi-Mix Microtechnology S.R.L to exceed $5,000,000 through the quarter ending
October 3, 2009 and each fiscal quarter thereafter.  The credit
agreement contains other standard covenants related to our operations, including
prohibitions on the creation of additional liens, the incurrence of additional
debt, the payment of dividends the sale of certain assets and other corporate
transactions, without Wells Fargo’s consent.  We were in compliance
with all of our financial covenants as of October 3, 2009.





In the
second quarter of 2009, we sold equipment for approximately $57,000 and all of
the proceeds were used to pay down the Wells Fargo equipment loan.





As of
October 3, 2009, under the Wells Fargo Credit Facility, we had no amount
outstanding under the revolving credit facility, $279,167 outstanding under the
equipment term loan and $2,319,445 outstanding under the real estate term
loan.





At
October 3, 2009 and January 3, 2009, the fair value of our debt approximates
carrying value. The fair value of our long-term debt is estimated based on
current interest rates.





Depreciation
and amortization expenses exceeded capital expenditures for production equipment
during the first nine months of 2009 by approximately $1,447,000, and we
anticipate that depreciation and amortization expenses will exceed capital
expenditures in fiscal year 2009 by approximately $2,000,000. We intend to issue
commitments to purchase $110,000 of capital equipment from various vendors for
the remainder of 2009. We anticipate that such equipment will be purchased and
become operational during 2009.





RECENT
ACCOUNTING PRONOUNCEMENTS





See Note
6, "Recent Accounting Pronouncements", to the Company's Condensed Consolidated
Financial Statements for a discussion of recently issued accounting
standards.





ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





For
quantitative and qualitative disclosures about the market risks affecting
Merrimac, see “Quantitative and Qualitative Disclosures about Market Risk” in
Item 7A of Part II of the Company’s Annual Report on Form 10-K for the fiscal
year ended January 3, 2009, which is incorporated herein by
reference.  Our exposure to market risk has not changed materially
since January 3, 2009.





24





ITEM
4(T). CONTROLS AND PROCEDURES





As of
October 3, 2009, (the end of the period covered by this report), the Company's
management carried out an evaluation with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of
October 3, 2009, the Company's disclosure controls and procedures were
effective. There have been no changes in our internal control over financial
reporting that occurred during the Company’s third quarter of 2009 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.





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





PART II
OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGS.





We are
party to lawsuits arising in the normal course of business. It is the opinion of
our management that the disposition of these various lawsuits will not
individually or in the aggregate have a material adverse effect on our
consolidated financial position or the results of operations.





On March
10, 2008, a statement of claim in Ontario Superior Court of Justice was filed by
nineteen former FMI employees against Merrimac, FMI and FTG, which sought
damages for wrongful dismissal for approximately $1,000,000 (Canadian $977,000)
following the sale of FMI’s assets to FTG. The former FMI employees alleged that
an employment contract existed between FMI and the plaintiffs and sought
additional damages for termination of the alleged contract.  On August
18, 2009 we agreed to settle the claim for a total of $66,595 (Canadian $70,000)
of which $47,568 (Canadian $50,000) was paid for by the Company’s Employment
Practices Liability insurance policy that extends coverage to the Company’s
subsidiaries.  The total amount paid by the Company related to this
matter including the settlement amount, legal fees and the deductible amount of
the insurance policy was $44,027.




ITEM 1A.
RISK FACTORS.





There
have been no material changes to our Risk Factors from those presented in our
Form 10-K for fiscal year 2008.





ITEM 5.
OTHER INFORMATION.





None.




ITEM 6.
EXHIBITS.





Exhibits:





EXHIBIT
                NUMBER
              
              DESCRIPTION OF EXHIBIT31.1+
              
              Chief
      Executive Officer's Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2+
              
              Chief
      Financial Officer's Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1+
              
              Chief
      Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2+
              
              Chief
      Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





+    Indicates
that exhibit is filed as an exhibit hereto.


25


SIGNATURES





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





MERRIMAC
      INDUSTRIES, INC.Date:
      November 9, 2009By:
              /s/ Mason N. CarterMason
      N. CarterChairman,
      President andChief
      Executive OfficerDate:
      November 9, 2009
              By:
              /s/ J. Robert PattersonJ.
      Robert PattersonVice
      President, Finance andChief
      Financial Officer


26