FORWARD-LOOKING STATEMENTS

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

OVERVIEW

Continuing operations.

Merrimac Industries, Inc. is involved in the design, manufacture and sale of electronic component devices offering extremely broad frequency coverage and high performance characteristics, and microstrip, bonded stripline and thick metal-backed Teflon® (PTFE) and mixed dielectric multilayer circuits for communications, defense and aerospace applications. The Company's operations are conducted primarily through one business segment, electronic components and subsystems.

Merrimac is a versatile technologically oriented company specializing in radio frequency Multi-Mix®, stripline, microstrip and discreet element technologies. Of special significance has been the combination of two or more of these technologies into single components and integrated multifunction subassemblies to achieve superior performance and reliability while minimizing package size and weight. Merrimac components and integrated assemblies are found in applications as diverse as satellites, military and commercial aircraft, radar, cellular radio systems, medical and dental diagnostic instruments, personal communications systems and wireless connectivity. Merrimac maintains ISO 9001:2000 and AS 9100 registered quality assurance programs. Merrimac's components range in price from $0.50 to more than $10,000 and its subsystems range from $500 to more than $1,500,000.

For the third quarter and first nine months of 2008, the Company realized profitable results from continuing operations. Previously, the Company had experienced losses from continuing operations in the first quarter of 2008 and prior quarters. Improved orders and the increased opening backlog from 2007 enabled the Company to increase sales for the third quarter of 2008 by $1,716,000 or 26.0% and $5,081,000 or 30.8% for the first nine months of 2008 compared to 2007. Gross profit as a percentage of sales dropped from 42.6% in the third quarter of 2007 to 33.0% for the third quarter of 2008. Year to date gross profit for the first nine months of 2007 was 41.7% and year to date for the first nine months of 2008 was 39.2%. The Company pursued a strategy of aggressively seeking revenue opportunities throughout 2007 and early 2008. This strategy has resulted in an increase in revenues with the expected decline in gross profit percentage, but an increase in gross profit dollars. Backlog increased by $3,112,000 or 17.3% to $21,103,000 at the end of the third quarter of 2008 from the end of 2007. The Company markets and sells its products domestically and internationally through a direct sales force and manufacturers' representatives. Merrimac has traditionally developed andoffered for sale products built to specific customer needs, as well as standard catalog items.

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

The Company anticipates that depreciation and amortization expenses will exceed its revised capital expenditures for fiscal year 2008 by approximately $1,600,000. The Company intends to reduce its commitments to purchase capital equipment from various vendors to an amount of approximately $300,000 for the fourth quarter of 2008. The Company anticipates that such equipment will be purchased and become operational during the remainder of 2008. The Company's planned equipment purchases and other commitments are expected to be funded through cash resources and cash flows expected to be generated from operations, and supplemented by the Company's $5,000,000 revolving credit facility.

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

Research and development expenses consist of materials, salaries and related expenses of certain engineering personnel, and outside services related to product development projects. The Company charges all research and development expenses to operations as incurred. The Company believes that continued investment in research and development is critical to the Company's long-term business success. The Company intends to continue to invest in research and development programs in future periods. The Company will focus its research and development efforts on military and space applications and reduce investment in select commercial opportunities. Military and space applications are areas in which the Company has a significant core competency that the Company believes will result in a greater return on a reduced level of development spending.

The Company anticipates 2008 orders from its defense and satellite customers will be comparable to fiscal year 2007 levels. Nevertheless, in times of armed conflict or war, military spending is concentrated on armaments build up, maintenance and troop support, and not on the research and development and specialty applications that are the Company's core strengths and revenue generators.

Discontinued operations.

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

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

$368,000 (Canadian $360,000). FTG paid $818,000 (Canadian $800,000) of the purchase price at closing and the balance was paid on February 21, 2008 following the conclusion of a transitional period.

Operating results of FMI, which were formerly represented as Merrimac's microwave micro-circuitry segment, are summarized as follows:

                                 Quarter Ended                     Nine Months Ended
                        September 27,     September 29,     September 27,     September 29,
                            2008              2007              2008              2007

Net sales              $             -   $     1,003,000   $             -   $     2,824,000
Loss before
provision for income
taxes                  $       (11,000 )      (2,058,000 ) $       (66,000 )      (5,352,000 )

Provision for income
taxes                            -----             -----             -----           506,000
Net loss               $       (11,000 ) $    (2,058,000 ) $       (66,000 ) $    (5,858,000 )

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The Company's management makes certain assumptions and estimates that impact the reported amounts of assets, liabilities and stockholders' equity, and revenues and expenses. The management judgments that are currently the most critical are related to the accounting for the Company's investments in Multi-Mix® Microtechnology, contract revenue recognition, inventory valuation and valuation of deferred tax assets.

Contract Revenue Recognition

The Company derives its revenues from sales of the following: customized products, which include amounts billable for non-recurring engineering ("NRE") 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 AICPA Statement of Position No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" ("SOP 81-1").

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

Increasingly, 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 design and development 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 revenues in excess of billings of approximately $1,186,000 at September 27, 2008.

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

Inventory Valuation

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

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

Write offs or write downs of inventory generally arise from:

· declines in the market value of inventory;

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

· purchases of inventory beyond customer needs that result in excess quantities on hand that may not be returned to the vendor or charged back to the customer.

Valuation of Deferred Tax Assets

As of September 27, 2008, the Company has significant deferred tax assets resulting from net operating loss carryforwards, tax credit carryforwards and deductible temporary differences, which should reduce taxable income in future periods. A valuation allowance is required when management assesses that it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company's 2002, 2003, 2006 and 2007 net losses have weighed heavily in the Company's overall assessments. The Company established a full valuation allowance for its remaining U.S. net deferred tax assets as a result of its assessment at December 28, 2002. This assessment continued unchanged from 2003 through the first nine months of 2008.

                           MERRIMAC INDUSTRIES, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS SUMMARY
                                  (UNAUDITED)

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

                            Percentage of Net Sales             Percentage of Net Sales
                                Quarters Ended                     Nine Months Ended
                        September 27,      September 29,     September 27,     September 29,
CONTINUING
OPERATIONS                  2008               2007               2008              2007

Net sales                        100.0 %            100.0 %           100.0 %           100.0 %

Costs and expenses:
Cost of sales                     67.0               57.4              60.8              58.3
Selling, general and
administrative                    29.1               31.7              32.5              38.1
Research and
development                        1.3                6.1               4.0               7.4
                                  97.4               95.2              97.3             103.8

Operating income
(loss                              2.6                4.8               2.7              (3.8 )
Interest and other
expense, net                      (0.2 )             (1.1 )            (0.6 )            (0.4 )

Income (loss) from
continuing
operations
before income taxes                2.4                3.7               2.1              (4.2 )
Provision for income
taxes                             (0.1 )                -              (0.1 )               -
Income (loss) from
continuing
operations                         2.3                3.7               2.0              (4.2 )

DISCONTINUED
OPERATIONS

Loss from
discontinued
operations after
income taxes                      (0.1 )            (31.1 )            (0.3 )           (35.5 )
Net income (loss)                  2.2 %            (27.4 )%            1.7 %           (39.7 )%

THIRD QUARTER AND FIRST NINE MONTHS OF 2008 COMPARED TO THE THIRD QUARTER AND FIRST NINE MONTHS OF 2007-CONTINUING OPERATIONS

Net sales.

Net sales from continuing operations for the third quarter of 2008 were $8,328,000, an increase of $1,716,000 or 26.0 percent compared to the third quarter of 2007 net sales of $6,612,000. Net sales from continuing operations increased due to a higher level of orders received throughout fiscal year 2007, which resulted in a higher opening backlog at the beginning of the 2008 fiscal year, including higher sales of Multi-Mix® products to defense industry-related customers, as well as a continuation of the favorable trend in orders received during the current year that have positively impacted backlog during 2008.

Net sales from continuing operations for the first nine months of 2008 were $21,576,000, an increase of $5,081,000 or 30.8 percent compared to net sales of $16,495,000 for the first nine months of 2007. The increase in net sales for the first nine months of 2008 is primarily due to the same reasons that benefited the third quarter of 2008 increase in net sales.

Backlog represents the amount of orders the Company has received that have not been shipped as of the end of a particular fiscal period. The orders in backlog are a measure of future sales and determine the Company's upcoming material, labor and service requirements. The book-to-bill ratio for a particular period represents orders received for that period divided by net sales for the same period. The Company looks for this ratio to exceed 1.0 to 1, 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 September 27, 2008 and September 29, 2007:

                         2008           2007
Beginning backlog    $ 17,991,000   $ 11,490,000
Plus bookings          24,688,000     21,767,000
Less net sales         21,576,000     16,495,000
Ending backlog       $ 21,103,000   $ 16,762,000
Book-to-bill ratio           1.14           1.32

Orders of $9,295,000 were received during the third quarter of 2008, an increase of $2,266,000 or 32.2 percent compared to $7,029,000 in orders received during the third quarter of 2007. Orders of $24,688,000 were received during the first nine months of 2008, an increase of $2,921,000 or 13.4 percent compared to $21,767,000 in orders received during the first nine months of 2007. Backlog increased by $3,112,000 or 17.3 percent to $21,103,000 at the end of the third quarter of 2008 compared to $17,991,000 at year-end 2007, due to the increased orders received during the first nine months of 2008, including orders from defense industry-related customers that are scheduled for shipment later in 2008 and 2009. The book-to-bill ratio for the third quarter of 2008 was 1.12 to 1 and for the third quarter of 2007 was 1.06 to 1. The book-to-bill ratio for the first nine months of 2008 was 1.14 to 1 and for the first nine months of 2007 was 1.32 to 1. The orders, backlog and book-to-bill data exclude FMI information for 2007.

Cost of sales and gross profit.

The following table provides comparative gross profit information for the quarters and nine months ended September 27, 2008 and September 29, 2007.

                              Quarter ended September 27, 2008                        Quarter ended September 29, 2007
                                           $Increase/                                               $Increase/
                                      (Decrease) from prior      % of                            (Decrease) from       % of
                                             period            Net Sales                           prior period      Net Sales
Consolidated
gross profit       $     2,749,000    $             (67,000 )        33.0 %   $     2,816,000    $        532,000          42.6 %

                           Nine Months ended September 27, 2008                  Nine Months ended September 29, 2007
                                                                                                 $Increase/
                                          $Increase/                                             (Decrease)
                                        (Decrease) from        % of                              from prior        % of
                                         prior period        Net Sales                             period        Net Sales
Consolidated
gross profit       $     8,448,000    $         1,568,000          39.2 %   $      6,880,000    $    (782,000 )        41.7 %

The decrease in consolidated gross profit for the third quarter of 2008 was due to the impact of an aggressive pricing strategy in prior quarters when the Company's backlog was not as high as the most recent quarters.

The increase in consolidated gross profit and consolidated gross profit percentage for the nine months of 2008 was due to the impact of the higher level of sales allowing for a better absorption of fixed manufacturing costs.

Depreciation expense included in consolidated cost of sales for the third quarter of 2008 was $637,000, an increase of $83,000 compared to the third quarter of 2007. Depreciation expense included in consolidated cost of sales for the first nine months of 2008 was $1,908,000, an increase of $285,000 compared to the first nine months of 2007. For the third quarter and first nine months of 2008, approximately $391,000 and $1,203,000, respectively, of depreciation expense was associated with Multi-Mix® Microtechnology capital assets. For the third quarter and first nine months of 2007, approximately $393,000 and $1,150,000, respectively, of depreciation expense was associated with Multi-Mix® Microtechnology capital assets.

Selling, general and administrative expenses.

Selling, general and administrative expenses of $2,424,000 for the third quarter of 2008 increased by $325,000 or 15.4%, and when expressed as a percentage of net sales, decreased by 2.5 percentage points to 29.2% compared to the third quarter of 2007. The increase in such expenses for the third quarter of 2008 was due to higher sales commissions, increased selling costs from recent sales personnel hired to meet the demand of increased sales and higher professional fee costs. Selling, general and administrative expenses of $7,022,000 for the first nine months of 2008 increased by $729,000 or 11.6%, and when expressed as a percentage of net sales, decreased by 5.6 percentage points to 32.5% compared to the first nine months of 2007. The increase in such expenses for the first nine months of 2008 was due to higher commissions on the increased sales level and higher selling and administrative costs.