UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 3, 2004
[ ] 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 Small Business Issuer as Specified in Its Charter)
DELAWARE 22-1642321
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 FAIRFIELD PLACE
WEST CALDWELL, NEW JERSEY 07006
(Address of Principal Executive Offices)
(973) 575-1300
(Issuer's Telephone Number)
Former name, former address and former fiscal year, if changed since last
report: N/A
---
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
As of May 14, 2004, there were 3,120,891 shares of Common Stock, par value $0.01
per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
MERRIMAC INDUSTRIES, INC.
41 Fairfield Place
West Caldwell, NJ 07006
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Three Months Ended April 3, 2004 and
March 29, 2003..................................................... 1
Consolidated Balance Sheets as of April 3, 2004
and January 3, 2004................................................ 2
Consolidated Statements of Cash Flows for the Three
Months Ended April 3, 2004 and March 29, 2003...................... 3
Notes to Consolidated Financial Statements......................... 4
Item 2. Management's Discussion and Analysis or
Plan of Operation.................................................. 9
Item 3. Controls and Procedures ........................................... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .................................. 15
Signatures................................................................... 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended
-----------------------
April 3, March 29,
2004 2003
---------- ----------
OPERATIONS
Net sales ................................... $7,647,829 $6,511,644
---------- ----------
Costs and expenses:
Cost of sales ............................. 4,299,932 4,059,703
Selling, general and administrative ....... 2,454,419 2,329,394
Research and development .................. 571,585 599,731
---------- ----------
7,325,936 6,988,828
---------- ----------
Operating income (loss)...................... 321,893 (477,184)
Interest and other expense, net ............. 80,962 59,201
---------- ----------
Income (loss) before income taxes............ 240,931 (536,385)
Provision (benefit) for income taxes ........ 10,000 (81,000)
---------- ----------
Net income (loss)............................ $ 230,931 $ (455,385)
========== ==========
Net income (loss) per common share- basic and
diluted..................................... $ .07 $ (.15)
========== ==========
Weighted average number of shares outstanding:
Basic ..................................... 3,120,891 3,120,095
========== ==========
Diluted.................................... 3,134,848 3,120,095
========== ==========
COMPREHENSIVE INCOME (LOSS)
Net income (loss)............................ $ 230,931 $ (455,385)
Comprehensive income (loss):
Foreign currency translation adjustment.... (108,751) 315,436
---------- ----------
Comprehensive income (loss).................. $ 122,180 $ (139,949)
========== ==========
See accompanying notes.
Page 1
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
April 3, January 3,
2004 2004
------------ ------------
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 1,627,952 $ 452,633
Accounts receivable, net ................................................ 5,704,329 6,299,258
Income tax refunds receivable ........................................... 128,344 135,520
Inventories, net ........................................................ 3,216,785 3,187,946
Other current assets .................................................... 452,771 482,633
Deferred tax assets ..................................................... 1,055,000 1,055,000
------------ ------------
Total current assets .................................................. 12,185,181 11,612,990
------------ ------------
Property, plant and equipment ............................................. 37,399,758 37,203,977
Less accumulated depreciation and amortization .......................... 20,678,201 19,982,378
------------ ------------
Property, plant and equipment, net ........................................ 16,721,557 17,221,599
Restricted cash ........................................................... 1,500,000 1,500,000
Other assets .............................................................. 819,073 854,487
Deferred tax assets ....................................................... 564,000 573,000
Goodwill .................................................................. 3,053,345 3,122,563
------------ ------------
Total Assets .......................................................... $ 34,843,156 $ 34,884,639
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................................... $ 877,577 $ 954,405
Accounts payable ........................................................ 1,600,322 1,239,925
Accrued liabilities ..................................................... 1,847,842 1,711,875
Customer deposits ....................................................... 589,332 389,211
------------ ------------
Total current liabilities ............................................. 4,915,073 4,295,416
Long-term debt, net of current portion .................................... 3,440,706 4,208,106
Deferred compensation ..................................................... 79,952 88,362
Deferred liabilities ...................................................... 44,504 48,014
Deferred tax liabilities .................................................. 1,403,000 1,407,000
------------ ------------
Total liabilities ..................................................... 9,883,235 10,046,898
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share:
Authorized: 1,000,000 shares
No shares issued
Common stock, par value $.01 per share:
Authorized: 20,000,000 shares
Issued: 3,202,991 and 3,202,991 shares ................................ 32,030 32,030
Additional paid-in capital .............................................. 18,686,914 18,686,914
Retained earnings ....................................................... 6,712,436 6,481,505
Accumulated other comprehensive income .................................. 614,407 723,158
------------ ------------
26,045,787 25,923,607
Less 82,100 shares of treasury stock, at cost ........................... (573,866) (573,866)
Less loan to officer-stockholder ........................................ (512,000) (512,000)
------------ ------------
Total stockholders' equity ............................................ 24,959,921 24,837,741
------------ ------------
Total Liabilities and Stockholders' Equity ............................ $ 34,843,156 $ 34,884,639
============ ============
See accompanying notes.
Page 2
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
-----------------------------
April 3, March 29,
2004 2003
----------- -----------
Cash flows from operating activities:
Net income (loss) .................................................. $ 230,931 $ (455,385)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization .................................... 820,197 796,717
Amortization of deferred financing costs ......................... 12,482 11,598
Amortization of deferred income .................................. - (21,822)
Deferred and other compensation .................................. 2,983 1,802
Changes in operating assets and liabilities:
Accounts receivable ............................................. 579,804 (1,734,632)
Income tax refunds receivable ................................... 5,459 -
Inventories ..................................................... (31,903) 212,107
Other current assets ............................................ 28,678 (76,501)
Other assets .................................................... 22,932 15,182
Accounts payable ................................................ 300,011 109,307
Accrued liabilities ............................................. 139,152 114,173
Customer deposits ............................................... 200,121 150,396
Income taxes payable ............................................ - (8,860)
Deferred compensation ........................................... (11,393) (10,187)
Other liabilities ............................................... (3,510) 107,078
----------- -----------
Net cash provided by (used in) operating activities .................. 2,295,944 (789,027)
----------- -----------
Cash flows from investing activities-
Purchase of capital assets ......................................... (276,780) (565,802)
----------- -----------
Net cash used in investing activities ................................ (276,780) (565,802)
----------- -----------
Cash flows from financing activities:
Repayment of borrowings ............................................ (833,654) (179,280)
Proceeds from the exercise of stock options ........................ - 6,743
----------- -----------
Net cash used in financing activities ................................ (833,654) (172,537)
----------- -----------
Effect of exchange rate changes ...................................... (10,191) 62,728
----------- -----------
Net increase (decrease) in cash and cash equivalents ................. 1,175,319 (1,464,638)
Cash and cash equivalents at beginning of year ....................... 452,633 3,610,798
----------- -----------
Cash and cash equivalents at end of period ........................... $ 1,627,952 $ 2,146,160
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes ..................................................... $ 21,685 $ 28,000
=========== ===========
Loan interest .................................................... $ 77,309 $ 68,354
=========== ===========
Non-cash activities-
Unpaid purchases of capital assets ............................... $ 289,000 118,000
=========== ===========
See accompanying notes.
Page 3
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB and therefore do not include
all information and footnote disclosures otherwise required by generally
accepted accounting principles for a full fiscal year. The financial statements
do, however, reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position of the Company as of
April 3, 2004 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. These financial statements should be read
in conjunction with the audited consolidated financial statements in the
Company's Annual Report on Form 10-KSB for the year ended January 3, 2004.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. CONTRACT REVENUE RECOGNITION
Contract revenue and related costs on fixed-price and cost-reimbursement
contracts that require customization of products to customer specifications are
recorded when title transfers to the customer, which is generally on the date of
shipment. Prior to shipment, manufacturing costs incurred on such contracts are
recorded as work-in-process inventory. Anticipated losses on contracts are
charged to operations when identified. Revenue related to non-recurring
engineering charges is generally recognized upon shipment of the initial units
produced or based upon contractually established stages of completion. The cost
rates utilized for cost-reimbursement contracts are subject to review by third
parties and can be revised, which can result in additions to or reductions from
revenue. Revisions which result in reductions to revenue are recognized in the
period that the rates are reviewed and finalized; additions to revenue are
recognized in the period that the rates are reviewed, finalized, accepted by the
customer, and collectability from the customer is assured.
3. 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 (fiscal year 2003 was the last and fiscal year 2008 will be
the next) is added to the fourth quarter, making such quarter consist of 14
weeks.
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all changes in stockholders' equity during
a period except those resulting from investments by or distributions to
stockholders. The Company has determined that the only adjustment to net income
to determine comprehensive income (loss) impacting the Company is cumulative
translation adjustments.
5. STOCK-BASED COMPENSATION
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure," provides alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation", to require more prominent disclosures
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results in both annual and interim
financial statements. As permitted by SFAS No. 148, the Company will continue to
apply the provisions of APB Opinion No. 25, "Accounting for Stock-Based
Compensation," for all employee stock option grants and has elected to disclose
pro forma net income and earnings per share amounts as if the fair-value based
method had been applied in measuring compensation costs.
Page 4
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below sets forth the pro forma net income (loss) and the pro forma net
income (loss) per share information as calculated in accordance with SFAS No.
123 for the three months ended April 3, 2004 and March 29, 2003:
Three Months Ended
----------------------
April 3, March 29,
2004 2003
--------- ---------
Net income (loss) - as reported .................... $ 230,931 $(455,385)
Plus: stock-based compensation
expense included in reported net income (loss). - -
Less: Stock-based compensation expense
determined using the fair value method ........ (52,500) (74,000)
--------- ---------
Net income (loss) - pro forma .................... $ 178,431 $(529,385)
========= =========
Basic net income (loss) per share:
As reported ..................................... $ .07 $ (.15)
Pro forma ....................................... $ .06 $ (.17)
Diluted net income (loss) per share:
As reported ..................................... $ .07 $ (.15)
Pro forma ....................................... $ .06 $ (.17)
========= =========
The SFAS No. 123 method of accounting has been applied to options graned in
periods after December 31, 1994 and the resulting pro forma compensation expense
may not be indicative of pro forma expense in future years.
The fair value of each of the options granted in 2004 and 2003 was estimated on
the date of grant using the Black-Scholes option valuation model.
The following weighted average assumptions were utilized:
2004 2003
---- ----
Expected option life (years)....................... 2.1 1.0
Expected volatility................................ 50.00% 45.00%
Risk-free interest rate............................ 1.50% 2.50%
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. Because
the Company's employee stock options and subscription rights have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options and subscription rights.
6. GOODWILL
The changes in the carrying amount of goodwill for the three-month periods ended
April 3, 2004 and March 29, 2003 are as follows:
2004 2003
---- ----
Balance, beginning of year..................... $3,122,563 $2,491,146
Foreign currency adjustment.................... (69,218) 200,524
---------- ----------
Balance, end of period......................... $3,053,345 $2,691,670
========== ==========
7. INVENTORIES
Inventories consist of the following:
April 3, January 3,
2004 2004
---- ----
Finished goods.............................. $ 150,788 $ 121,613
Work in process............................. 1,957,375 1,806,000
Raw materials and purchased parts........... 1,108,622 1,260,333
---------- ----------
Total....................................... $3,216,785 $3,187,946
========== ==========
Page 5
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total inventories are net of valuation allowances for obsolescence and cost
overruns of $1,519,000 at April 3, 2004 and $1,787,000 at January 3, 2004.
8. CURRENT AND LONG-TERM DEBT
The Company was obligated under the following debt instruments at April 3, 2004
and January 3, 2004:
April 3, January 3,
2004 2004
---------- ----------
The CIT Group/Business Credit, Inc. (A):
Revolving line of credit, interest 1/2% above prime ..................... - $ 498,416
Term loan A, due October 8, 2008, variable interest above LIBOR or prime. $1,300,000 1,425,000
Term loan B, due October 8, 2010, variable interest above LIBOR or prime. 2,553,572 2,651,786
The Bank of Nova Scotia (B):
Capital leases, interest 6.7%, due October 2004 ........................... 31,650 43,339
Capital leases, interest 8.7%, due June 2005 .............................. 160,438 180,841
Capital leases, interest 7.3%, due April 2006 ............................. 147,304 161,287
Capital leases, interest 7.9%, due June 2006 .............................. 125,319 136,628
First Insurance Funding Corp.-
Note payable, insurance premiums, interest 6.75% due April 1, 2004......... - 65,214
---------- ----------
4,318,283 5,162,511
Less current portion ....................................................... 877,577 954,405
---------- ----------
Long-term portion .......................................................... $3,440,706 $4,208,106
========== ==========
(A) On October 8, 2003, the Company completed the refinancing of its revolving
credit and term loan obligations with a new credit facility provided by The CIT
Group/Business Credit, Inc. ("CIT") that provides for a three-year secured
revolving credit, term loan and letter of credit facility for $9,250,000. All
obligations due to its prior bank were repaid from the proceeds of such
refinancing. The new financing agreement with CIT consists of a $5,000,000
revolving line of credit, that is temporarily reduced by $750,000 until certain
conditions are met, a $1,500,000 machinery and equipment term loan ("Term Loan
A") and a $2,750,000 real estate term loan ("Term Loan B"). In connection with
this new financing agreement, the Company was required to place, over the life
of the loan, $1,500,000 as restricted cash with CIT. The revolving line of
credit is subject to an availability limit under a borrowing base calculation
(85% of eligible accounts receivable as defined in the financing agreement plus
100% of the $1,500,000 restricted cash). At April 3, 2004, the Company had
available borrowing capacity under its revolving line of credit of $4,100,000.
The revolving line of credit bears interest at the prime rate plus 1/2 percent
(currently 4.50%). The principal amount of Term Loan A is payable in 60 equal
monthly installments of $25,000 and bears interest at the prime rate plus one
percent (currently 5.0%). The principal amount of Term Loan B is payable in 84
equal monthly installments of $32,738 and bears interest at the prime rate plus
one percent (currently 5.0%). At April 3, 2004, the Company, under the terms of
its agreement with CIT, elected to convert $1,200,000 of Term Loan A and
$1,800,000 of Term Loan B to LIBOR interest rate loans. The weighted average and
current interest rates on such LIBOR interest rate loans was 4.44%. The current
LIBOR interest rate options expired on April 13, 2004 and were renewed for six
months at 4.485%. The new LIBOR interest rate options will expire October 12,
2004. The revolving line of credit and the term loans are secured by
substantially all of the Company's assets located within the United States and
the pledge of 65% of the stock of the Company's subsidiaries located in Costa
Rica and Canada. The provisions of the financing agreement require the Company
to maintain certain financial and other covenants. The Company was in compliance
with these covenants at April 3, 2004.
(B) Capital leases included in property, plant and equipment, net, have a
depreciated cost of approximately $574,000 at April 3, 2004 and $590,000 at
January 3, 2004.
9. BUSINESS SEGMENT DATA
The Company's operations are conducted primarily through two business segments:
(1) electronic components and (2) microwave micro-circuitry. These segments, and
the principal operations of each, are as follows:
Page 6
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Electronic components: 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, 81% are located in the United States and 19% are located in
Costa Rica.
Microwave micro-circuitry: Design, manufacture and sale of microstrip, bonded
stripline and thick metal-backed Teflon (R) (PTFE) and mixed dielectric
multilayer circuits for communications, defense and aerospace applications. All
of the identifiable assets are located in Canada.
Information about the Company's operations in different industries follows.
Operating income is net sales less operating expenses. Operating expenses
exclude interest expense, other income and income taxes. Assets are identified
with the appropriate business segment and are substantially all located in the
North America geographic area. Corporate assets consist principally of cash and
corporate expenses are immaterial. Intersegment sales and the resulting
intersegment assets are principally due to transactions from the microwave
micro-circuitry segment to the electronic components segment.
Three Months Ended
--------------------------
April 3, March 29,
2004 2003
-------- ---------
(In thousands of dollars)
Industry segments:
Sales to unaffiliated customers:
Electronic components $ 6,396 $ 5,956
Microwave micro-circuitry 1,339 642
Intersegment sales (87) (86)
-------- --------
Consolidated $ 7,648 $ 6,512
======== ========
Income (loss) before income taxes:
Operating income (loss):
Electronic components $ 210 $ (352)
Microwave micro-circuitry 112 (125)
Interest and other expense, net (81) (59)
-------- --------
Consolidated $ 241 $ (536)
======== ========
Identifiable assets:
Electronic components $ 27,283 $ 29,690
Microwave micro-circuitry 6,014 5,110
Corporate 1,628 2,146
Intersegment (82) (158)
-------- --------
Consolidated $ 34,843 $ 36,788
======== ========
Depreciation and amortization:
Electronic components $ 759 $ 742
Microwave micro-circuitry 61 55
-------- --------
Consolidated $ 820 $ 797
======== ========
Capital expenditures:
Electronic components $ 217 $ 524
Microwave micro-circuitry 60 42
-------- --------
Consolidated $ 277 $ 566
======== ========
10. NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated by dividing net income
(loss) by the weighted average 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 and warrants, were issued during the reporting
period to the extent they are not anti-dilutive.
Page 7
MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RELATED PARTY TRANSACTIONS
In May 1998, the Company sold 22,000 shares of Common Stock to Mason N. Carter,
Chairman, President and Chief Executive Officer of the Company, at a price of
$11.60 per share, which approximated the average closing price of the Company's
Common Stock during the first quarter of 1998. The Company lent Mr. Carter
$255,000 in connection with the purchase of these shares and combined that loan
with a prior loan to Mr. Carter in the amount of $105,000. The resulting total
principal amount of $360,000 was payable May 4, 2003 and bore interest at a
variable interest rate based on the prime rate of the Company's lending bank.
This loan was further amended on July 29, 2002. Accrued interest of $40,000 was
added to the principal, bringing the new principal amount of the loan to
$400,000, the due date was extended to May 4, 2006, and interest (at the same
rate as was previously applicable) is now payable monthly. Mr. Carter has
pledged 33,000 shares of Common Stock as security for this loan, which is a
full-recourse loan.
On August 31, 2000, in connection with an amendment to Mr. Carter's employment
agreement, the Company loaned Mr. Carter an additional $280,000. Interest on the
loan varies and is based on the prime rate of the Company's lending bank,
payable in accordance with Mr. Carter's employment agreement. Each year the
Company is required to forgive 20% of the amount due under this loan and the
accrued interest thereon. During 2003, the Company forgave $56,000 of principal
and $7,000 of accrued interest and paid a tax gross-up benefit of $8,300. The
Company estimates that $56,000 of principal and $4,000 of accrued interest will
be forgiven in fiscal year 2004.
During the first quarter of 2004 and 2003, the Company's General Counsel KMZ
Rosenman was paid $86,000 and $39,000, respectively, for providing legal
services to the Company. A director of the Company is counsel to KMZ Rosenman
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 2004 and 2003 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 $16,000 and $29,000 to these companies
during the first quarter of 2004 and 2003, respectively. A director of the
Company is the chairman and chief executive officer of these companies.
During the first quarter of 2003, a director of the Company was paid $9,000 for
providing financial-related consulting services to the Company. This agreement
terminated in April 2003.
During each of the first quarters of 2004 and 2003, a director of the Company
was paid $9,000 for providing technology-related consulting services to the
Company.
During the first quarter of 2004 and 2003, DuPont Electronic Technologies, a
stockholder, was paid $21,000 and $25,000, respectively, for providing
technological and marketing-related personnel and services on a cost-sharing
basis to the Company.
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. Beginning in fiscal year 2004, the
Chair of the Audit Committee will receive 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 2001 Stock Option Plan, each non-employee director is granted an
immediately exercisable option to purchase 2,500 shares of the Common Stock of
the Company on the date of each Annual Meeting of Stockholders. Each such grant
is at the fair market value on the date of such grant and will expire on the
tenth anniversary of the date of the grant.
Page 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 (R)
Microtechnology, contract revenue recognition, inventory valuation, valuation of
goodwill and valuation of deferred tax assets.
Following is a summary of the carrying amounts of the Multi-Mix (R)
Microtechnology net assets included in the Company's consolidated financial
statements at April 3, 2004 and the related future planned purchases and lease
obligation commitments through January 2006.
Net assets:
Property, plant and equipment, at cost.......................... $14,156,000
Less accumulated depreciation and amortization.................. 4,476,000
-----------
Property, plant and equipment, net.............................. 9,680,000
Inventories..................................................... 576,000
Other assets, net............................................... 305,000
-----------
Total net assets at April 3, 2004............................... $10,561,000
-----------
Commitments:
Planned equipment purchases for the remainder of 2004........... $ 400,000
Lease obligations through January 2006.......................... 550,000
-----------
Total commitments............................................... $950,000
-----------
Total net assets and commitments................................ $11,511,000
===========
The Company anticipates receiving additional orders during the remainder of 2004
and 2005 for its Multi-Mix (R) Microtechnology products, for which substantial
research and development costs have also been incurred. Due to economic and
market conditions in the wireless industry over the past several years, the
telecommunications system service providers have curtailed their capital
equipment purchases from our customers. While these circumstances have resulted
in the delay or cancellation of Multi-Mix (R) Microtechnology product purchases
that had been anticipated from certain specific customers or programs, in
connection with the recent slightly improved conditions in the industry, the
Company has recently implemented a strategic plan utilizing product knowledge
and customer focus to expand specific sales opportunities. However, continued
extended delay or reduction from planned levels in new orders expected from
customers for these products could require the Company to pursue alternatives
related to the utilization or realization of these assets and commitments, the
net result of which could be materially adverse to the financial results and
position of the Company. The Company has determined no provision for impairment
is required at this time.
The Company's planned equipment purchases and other commitments are expected to
be funded through its new revolving credit facility of $5,000,000, which becomes
due October 8, 2006, supplemented by cash resources and cash flows that are
expected to be provided by operations.
Contract revenue and related costs on fixed-price and cost-reimbursement
contracts that require customization of products to customer specifications are
recorded when title transfers to the customer, which is generally on the date of
shipment. Prior to shipment, manufacturing costs incurred on such contracts are
recorded as work-in-process inventory. Anticipated losses on contracts are
charged to operations when identified. Revenue related to non-recurring
engineering charges is generally recognized upon shipment of the initial units
produced or based upon contractually established stages of completion. The cost
rates utilized for cost-reimbursement contracts are subject to review by third
parties and can be revised, which can result in additions to or reductions from
revenue. Revisions which result in reductions to revenue are recognized in the
period that the rates are reviewed and finalized; additions to revenue are
recognized in the period that the rates are reviewed, finalized, accepted by the
customer, and collectability from the customer is assured.
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. Total inventories are net of
valuation allowances for obsolescence and cost overruns of $1,519,000 at April
3, 2004 and $1,787,000 at January 3, 2004.
Page 9
With the adoption of SFAS No. 142 by the Company on December 30, 2001, goodwill
is no longer subject to amortization over its estimated useful life. However,
goodwill is subject to at least an annual assessment for impairment and more
frequently if circumstances indicate a possible impairment. The Company
performed the annual assessment during the fourth quarter of 2003 and determined
there was no impairment.
The Company currently has significant deferred tax assets resulting from net
operating loss carryforwards, tax credit carryforwards and deductible temporary
differences, which will reduce taxable income in future periods. A valuation
allowance (or write-down) is required when it is more likely than not that all
or a portion of a deferred tax asset will not be realized. The Company's 2002
and 2003 net losses weighed heavily in the Company's overall assessment. As a
result of our assessment, the Company established a full valuation allowance for
its remaining net domestic deferred tax assets at December 28, 2002. This
assessment continued unchanged in fiscal years 2003 and 2004.
CONSOLIDATED STATEMENTS OF OPERATIONS SUMMARY
(UNAUDITED)
The following table reflects the percentage relationships of items from the
Consolidated Statements of Operations as a percentage of net sales.
Percentage of Net Sales
------------------------
Three Months Ended
------------------------
April 3, March 29,
2004 2003
------ ------
Net sales.................................... 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales.............................. 56.2 62.3
Selling, general and administrative........ 32.1 35.8
Research and development................... 7.5 9.2
------ ------
95.8 107.3
------ ------
Operating income (loss)...................... 4.2 (7.3)
Interest and other expense, net.............. 1.1 .9
------ ------
Income (loss) before income taxes............ 3.1 (8.2)
Provision (benefit) for income taxes......... .1 (1.2)
------ ------
Net income (loss)............................ 3.0% (7.0)%
====== ======
FIRST QUARTER OF 2004 COMPARED TO THE FIRST QUARTER 2003
Consolidated results of operations for the first quarter of 2004 reflect an
increase in net sales from the first quarter of 2003 of $1,136,000 or 17.4% to
$7,648,000. This increase was attributable to a $440,000 increase in net sales
of electronic components and a $696,000 increase in sales of microwave
micro-circuitry products from the Company's wholly-owned subsidiary Filtran
Microcircuits Inc. ("FMI"). The increase was due to an improvement in orders
received during the first quarter of 2004 and higher backlog going into the
first quarter.
Orders of $8,689,000 were received during the first quarter of 2004, an increase
of $556,000 or 6.8% compared to $8,133,000 in orders received during the first
quarter of 2003. Orders received during the first quarter of 2004 exceeded sales
during the first quarter of 2004 by approximately 13.6%. As a result, backlog
increased by $961,000 or 7.8% to $13,356,000 at the end of the first quarter of
2004 compared to $12,395,000 at year-end 2003.
The Company believes that the recent economic downturn, resulting in reduced
spending by wireless telecommunications service providers, has caused many
wireless telecommunications companies to delay or forego purchases of the
Company's products. However, the Company expects that its defense customers
should continue to maintain their approximate current levels of orders during
fiscal year 2004, although there are no assurances they will do so. The Company
also anticipates increased levels of orders during fiscal year 2004 for its new
Multi-Mix (R) Microtechnology products, for which the Company has made a
significant capital investment and incurred substantial research and development
costs. The Company expects that previous weaknesses in the telecommunications
sector that FMI serves will improve in 2004 and the continued efforts to
diversify FMI into wireless base stations and defense applications has begun to
produce orders.
Page 10
Cost of sales increased $240,000 or 5.9%, and as a percentage of net sales
decreased 6.1 percentage points to 56.2% for the first quarter of 2004. Cost of
sales decreased $188,000 for the first quarter of 2004 in the electronic
components segment, resulting from increased utilization of the Company's West
Caldwell, New Jersey and Costa Rica manufacturing production facilities, better
product mix and the benefits of the cost containment and restructuring programs
instituted during 2003. Cost of sales for the electronic components segment also
reflects flat intersegment purchases from FMI of $87,000 for the first quarter
of 2004. Cost of sales increased $429,000 for the first quarter of 2004 in the
microwave micro-circuitry segment, resulting from the overall increase in
segment sales for the first quarter 2004 of approximately 108.7% compared to the
first quarter of the prior year.
Depreciation expense included in cost of sales for the first quarter of 2004 was
$729,000, an increase of $37,000 compared to the first quarter of 2003. For the
first quarter of 2004, approximately $493,000 of depreciation expense was
associated with Multi-Mix (R) Microtechnology capital assets. The increase in
depreciation expense was a result of higher capital equipment purchases in prior
years related to the new Costa Rica manufacturing facility and the expansion of
the West Caldwell, New Jersey manufacturing facility.
Gross profit for the first quarter of 2004 for the electronic components segment
increased by $628,000 to $2,942,000 or 46.0% of segment net sales of $6,396,000
compared to gross profit of $2,313,000 or 38.8% of segment net sales of
$5,956,000 in the first quarter of 2003. Gross profit for the first quarter of
2004 for the microwave micro-circuitry segment increased by $268,000 to $406,000
or 30.4% of segment net sales of $1,339,000, compared to $138,000 or 21.5% of
segment net sales of $642,000 in the first quarter of 2003. FMI sales include
intersegment sales of $87,000 and $86,000 in the first quarter of 2004 and 2003,
respectively.
Selling, general and administrative expenses of $2,454,000 for the first quarter
of 2004 increased by $125,000 or 5.4%, and when expressed as a percentage of net
sales, decreased by 3.7% to 32.1%. The dollar increases were due to higher
marketing and professional fee expenses.
Research and development expenses for new products were $572,000 for the first
quarter of 2004, a decrease of $28,000 or 4.7% and when expressed as a
percentage of net sales, a decrease of 1.7 percentage points to 7.5% compared to
the first quarter of 2003. Except for $57,000 of expenses in the first quarter
of 2004 at FMI, an increase of $19,000 from the first quarter of the prior year,
substantially all of the research and development expenses were related to
Multi-Mix (R) Microtechnology and Multi-Mix PICO (TM) products.
Consolidated operating income for the first quarter of 2004 was $322,000
compared to a consolidated operating loss of $477,000 in the first quarter of
2003.
Operating income for the electronic components segment was $210,000 for the
first quarter of 2004 compared to an operating loss of $352,000 in the first
quarter of 2003. Operating income for the microwave micro-circuitry segment was
$112,000 for the first quarter of 2004 compared to an operating loss of $125,000
for the first quarter of 2003.
Interest and other expense, net was $81,000 for the first quarter of 2004
compared to interest and other expense, net of $59,000 for the first quarter of
2003. Interest expense for the first quarter of 2004 was principally incurred on
borrowings under the revolving line of credit and term loans which the Company
refinanced during the fourth quarter of 2003 at higher interest rates. Interest
expense for the first quarter of 2003 was principally incurred on borrowings
under the mortgage loan and the term loan taken out during fiscal year 2002.
An income tax provision of $10,000, principally state taxes, was recorded for
the first quarter of 2004 with an effective tax rate of 4% compared to a tax
benefit of $81,000 for the first quarter of 2003 with an effective tax rate of
15%. No Federal provision was recorded in 2004 because of the availability of
net operating loss carryforwards. The 2003 tax benefit recorded represents
deferred tax benefits associated with FMI's research and development expenses
incurred in Canada. No U.S. tax benefits have been recorded in 2004 or 2003.
Net income for the first quarter of 2004 was $231,000 compared to a net loss of
$455,000 for the first quarter of 2003. Net income per share for the first
quarter of 2004 was $.07 compared to a net loss of $.15 per share for the first
quarter of 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company had liquid resources comprised of cash and cash equivalents totaling
approximately $1,600,000 at the end of the first quarter of 2004 compared to
approximately $450,000 at the end of 2003. The Company's working capital was
approximately $7,300,000 and its current ratio was 2.5 to 1 at the end of the
first quarter of 2004 compared to $7,300,000 and 2.7 to 1, respectively, at the
end of 2003.
Page 11
The Company's operating activities generated positive cash flows of $2,296,000
during the first quarter of 2004 compared to the utilization of $789,000 of cash
flows during the first quarter of 2003. The primary sources of operating cash
flows for the first quarter of 2004 were the quarterly net income of $231,000;
depreciation and amortization of $820,000; the reduction of accounts receivable
of $580,000; a decrease in other current assets; and an aggregate increase in
accounts payable, accrued liabilities and customer deposits of $639,000, partly
offset by increased inventory levels and the reduction of other liabilities.
The Company made net cash investments in property, plant and equipment of
$277,000 during the first quarter of 2004 (and had unpaid invoices for such
investments of $289,000 at April 3, 2004), compared to net cash investments made
in property, plant and equipment of $566,000 (and had unpaid invoices for such
investments of $118,000 at March 29, 2003) during the first quarter of 2003.
These capital expenditures are related to new production and test equipment
capabilities in connection with the introduction of new products and
enhancements to existing products. The depreciated cost of capital equipment
associated with Multi-Mix (R) Microtechnology was $9,680,000 at the end of the
first quarter 2004, a decrease of $384,000 compared to $10,064,000 at the end of
fiscal year 2003.
On October 8, 2003, the Company completed the refinancing of its revolving
credit and term loan obligations with a new credit facility provided by The CIT
Group/Business Credit, Inc. ("CIT") that provides for a three-year secured
revolving credit, term loan and letter of credit facility for $9,250,000. All
obligations due to its prior bank were repaid from the proceeds of such
refinancing. The new financing agreement with CIT consists of a $5,000,000
revolving line of credit, that is temporarily reduced by $750,000 until certain
conditions are met, a $1,500,000 machinery and equipment term loan ("Term Loan
A") and a $2,750,000 real estate term loan ("Term Loan B"). In connection with
this new financing agreement, the Company was required to place, over the life
of the loan, $1,500,000 as restricted cash with CIT. The revolving line of
credit is subject to an availability limit under a borrowing base calculation
(85% of eligible accounts receivable as defined in the financing agreement plus
100% of the $1,500,000 restricted cash). At April 3, 2004, the Company had
available borrowing capacity under its revolving line of credit of $4,100,000.
The revolving line of credit bears interest at the prime rate plus 1/2 percent
(currently 4.50%). The principal amount of Term Loan A is payable in 60 equal
monthly installments of $25,000 and bears interest at the prime rate plus one
percent (currently 5.0%). The principal amount of Term Loan B is payable in 84
equal monthly installments of $32,738 and bears interest at the prime rate plus
one percent (currently 5.0%). At April 3, 2004, the Company, under the terms of
its agreement with CIT, elected to convert $1,200,000 of Term Loan A and
$1,800,000 of Term Loan B to LIBOR interest rate loans. The weighted average and
current interest rates on such LIBOR interest rate loans was 4.44%. The current
LIBOR interest rate options expired on April 13, 2004 and were renewed for six
months at 4.485%. The new LIBOR interest rate options will expire October 12,
2004. The revolving line of credit and the term loans are secured by
substantially all of the Company's assets located within the United States and
the pledge of 65% of the stock of the Company's subsidiaries located in Costa
Rica and Canada. The provisions of the financing agreement require the Company
to maintain certain financial and other covenants. The Company was in compliance
with these covenants at April 3, 2004.
Depreciation and amortization expenses exceeded capital expenditures for new
projects and production equipment during the first quarter of 2004 by
approximately $543,000, and the Company anticipates that depreciation and
amortization expenses will exceed capital expenditures in fiscal year 2004. The
Company intends to issue commitments to purchase $800,000 of capital equipment
from various vendors. The Company anticipates that such equipment will be
purchased and become operational during the last three quarters of 2004.
The functional currency for the Company's wholly-owned subsidiary FMI is the
Canadian dollar. The change in accumulated other comprehensive income for the
first quarters of 2004 and 2003 reflect the changes in the exchange rates
between the Canadian dollar and the United States dollar for those respective
periods.
The Company entered into an agreement effective January 2001, with a customer to
relinquish to this customer approximately half of the Company's 17,000
square-foot leased manufacturing facility in Costa Rica. Associated with the
transaction, the Company entered into a new four-year lease agreement with a
five-year renewal option with its Costa Rica landlord for the reduced space. In
addition, the Company transferred certain employees to its customer, agreed to
share certain personnel resources and common costs, and committed to provide
certain management, administrative and other services to its customer. On March
31, 2003, the Company relinquished the balance of the space to its customer. The
completion of these transactions resulted in a gain of $71,000 during the second
quarter of 2003. In connection with the 2001 agreement, the Company received
$450,000 from its customer. The Company reduced its facility occupancy expenses
by approximately $22,000 in the first quarter of 2003.
Page 12
RELATED PARTY TRANSACTIONS
In May 1998, the Company sold 22,000 shares of Common Stock to Mason N. Carter,
Chairman, President and Chief Executive Officer of the Company, at a price of
$11.60 per share, which approximated the average closing price of the Company's
Common Stock during the first quarter of 1998. The Company lent Mr. Carter
$255,000 in connection with the purchase of these shares and combined that loan
with a prior loan to Mr. Carter in the amount of $105,000. The resulting total
principal amount of $360,000 was payable May 4, 2003 and bore interest at a
variable interest rate based on the prime rate of the Company's lending bank.
This loan was further amended on July 29, 2002. Accrued interest of $40,000 was
added to the principal, bringing the new principal amount of the loan to
$400,000, the due date was extended to May 4, 2006, and interest (at the same
rate as was previously applicable) is now payable monthly. Mr. Carter has
pledged 33,000 shares of Common Stock as security for this loan, which is a
full-recourse loan.
On August 31, 2000, in connection with an amendment to Mr. Carter's employment
agreement, the Company loaned Mr. Carter an additional $280,000. Interest on the
loan varies and is based on the prime rate of the Company's lending bank,
payable in accordance with Mr. Carter's employment agreement. Each year the
Company is required to forgive 20% of the amount due under this loan and the
accrued interest thereon. During 2003, the Company forgave $56,000 of principal
and $7,000 of accrued interest and paid a tax gross-up benefit of $8,300. The
Company estimates that $56,000 of principal and $4,000 of accrued interest will
be forgiven in fiscal year 2004.
During the first quarter of 2004 and 2003, the Company's General Counsel KMZ
Rosenman was paid $86,000 and $39,000, respectively, for providing legal
services to the Company. A director of the Company is counsel to KMZ Rosenman
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 2004 and 2003 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 $16,000 and $29,000 to these companies
during the first quarter of 2004 and 2003, respectively. A director of the
Company is the chairman and chief executive officer of these companies.
During the first quarter of 2003, a director of the Company was paid $9,000 for
providing financial-related consulting services to the Company. This agreement
terminated in April 2003.
During each of the first quarters of 2004 and 2003, a director of the Company
was paid $9,000 for providing technology-related consulting services to the
Company.
During the first quarter of 2004 and 2003, DuPont Electronic Technologies, a
stockholder, was paid $21,000 and $25,000, respectively, for providing
technological and marketing-related personnel and services on a cost-sharing
basis to the Company.
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. Beginning in fiscal year 2004, the
Chair of the Audit Committee will receive 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 2001 Stock Option Plan, each non-employee director is granted an
immediately exercisable option to purchase 2,500 shares of the Common Stock of
the Company on the date of each Annual Meeting of Stockholders. Each such grant
is at the fair market value on the date of such grant and will expire on the
tenth anniversary of the date of the grant.
On February 28, 2002, the Company sold to DuPont Electronic Technologies
("DuPont") 528,413 shares of Common Stock, representing approximately 16.6% of
the Company's outstanding Common Stock after giving effect to the sale, for an
aggregate purchase price of $5,284,000. The Company and DuPont Electronic
Technologies have also agreed to work together to better understand the dynamics
of the markets for high-frequency electronic components and modules. David B.
Miller, Vice President and General Manager of DuPont Electronic Technologies,
was appointed to the Company's Board of Directors. As a result of this sale,
pursuant to the anti-dilution provisions of the Warrants issued in October 2000,
the exercise price of the Warrants was reduced to $17.80 and the number of
shares subject to the Warrants was increased to 429,775. The Warrants expired
October 26, 2003.
Infineon Technologies AG, the Adam Smith Investment Partners, L.P. and DuPont
hold registration
Page 13
rights which currently give them the right to register an aggregate of 1,243,413
shares of Common Stock of the Company.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-QSB contains statements relating to future
results of Merrimac Industries, Inc. ("Merrimac" and together with its
subsidiaries, 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: 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(R)
products; general economic and industry conditions; slower than anticipated
penetration into the satellite communications, defense and wireless markets; the
risk that the benefits expected from the acquisition of Filtran Microcircuits
Inc. are not realized; the ability to protect proprietary information and
technology; competitive products and pricing pressures; 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, including but not limited to those
detailed from time to time in Merrimac's Securities and Exchange Commission
filings. These forward-looking statements are made only as of the date of the
filing of this Form 10-QSB, and Merrimac undertakes no obligation to update or
revise the forward-looking statements, whether as a result of new information,
future events or otherwise.
ITEM 3. CONTROLS AND PROCEDURES
As of April 3, 2004 (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 the Company's disclosure controls and procedures are effective,
as of and for the period covered by this report, in timely alerting them to
material information relating to the Company (including the Company's
consolidated subsidiaries) required to be included in periodic reports filed
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
In designing and evaluating the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act), 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.
No change occurred in the Company's internal controls concerning financial
reporting during the Company's first quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
Page 14
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3(a) Certificate of Incorporation of Merrimac is hereby incorporated by
reference to Exhibit 3(i)(b) to Post-Effective Amendment No. 2 to
the Registration Statement on Form S-8 (No. 33-68862) of Merrimac
dated February 23, 2001.
3(b) By-laws of Merrimac are hereby incorporated by reference to Exhibit
3(ii)(b) to Post-Effective Amendment No. 2 to the Registration
Statement on Form S-8 (No. 33-68862) of Merrimac dated February 23,
2001.
4(a) Stockholder Rights Agreement dated as of March 9, 1999, between
Merrimac and ChaseMellon Stockholder Services, L.L.C., as Rights
Agent, is hereby incorporated by reference to Exhibit 1 to
Merrimac's Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 9, 1999.
4(b) Amendment No. 1 dated as of June 9, 1999, to the Stockholder Rights
Agreement dated as of March 9, 1999, between Merrimac and
ChaseMellon Stockholder Services, L.L.C., as Rights Agent, is
hereby incorporated by reference to Exhibit 1 to Merrimac's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on June 9, 1999.
4(c) Amendment No. 2 dated as of April 7, 2000, to the Stockholder
Rights Agreement dated as of March 9, 1999, between Merrimac and
ChaseMellon Stockholder Services, L.L.C., as Rights Agent, is
hereby incorporated by reference to Exhibit 1(b) to Merrimac's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 10, 2000.
4(d) Amendment No. 3 dated as of October 26, 2000, to the Stockholder
Rights Agreement dated as of March 9, 1999, between Merrimac and
ChaseMellon Stockholder Services, L.L.C., as Rights Agent, is
hereby incorporated by reference to Exhibit 2 to Merrimac's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on October 27, 2000.
4(e) Amendment No. 4 dated as of February 21, 2001, to the Stockholder
Rights Agreement dated as of March 9, 1999, between Merrimac and
Mellon Investor Services, L.L.C. (formerly known as ChaseMellon
Stockholder Services, L.L.C.), as Rights Agent, is hereby
incorporated by reference to Exhibit 1(d) to Merrimac's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on February 21, 2001.
4(f) Amendment No. 5, dated February 28, 2002, to the Rights Agreement,
between Merrimac and Mellon Investor Services LLC (f.k.a.
ChaseMellon Shareholder Services, L.L.C.), as Rights Agent is
hereby incorporated by reference to Exhibit 99.4 to Merrimac's Form
8-K filed with the Securities and Exchange Commission on March 6,
2002.
4(g) Amendment No. 6, dated September 18, 2002, to the Rights Agreement,
between Merrimac and Mellon Investor Services LLC, as Rights Agent
is hereby incorporated by reference to Exhibit 99.3 to Merrimac's
Form 8-K filed with the Securities and Exchange Commission on
October 10, 2002.
10(a) Stock Purchase and Exclusivity Letter Agreement dated April 7,
2000, among Ericsson Microelectronics, A.B., Ericsson Holdings
International, B.V. and Merrimac is hereby incorporated by
reference to Exhibit 10(a) to Merrimac's Quarterly Report on Form
10-QSB for the period ending July 1, 2000.
10(b) Letter Agreement, dated February 1, 2002, among Merrimac, Ericsson
Holding International B.V. and Ericsson Microelectronics, A.B.,
which amends the Stock Purchase and Exclusivity Letter, dated April
7, 2000 is hereby incorporated by reference to Exhibit 99.4 to
Merrimac's Form 8-K filed with the Securities and Exchange
Commission on October 10, 2002.
10(c) Registration Rights Agreement dated as of April 7, 2000, between
Merrimac and
Page 15
Ericsson Holding International, B.V. is hereby incorporated by
reference to Exhibit 10(b) to Merrimac's Quarterly Report on Form
10-QSB for the period ending July 1, 2000.
10(d) Subscription Agreement for Common Stock and Warrants dated October
26, 2000, between Merrimac and Ericsson Holding International, B.V.
(with a form of Warrant attached) is hereby incorporated by
reference to Exhibit 10(t) to Merrimac's Annual Report on Form
10-KSB for the year ending December 30, 2000.
10(e) Registration Rights Agreement dated October 26, 2000, between
Merrimac and Ericsson Holding International, B.V. is hereby
incorporated by reference to Exhibit 10(u) to Merrimac's Annual
Report on Form 10-KSB dated for the year ending December 30, 2000.
10(f) Subscription Agreement for Common Stock and Warrants dated October
26, 2000, between Merrimac and certain entities and individuals
related to Adam Smith Investment Partners, L.P. (with a form of
Warrant attached) is hereby incorporated by reference to Exhibit
10(v) to Merrimac's Annual Report on Form 10-KSB for the year
ending December 30, 2000.
10(g) Registration Rights Agreement dated October 26, 2000, between
Merrimac and certain entities and individuals related to Adam Smith
Investment Partners, L.P. is hereby incorporated by reference to
Exhibit 10(w) to Merrimac's Annual Report on Form 10-KSB for the
year ending December 30, 2000.
10(h) Subscription Agreement for Common Stock and Warrants dated October
26, 2000, among Merrimac, Edward H. Cohen, Joseph B. Fuller and
Joel H. Goldberg (with a form of Warrant attached) is hereby
incorporated by reference to Exhibit 10(x) to Merrimac's Annual
Report on Form 10-KSB for the year ending December 30, 2000.
10(i) Subscription Agreement, dated February 28, 2002 between Merrimac
and DuPont Chemical and Energy Operations, Inc., a subsidiary of
E.I. DuPont de Nemours and Company is hereby incorporated by
reference to Exhibit 99.2 to Merrimac's Form 8-K filed with the
Securities and Exchange Commission on March 6, 2002.
10(j) Registration Rights Agreement, dated February 28, 2002 between
Merrimac and DuPont Chemical and Energy Operations, Inc., a
subsidiary of E.I. DuPont de Nemours and Company is hereby
incorporated by reference to Exhibit 99.3 to Merrimac's Form 8-K
filed with the Securities and Exchange Commission on March 6, 2002.
10(k) Consent and Waiver, dated as of September 18, 2002, among Merrimac,
Ericsson Holding International B.V. and Infineon Technologies AG is
hereby incorporated by reference to Exhibit 99.1 to Merrimac's Form
8-K filed with the Securities and Exchange Commission on October
10, 2002.
10(l) Modification Agreement, dated as of September 27, 2002, between
Merrimac and Infineon Technologies AG is hereby incorporated by
reference to Exhibit 99.2 to Merrimac's Form 8-K filed with the
Securities and Exchange Commission on October 10, 2002.
10(m) Profit Sharing Plan of Merrimac is hereby incorporated by reference
to Exhibit 10(n) to Merrimac's Registration Statement on Form S-1
(No. 2-79455).*
10(n) 1983 Key Employees Stock Option Plan of Merrimac effective March
21, 1983, is hereby incorporated by reference to Exhibit 10(m) to
Merrimac's Annual Report on Form 10-KSB for the year ending March
31, 1983.*
10(o) 1993 Stock Option Plan of Merrimac effective March 31, 1993, is
hereby incorporated by reference to Exhibit 4(c) to Merrimac's
Registration Statement on Form S-8 (No. 33-68862) dated September
14, 1993.*
10(p) 1997 Long-Term Incentive Plan of Merrimac is hereby incorporated by
reference to Exhibit A to Merrimac's Proxy Statement filed with the
Securities and Exchange Commission on April 11, 1997.*
10(q) Resolutions of the Stock Option Committee of the Board of Directors
of Merrimac adopted June 3, 1998, amending the 1983 Key Employees
Stock Option Plan of Merrimac, the 1993 Stock Option Plan of
Merrimac and the 1997 Long-Term
Page 16
Incentive Plan of Merrimac and adjusting outstanding awards
thereunder to give effect to Merrimac's 10% stock dividend paid
June 5, 1998, are hereby incorporated by reference to Exhibit 10(f)
to Merrimac's Annual Report on Form 10-KSB for the year ending
March 30, 1999.*
10(r) 1995 Stock Purchase Plan of Merrimac is hereby incorporated by
reference to Exhibit A to Merrimac's Proxy Statement filed with the
Securities and Exchange Commission on March 27, 1995.*
10(s) Resolutions of the Stock Purchase Plan Committee of the Board of
Directors of Merrimac adopted June 3, 1998, amending the 1995 Stock
Purchase Plan of Merrimac and adjusting outstanding awards
thereunder to give effect to Merrimac's 10% stock dividend paid
June 5, 1998, are hereby incorporated by reference to Exhibit
10(g)(2) to Merrimac's Annual Report on Form 10-KSB for the year
ending January 2, 1999.*
10(t) 1996 Stock Option Plan for Non-Employee Directors of Merrimac is
hereby incorporated by reference to Exhibit 10(d) to Merrimac's
Annual Report on Form 10-KSB dated for the year ending December 28,
1996.*
10(u) Resolutions of the Board of Directors of Merrimac, adopted June 3,
1998, amending the 1996 Stock Option Plan for Non-Employee
Directors of Merrimac and adjusting outstanding awards thereunder
to give effect to Merrimac's 10% stock dividend paid June 5, 1998,
are hereby incorporated by reference to Exhibit 10(h)(2)to
Merrimac's Annual Report on Form 10-KSB for the year ending January
2, 1999.*
10(v) Amended and Restated Employment Agreement dated as of January 1,
1998, between Merrimac and Mason N. Carter is hereby incorporated
by reference to Exhibit 10(a) to Merrimac's Quarterly Report on
Form 10-QSB for the period ending July 4, 1998.*
10(w) Amendment dated August 31, 2000 to the Amended and Restated
Employment Agreement dated January 1, 1998, between Merrimac and
Mason N. Carter is hereby incorporated by reference to Exhibit
10(a) to Merrimac's Quarterly Report on Form 10-QSB for the period
ending September 30, 2000.*
10(x) Amended and Restated Pledge Agreement dated as of May 4, 1998,
between Merrimac and Mason N. Carter is hereby incorporated by
reference to Exhibit 10(c) to Merrimac's Quarterly Report on Form
10-QSB for the period ending July 4, 1998.*
10(y) Amended Promissory Note dated as of May 4, 1998, executed by Mason
N. Carter in favor of Merrimac is hereby incorporated by reference
to Exhibit 10(l) to Merrimac's Annual Report on Form 10-KSB for the
year ending January 2, 1999.*
10(z) Registration Rights Agreement dated as of May 4, 1998, between
Merrimac and Mason N. Carter is hereby incorporated by reference to
Exhibit 10(e) to Merrimac's Quarterly Report on Form 10-QSB for the
period ending July 4, 1998.*
10(aa) Consulting Agreement dated as of January 1, 1998, between Merrimac
and Arthur A. Oliner is hereby incorporated by reference to Exhibit
10 to Merrimac's Quarterly Report on Form 10-QSB for the period
ending April 4, 1998.*
10(bb) Separation Agreement dated as of December 31, 1998, between
Merrimac and Eugene W. Niemiec is hereby incorporated by reference
to Exhibit 10(p) to Merrimac's Annual Report on Form 10-KSB for the
year ending January 2, 1999.*
10(cc) Stockholder's Agreement dated as of October 30, 1998, between
Merrimac and Charles F. Huber II is hereby incorporated by
reference to Exhibit 10 to Merrimac's Quarterly Report on Form
10-QSB for the period ending October 3, 1998.
10(dd) Shareholder's Agreement dated as of June 3, 1999, among Merrimac,
William D. Witter, Inc. and William D. Witter is hereby
incorporated by reference to Exhibit 10 to Merrimac's Quarterly
Report on Form 10-QSB for the period ending July 3, 1999.
10(ee) 2001 Key Employee Incentive Plan is hereby incorporated by
reference to Exhibit 4.01 to Merrimac's Form S-8 (No. 333-63434)
dated June 20, 2001.*
Page 17
10(ff) 2001 Stock Option Plan is hereby incorporated by reference to
Exhibit 4.01 to Merrimac's Form S-8 (No. 333-63436) dated June 20,
2001.*
10(gg) 2001 Stock Purchase Plan is hereby incorporated by reference to
Exhibit 4.01 to Merrimac's Form S-8 (No. 333-63438) dated June 20,
2001.*
10(hh) 2001 Amended and Restated Stock Option Plan is hereby incorporated
by reference to Exhibit 4(i) to Merrimac's Quarterly Report on Form
10-QSB for the period ending June 30, 2001.*
10(ii) Third Amended and Restated Credit Agreement, dated December 23,
2002, between Merrimac and Fleet National Bank, which amends the
Credit and Security Agreement, dated October 7, 1997 is hereby
incorporated by reference to Exhibit 10(mm) to Merrimac's Annual
Report on Form 10-KSB for the year ending December 28, 2002.
10(jj) Revolving Loan Modification Agreement, dated April 17, 2003,
between Merrimac and Fleet National Bank, which amends the Third
Amended and Restated Credit Agreement, dated December 23, 2002 is
hereby incorporated by reference to Exhibit 10(nn) to Merrimac's
Annual Report on Form 10-KSB for the year ending December 28, 2002.
10(kk) Term Loan and Security Agreement, dated December 23, 2002, between
Merrimac and Fleet National Bank is hereby incorporated by
reference to Exhibit 10(oo) to Merrimac's Annual Report on Form
10-KSB for the year ending December 28, 2002.
10(ll) Term Loan Modification Agreement, dated April 17, 2003, between
Merrimac and Fleet National Bank, which amends the Term Loan and
Security Agreement, dated December 23, 2002 is hereby incorporated
by reference to Exhibit 10(pp) to Merrimac's Annual Report on Form
10-KSB for the year ending December 28, 2002.
10(mm) Term Loan and Security Agreement, dated March 26, 2002, between
Merrimac and Fleet National Bank is hereby incorporated by
reference to Exhibit 10(qq) to Merrimac's Annual Report on Form
10-KSB for the year ending December 28, 2002.
10(nn) Term Loan Modification Agreement, dated April 17, 2003, which
amends the Term Loan and Security Agreement, dated March 26, 2002
is hereby incorporated by reference to Exhibit 10(rr) to Merrimac's
Annual Report on Form 10-KSB for the year ending December 28, 2002.
10(oo) Financing Agreement, dated October 8, 2003, between Merrimac and
The CIT Group/Business Credit, Inc. is hereby incorporated by
reference to Exhibit 10(rr) to Merrimac's Form 10-QSB for the
period ending September 27, 2003.
10(pp) Trademark and Patent Security Agreement, dated October 8, 2003,
between Merrimac and The CIT Group/Business Credit, Inc. is hereby
incorporated by reference to Exhibit 10(ss) to Merrimac's Form
10-QSB for the period ending September 27, 2003.
10(qq) Mortgage and Security Agreement, dated October 8, 2003, by Merrimac
in favor of The CIT Group/Business Credit, Inc. is hereby
incorporated by reference to Exhibit 10(tt) to Merrimac's Form
10-QSB for the period ending September 27, 2003.
10(rr)* Merrimac Severance Plan, as adopted September 17, 2003. is hereby
incorporated by reference to Exhibit 10(uu) to Merrimac's Form
10-QSB for the period ending September 27, 2003.
11+ Statement regarding Computation of Earnings per Share.
31.1+ 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.
Page 18
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 a management contract or compensatory plan or
arrangement.
+ Indicates that exhibit is filed as an exhibit hereto.
(b) Reports on Form 8-K
o The Company filed a Form 8-K on April 1, 2004, in connection with a
press release dated April 1, 2004 announcing its financial results for
the fourth quarter and fiscal year ended January 3, 2004.
Page 19
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: May 17, 2004 By: /s/ Mason N. Carter
-------------------
Mason N. Carter
Chairman, President and
Chief Executive Officer
Date: May 17, 2004 By: /s/ Robert V. Condon
--------------------
Robert V. Condon
Vice President, Finance and
Chief Financial Officer
Page 20