FIRST QUARTER 2003 REPORT  

REPORT TO STOCKHOLDERS
  

Merrimac Industries, Inc. First Quarter 2003 Results of Operations

First quarter 2003 sales of $6,512,000 decreased 4.9 % compared to first quarter 2002 sales of $6,851,000. The decline in sales was primarily attributable to a $1.8 million lower backlog at the beginning of 2003 compared to the beginning of 2002, which reflected continuing significant weakness in certain communications markets that are served by the Company. An operating loss in the first quarter of 2003 of $477,000 was incurred compared to operating income of $275,000 in the first quarter of 2002.

Net loss for the first quarter of 2003 was $455,000 compared to net income of $143,000 recorded for the first quarter of 2002. Net loss per share was $.15 for the first quarter of 2003 compared to net income per share of $.05 reported for the first quarter of 2002.

The wireless infrastructure market and Filtran’s printed circuit board market have shown little signs of rebounding. The market softness and the unpredictability of transition from legacy systems to new basestation platform designs affected our financial performance as backlog and profitability decreased. Although backlog has shown some positive increase, up 16.1 % compared to year-end 2002, we continue to react to overall market conditions by continuing to reduce expenses, right-size our organization and manage our assets in an effective manner.

In addition, we are maintaining our focus on opportunities for new designs in wireless infrastructure, and the military and satellite communications markets. Our Costa Rica operations are providing higher customer value, efficient and cost-effective manufacturing processes positioning us to take advantage of market conditions as they improve.

The weighted average number of basic shares outstanding increased by approximately 285,000 shares or 10 % for the first quarter of 2003 compared to the first quarter of 2002.

The increase in shares outstanding was primarily due to the issuance of 528,400 shares to DuPont Electronic Technologies during the first quarter of 2002.

The backlog at the end of the first quarter of 2003 was $11.7 million, an increase of $1.6 million or 16.1 % compared to year-end 2002, and an increase of $800,000 or 7.7 % when compared to the backlog of $10.8 million at the end of the first quarter of 2002. Orders received during the first quarter of 2003 totaling $8.1 million exceeded the first quarter of 2003 sales level by approximately 24.9 %, reflecting recent orders received near the end of the first quarter of 2003.

Management of the Company is contemplating additional cost and capital expenditure reductions as a means to improve cash flow. Management also believes that the potential exists for various financing alternatives, including but not limited to obtaining secured financing from an asset based lender and/or a sale and lease-back of certain property. While management believes any one of these financing alternatives, combined with current liquid resources and the expected cash flows from operations, should be sufficient to meet the obligations to Fleet Bank ($5,948,000 and any revolving credit balance due January 31, 2004) and currently contemplated operations during the next twelve months, there can be no assurance that any alternative financings can be obtained by the Company.

Thank you for your continued support and confidence,


Mason N. Carter, Chairman and CEO

May 13, 2002

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

 

SUMMARY QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
   March 29, 2003 March 30, 2002
Net sales

$ 6,511,644

$ 6,850,587
Gross profit

2,451,941

3,194,280
Selling, general and administrative expenses

2,329,394

2,343,780
Research and development

599,731

575,547
Interest and other expense (income), net

59,201

62,116
Income (loss) before income taxes

(536,385)

212,837
Provision (benefit) for income taxes

(81,000)

70,000
Net income (loss)

$ (455,385)

$142,837
 
Net income (loss) per common share - basic and diluted $ (.15) $.05
Weighted average shares outstanding - diluted 3,120,095 2,943,428

 

SUMMARY CONSOLIDATED BALANCE SHEETS (Unaudited)
March 29, 2003 and March 30, 2002

         2003

         2002

ASSETS
Current assets:
Cash and cash equivalents $ 2,146,160 $ 2,414,121
Income tax refunds receivable 302,085 186,487
Accounts receivable, net 5,535,830 4,549,381
Inventories

3,803,224

 4,706,112
Other current assets

394,642

 366,297
Deferred tax assets

945,000

 548,000
 
Total current assets 13,126,941 12,770,398
 
Property, plant and equipment, net 19,249,394 19,304,097
Other assets 790,525 716,044
Deferred tax assets, non-current 929,000 1,194,000
Goodwill, net 2,691,670 2,442,533
Total Assets $ 36,787,530 $ 36,427,072


LIABILITIES AND SHAREHOLDERS' EQUITY

    
Liabilities:    
Current portion of long-term debt $ 6,112,365 $ 396,172
Other current liabilities 3,616,941 3,588,171
Total current liabilities 9,729,306 3,984,343
Long-term debt 416,524 3,798,716
Deferred compensation 115,067 147,643
Deferred liabilities 240,739 197,331
Deferred tax liabilities 1,717,000 958,000
 
Total liabilities 12,218,636 9,086,033
 
Stockholders' equity:
Common stock 32,027 31,860
Common stock warrants 837,200 837,200
Additional paid-in capital 17,848,697 17,722,370
Retained earnings 6,940,593 9,674,282
Comprehensive loss 52,243 (340,673)
25,710,760 27,925,039
Less treasury stock, at cost (573,866) -
Less officer-shareholder loan (568,000) (584,000)
Total shareholders' equity 24,568,894 27,341,039
Total Liabilities and Shareholders' Equity $36,787,530 $ 36,427,072

Merrimac Industries, Inc.
41 Fairfield Place, West Caldwell, NJ 07006
Tel: 973.575.1300 / Fax: 973.575.0531
Internet: www.merrimacind.com