Third Quarter Report 1999

REPORT TO STOCKHOLDERS
Merrimac Reports Third Quarter and Nine Months 1999 Results
Third quarter 1999 sales of $5,328,000 increased 4% compared to third quarter sales of the prior year of $5,121,000. Net income for the third quarter of 1999 was $110,000 or a decrease of $138,000 compared to 1998. Diluted net income per share was $.06 compared to the diluted per share amount of $.14 reported for the third quarter of the prior year. For the first nine months of 1999 sales of $15,192,000 decreased 8% compared to the prior year’s nine-month sales of $16,487,000. Net income decreased to $405,000 compared to $1,084,000 reported in the first nine months of 1998, and diluted net income per share decreased to $.23 compared to diluted net income per share of $.59 reported in the first nine months of the prior year. Orders received during the third quarter of 1999 were $4.4 million. The backlog at the end of the third quarter of 1999 was $8.0 million, which includes $600,000 at recently acquired Filtran Microcircuits Inc., an increase of $1.8 million or 29% over year-end 1998. Our third quarter performance met our expectations, and year-to-date we are ahead of our order and profit plan in this transition year. Operating performance reflects the team effort and positive changes that we have implemented to our infrastructure. Record marks have been achieved for on-time delivery and inventory management, while late backlog has been virtually eliminated. Our research and development expenses were $577,000 for the third quarter and $1,524,000 for the nine-month period, which are more than double those of the year before.	Market development of Multi-Mix® Microtechnology overall is positive with significant activity in wireless telecommunications including PCS and cellular applications, broadband applications, point-to-multipoint such as LMDS, point-to-point infrastructure backbone, and wireless LAN. This unique, proprietary technology is recognized for its ubiquitous application in wireless base stations. We consistently identify new applications for Multi-Mix® solutions, which some customers have dubbed "an ASIC for RF Microwave". "Recently, Factory Mutual Research awarded the prestigious ISO 9001 Certification to our Multi-Mix® Microtechnology Group manufacturing facility. This Certification is the recognized standard for quality by our industry worldwide. It provides assurance to our customers of our commitment to provide world class Multi-Mix® products and services." Thank you for your continued support and confidence. Mason N. Carter Chairman and CEO November, 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)
	Quarter Ended		Nine Months Ended
	October 2, 1999	October 3, 1998	October 2, 1999	October 3, 1998
Net sales	$5,328,250	$5,120,946	$15,192,026	$16,487,212
Gross profit	2,633,768	2,268,970	7,344,653	7,385,657
Selling, general and administrative	1,821,110	1,674,779	5,053,253	5,032,992
Research and development	577,410	282,264	1,523,728	745,665
Income before income taxes	169,708	348,803	622,593	1,673,191
Provision for income taxes	60,000	101,000	218,000	589,000
Net income	109,708	247,803	404,593	1,084,191
Net income per common share - diluted	$.06	$.14	$.23	$.59
Weighted average number of shares outstanding - diluted	1,771,825	1,805,997	1,776,321	1,831,076

SUMMARY CONSOLIDATED BALANCE SHEETS (Unaudited)
October 2, 1999 and October 3, 1998	1999	1998
ASSETS
Current assets
Cash and cash equivalents	$771,274	$2,185,199
Accounts receivable	4,330,77	4,731,302
Inventories	3,612,307	3,341,741
Other current assets	1,521,400	1,256,857
Total current assets	10,235,759	11,515,099
Property, plant and equipment, net	7,468,114	5,476,589
Other assets	380,124	156,031
Goodwill	2,902,535	-
Total Assets	$20,986,532	$17,147,719

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Total current liabilities	$3,841,399	$2,501,296
Long-term debt	3,372,427	-
Deferred liabilities	287,717	511,629
Total liabilities	7,501,543	3,012,925
Shareholders' equity:
Common stock	1,348,771	1,341,699
Additional paid-in capital	11,252,598	11,147,696
Retained earnings	9,354,648	9,693,952
Translation adjustments	(31,733)	(9,207)
	21,924,284	22,174,140
Less treasury stock, at cost	(8,079,295	(7,679,346)
Less officer-shareholder loan	(360,000)	(360,000)
Total shareholders' equity	13,484,989	14,134,794
Total Liabilities and Shareholders' Equity	$20,986,532	$17,147,719