Merrimac Reports Second Quarter and Six Months 1999 Results;  Improvement in Backlog

   Second quarter 1999 sales of $5,125,000 decreased 8% compared to second quarter sales of the prior year of $5,574,000. Net income for the second quarter of 1999 was $82,000 or a decrease of $327,000 compared to 1998. Diluted net income per share was $.05 compared to the diluted per share amount of $.22 reported for the second quarter of the prior year.

   For the first six months of 1999 sales of $9,864,000 decreased 13% compared to the prior year’s six-month sales of $11,366,000. Net income decreased to $295,000 compared to $836,000 reported in the first six months of 1998, and diluted net income per share decreased to $.17, compared to diluted net income per share of $.46 reported in the first six months of the prior year.

   Orders received during the second quarter of 1999 were $6.4 million, 25% above sales for this quarter. The backlog at the end of the second quarter of 1999 was $8.9 million, which includes $900,000 at recently acquired Filtran Microcircuits Inc., an increase of $2.7 million or 44% over year-end 1998.

   Our second quarter performance met our expectations, and year-to-date we have exceeded our order and profit plan in this transition year. The strong operating performance reported in the first quarter continued in terms of on-time delivery and inventory management. We continue to implement process change, strengthen our infrastructure and actively pursue new product and market opportunities. In this connection, our research and development expenses of $552,000 for the second quarter and $946,000 for the six-month period are about double those of the year before.

   Market     development     of      Multi-Mix® Microtechnology is very positive. At a major trade show in June, we introduced state-of-the-art products, including a line of quads and couplers called Micro-Mix^TM that are 75% smaller than the current market dominant brand. Also featured was a 30 GHz Ka band filter designed for wireless LMDS applications and it is the smallest size available. Reaction to these products and a series of narrow-band filters confirms both our product and market development efforts.

   In June we announced the completion of the development of On-Line Co-Design^TM, a one-of-a-kind service that allows RF Microwave circuit designers to work over the Internet developing Multi-Mix® design concepts. This unique service, optimizing the Internet and leveraging our platform architecture, fosters relationship development and partnering with our key accounts. This ability to co-design facilitates early involvement in creating optimal total integrated packaging solutions. Most important to all of our key accounts is that time to market is dramatically reduced. On-Line Co-Design^TM was featured in the July issue of Microwave Journal, a leading industry publication.

   Thank you for your continued support and confidence.

Mason N. Carter
Chairman and CEO

August 13, 1999

Note: Certain statements in this report are “forward-looking statements” based on current management expectations and are subject to risks and uncertainties.  Factors that could cause future results to differ from these expectations include general economic and industry conditions, competitive products and pricing pressures, risks relating to governmental regulatory actions in communications and defense programs, and inventory risks due to technological innovation.  Additional factors to which the Company’s performance is subject are described in the Company’s reports filed from time to time with the Securities and Exchange Commission.

SUMMARY QUARTERLY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

$5,573,659

$9,863,776

$11,366,266

2,541,932

4,710,885

5,116,687

1,661,518

3,232,143

3,358,213

252,145

946,318

463,401

644,842

452,885

1,324,388

236,000

158,000

488,000

1,769,389

SUMMARY  CONSOLIDATED BALANCE SHEETS (Unaudited)

1999

1998

ASSETS

3,483,035

LIABILITIES AND SHAREHOLDERS' EQUITY