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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 1, 2008

OR

 ̈ 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. 0-23818

MERIX CORPORATION

(Exact name of
registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Oregon                                                         |  | 93-1135197                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|15725 SW Greystone Court, Suite 200, Beaverton, Oregon         |  | 97006                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: 503-716-3700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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   ̈

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act. Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈ (Do not check if a smaller reporting company) Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   ̈    No  x

The number of shares of common stock outstanding as of April 7, 2008 was 21,074,209 shares.









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##### Table of Contents

MERIX CORPORATION

INDEX TO FORM 10-Q



|                               |  |                                                                                                                                                               |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|                               |  | Page                                                                                                                                                         
|                               | 
|PART I - FINANCIAL INFORMATION |  |                                                                                                                                                              
|                               |  |                                                                                                                                                              
|Item 1.                        |  | Consolidated Financial Statements (Unaudited)                                                                                                                 |  |   
|                               |  |                                                                                                                                                              
|                               |  | Consolidated Balance Sheets  March 1, 2008 and February 24, 2007                                                                                             |  | 2 
|                               |  |                                                                                                                                                              
|                               |  | Consolidated Statements of Operations  Thirteen and Forty Week Periods Ended March 1, 2008 and Thirteen and Thirty-Nine Week Periods Ended February 24, 2007 |  | 3 
|                               |  |                                                                                                                                                              
|                               |  | Consolidated Statements of Cash Flows  Forty Week Period Ended March 1, 2008 and Thirty-Nine Week Period Ended February 24, 2007                             |  | 4 
|                               |  |                                                                                                                                                              
|                               |  | Notes to Consolidated Financial Statements                                                                                                                    |  | 5 
|                               |  |                                                                                                                                                              
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                         |  | 16
|                               |  |                                                                                                                                                              
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                    |  | 26
|                               |  |                                                                                                                                                              
|Item 4.                        |  | Controls and Procedures                                                                                                                                       |  | 26
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                                                              
|                               |  |                                                                                                                                                              
|Item 1.                        |  | Legal Proceedings                                                                                                                                             |  | 28
|                               |  |                                                                                                                                                              
|Item 1A.                       |  | Risk Factors                                                                                                                                                  |  | 28
|                               |  |                                                                                                                                                              
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                   |  | 41
|                               |  |                                                                                                                                                              
|Item 5.                        |  | Other Information                                                                                                                                             |  | 41
|                               |  |                                                                                                                                                              
|Item 6.                        |  | Exhibits                                                                                                                                                      |  | 41
|                               |  |                                                                                                                                                              
|Signatures                     |  |                                                                                                                                                               |  | 42



1



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

MERIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



|                                                                                                                                              |  |              |         |   |             |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ----------- | - | ------- | -
|                                                                                                                                              |  | March 1,2008 |         |   | May 26,2007 |  
|ASSETS                                                                                                                                        |  |              |         |   |             |   |         |  
|Current Assets:                                                                                                                               |  |              |         |   |             |   |         |  
|Cash and cash equivalents                                                                                                                     |  | $            | 10,425  |   |             | $ | 17,175  |  
|Short-term investments                                                                                                                        |  |              |        |   |             |   | 9,025   |  
|Accounts receivable, net of allowances for doubtful accounts of $2,604 and $3,168                                                             |  |              | 78,872  |   |             |   | 76,825  |  
|Inventories, net                                                                                                                              |  |              | 27,322  |   |             |   | 25,231  |  
|Income taxes receivable                                                                                                                       |  |              | 292     |   |             |   | 295     |  
|Deferred income taxes                                                                                                                         |  |              | 714     |   |             |   |        |  
|Assets held for sale                                                                                                                          |  |              | 1,523   |   |             |   | 1,206   |  
|Other current assets                                                                                                                          |  |              | 11,913  |   |             |   | 6,824   |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|Total current assets                                                                                                                          |  |              | 131,061 |   |             |   | 136,581 |  
|Property, plant and equipment, net of accumulated depreciation of $129,215 and $119,949                                                       |  |              | 96,406  |   |             |   | 101,264 |  
|Goodwill                                                                                                                                      |  |              | 31,069  |   |             |   | 31,614  |  
|Definite-lived intangible assets, net of accumulated amortization of $7,822 and $6,037                                                        |  |              | 9,386   |   |             |   | 11,171  |  
|Leasehold land use rights, net                                                                                                                |  |              | 1,234   |   |             |   | 1,254   |  
|Deferred financing costs, net                                                                                                                 |  |              | 4,093   |   |             |   | 4,732   |  
|Deferred income taxes                                                                                                                         |  |              | 767     |   |             |   |        |  
|Other assets                                                                                                                                  |  |              | 367     |   |             |   | 241     |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|Total assets                                                                                                                                  |  | $            | 274,383 |   |             | $ | 286,857 |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                          |  |              |         |   |             |   |         |  
|Current Liabilities:                                                                                                                          |  |              |         |   |             |   |         |  
|Current portion of long-term debt                                                                                                             |  | $            | 2       |   |             | $ | 2,532   |  
|Accounts payable                                                                                                                              |  |              | 56,158  |   |             |   | 45,091  |  
|Accrued compensation                                                                                                                          |  |              | 9,541   |   |             |   | 8,508   |  
|Accrued warranty                                                                                                                              |  |              | 2,686   |   |             |   | 2,129   |  
|Other accrued liabilities                                                                                                                     |  |              | 11,396  |   |             |   | 7,903   |  
|Income taxes payable                                                                                                                          |  |              | 669     |   |             |   | 352     |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|Total current liabilities                                                                                                                     |  |              | 80,452  |   |             |   | 66,515  |  
|Long-term debt                                                                                                                                |  |              | 70,002  |   |             |   | 75,503  |  
|Other long-term liabilities                                                                                                                   |  |              | 795     |   |             |   | 1,845   |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|Total liabilities                                                                                                                             |  |              | 151,249 |   |             |   | 143,863 |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|Minority interest                                                                                                                             |  |              | 4,114   |   |             |   | 4,550   |  
|Commitments and contingencies (Note 15)                                                                                                       |  |              |         |   |             |   |         |  
|Shareholders equity:                                                                                                                         |  |              |         |   |             |   |         |  
|Preferred stock, no par value; authorized 10,000 shares; none issued                                                                          |  |              |        |   |             |   |        |  
|Common stock, no par value; authorized 50,000 shares; issued and outstanding 21,074 shares at March 1, 2008 and 20,844 shares at
May 26, 2007 |  |              | 214,998 |   |             |   | 212,334 |  
|Accumulated deficit                                                                                                                           |  |              | (96,067 | ) |             |   | (74,055 | )
|Accumulated other comprehensive income                                                                                                        |  |              | 89      |   |             |   | 165     |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|Total shareholders equity                                                                                                                    |  |              | 119,020 |   |             |   | 138,444 |  
|                                                                                                                                              |  |              |         |   |             |   |         |  
|Total liabilities and shareholders equity                                                                                                    |  | $            | 274,383 |   |             | $ | 286,857 |  
|                                                                                                                                              |  |              |         |   |             |   |         |  

The accompanying noted are an integral part of the Cosolidated Financial Statements.



2



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MERIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ------------------------------------ | - | ------- | --------------------------------------------- |  | - | ------- | - |  | - | ------- | -
|                                                                                                          |  | For the Thirteen Weeks Ended |         |   | For the FortyWeeks EndedMarch 1,2008 |   |         | For theThirty-NineWeeks EndedFebruary 24,2007 | 
|                                                                                                          |  | March 1,2008                 |         |   | February 24,2007                     |   |         |                                              
|Net Sales                                                                                                 |  | $                            | 94,275  |   |                                      | $ | 100,288 |                                               |  | $ | 291,083 |   |  | $ | 306,924 |  
|Cost of Sales                                                                                             |  |                              | 84,594  |   |                                      |   | 82,682  |                                               |  |   | 257,200 |   |  |   | 251,137 |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Gross Margin                                                                                              |  |                              | 9,681   |   |                                      |   | 17,606  |                                               |  |   | 33,883  |   |  |   | 55,787  |  
|Operating Expenses:                                                                                       |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Engineering                                                                                               |  |                              | 2,094   |   |                                      |   | 1,911   |                                               |  |   | 6,680   |   |  |   | 5,067   |  
|Selling, general and administrative                                                                       |  |                              | 9,930   |   |                                      |   | 10,617  |                                               |  |   | 32,136  |   |  |   | 33,575  |  
|Amortization of identifiable intangible assets                                                            |  |                              | 527     |   |                                      |   | 624     |                                               |  |   | 1,785   |   |  |   | 2,147   |  
|Severance                                                                                                 |  |                              | 1,747   |   |                                      |   | 1,023   |                                               |  |   | 2,854   |   |  |   | 1,023   |  
|Impairment and restructuring charges                                                                      |  |                              | 12,893  |   |                                      |   |        |                                               |  |   | 13,007  |   |  |   |        |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Total operating expenses                                                                                  |  |                              | 27,191  |   |                                      |   | 14,175  |                                               |  |   | 56,462  |   |  |   | 41,812  |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Operating Income                                                                                          |  |                              | (17,510 | ) |                                      |   | 3,431   |                                               |  |   | (22,579 | ) |  |   | 13,975  |  
|Other Income (Expense):                                                                                   |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Interest income                                                                                           |  |                              | 155     |   |                                      |   | 377     |                                               |  |   | 724     |   |  |   | 1,121   |  
|Interest expense                                                                                          |  |                              | (916    | ) |                                      |   | (1,309  | )                                             |  |   | (3,088  | ) |  |   | (4,298  | )
|Gain on settlement of debt                                                                                |  |                              | 5,094   |   |                                      |   |        |                                               |  |   | 5,094   |   |  |   |        |  
|Other income (expense), net                                                                               |  |                              | (419    | ) |                                      |   | (141    | )                                             |  |   | (1,011  | ) |  |   | (884    | )
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Total other expense, net                                                                                  |  |                              | 3,914   |   |                                      |   | (1,073  | )                                             |  |   | 1,719   |   |  |   | (4,061  | )
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations before income taxes and minority interests                       |  |                              | (13,596 | ) |                                      |   | 2,358   |                                               |  |   | (20,860 | ) |  |   | 9,914   |  
|Income tax expense (benefit)                                                                              |  |                              | (511    | ) |                                      |   | 367     |                                               |  |   | 445     |   |  |   | 1,315   |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations before minority interests                                        |  |                              | (13,085 | ) |                                      |   | 1,991   |                                               |  |   | (21,305 | ) |  |   | 8,599   |  
|Minority interests                                                                                        |  |                              | 269     |   |                                      |   | 220     |                                               |  |   | 707     |   |  |   | 252     |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations                                                                  |  |                              | (13,354 | ) |                                      |   | 1,771   |                                               |  |   | (22,012 | ) |  |   | 8,347   |  
|Income (loss) from discontinued operations, net of income tax expense of $0, $0, $0 and $98, respectively |  |                              |        |   |                                      |   | 314     |                                               |  |   |        |   |  |   | (858    | )
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Net income (loss)                                                                                         |  | $                            | (13,354 | ) |                                      | $ | 2,085   |                                               |  | $ | (22,012 | ) |  | $ | 7,489   |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Basic income (loss) per share from continuing operations                                                  |  | $                            | (0.63   | ) |                                      | $ | 0.09    |                                               |  | $ | (1.05   | ) |  | $ | 0.41    |  
|Basic income (loss) per share from discontinued operations                                                |  |                              |        |   |                                      |   | 0.01    |                                               |  |   |        |   |  |   | (0.04   | )
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Basic net income (loss) per share                                                                         |  | $                            | (0.63   | ) |                                      | $ | 0.10    |                                               |  | $ | (1.05   | ) |  | $ | 0.37    |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Diluted income (loss) per share from continuing operations                                                |  | $                            | (0.63   | ) |                                      | $ | 0.09    |                                               |  | $ | (1.05   | ) |  | $ | 0.40    |  
|Diluted income (loss) per share from discontinued operations                                              |  |                              |        |   |                                      |   | 0.01    |                                               |  |   |        |   |  |   | (0.04   | )
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Diluted net income (loss) per share                                                                       |  | $                            | (0.63   | ) |                                      | $ | 0.10    |                                               |  | $ | (1.05   | ) |  | $ | 0.36    |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Shares used in per share calculations:                                                                    |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Basic                                                                                                     |  |                              | 21,079  |   |                                      |   | 20,575  |                                               |  |   | 21,002  |   |  |   | 20,302  |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  
|Diluted                                                                                                   |  |                              | 21,079  |   |                                      |   | 20,811  |                                               |  |   | 21,002  |   |  |   | 20,665  |  
|                                                                                                          |  |                              |         |   |                                      |   |         |                                               |  |   |         |   |  |   |         |  

The accompanying noted are an integral part of the Consolidated Financial Statements.



3



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MERIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

|                                                                                         |  |                                      |         |   |                                               |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | --------------------------------------------- | - | ------- | -
|                                                                                         |  | For the FortyWeeks EndedMarch 1,2008 |         |   | For theThirty-NineWeeks EndedFebruary 24,2007 |  
|Cash flows from operating activities:                                                    |  |                                      |         |   |                                               |   |         |  
|Net income (loss)                                                                        |  | $                                    | (22,012 | ) |                                               | $ | 7,489   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                      |         |   |                                               |   |         |  
|Depreciation and amortization                                                            |  |                                      | 16,231  |   |                                               |   | 17,633  |  
|Deferred income taxes                                                                    |  |                                      | (1,005  | ) |                                               |   |        |  
|Contribution of common stock to defined contribution plan                                |  |                                      | 873     |   |                                               |   | 1,044   |  
|Stock-based compensation expense, net                                                    |  |                                      | 1,877   |   |                                               |   | 1,680   |  
|Minority interest in net income of consolidated subsidiaries                             |  |                                      | 707     |   |                                               |   | 252     |  
|(Gain) loss on disposal of fixed assets                                                  |  |                                      | (28     | ) |                                               |   | (41     | )
|Impairment of discontinued operations                                                    |  |                                      | 12,722  |   |                                               |   | 1,099   |  
|Gain on settlement of debt                                                               |  |                                      | (5,094  | ) |                                               |   |        |  
|Other non-cash (income) expense                                                          |  |                                      |        |   |                                               |   | (209    | )
|Changes in assets and liabilities:                                                       |  |                                      |         |   |                                               |   |         |  
|Accounts receivable, net                                                                 |  |                                      | (2,047  | ) |                                               |   | (7,301  | )
|Inventories, net                                                                         |  |                                      | (2,091  | ) |                                               |   | (2,910  | )
|Income taxes receivable                                                                  |  |                                      | 3       |   |                                               |   | (299    | )
|Other assets                                                                             |  |                                      | (5,230  | ) |                                               |   | 1,031   |  
|Accounts payable                                                                         |  |                                      | 9,706   |   |                                               |   | 6,761   |  
|Accrued compensation                                                                     |  |                                      | 1,762   |   |                                               |   | (3,101  | )
|Accrued warranty                                                                         |  |                                      | 557     |   |                                               |   | 139     |  
|Income taxes payable                                                                     |  |                                      | 317     |   |                                               |   | 594     |  
|Other accrued liabilities                                                                |  |                                      | (187    | ) |                                               |   | (892    | )
|                                                                                         |  |                                      |         |   |                                               |   |         |  
|Net cash provided by operating activities                                                |  |                                      | 7,061   |   |                                               |   | 22,969  |  
|Cash flows from investing activities:                                                    |  |                                      |         |   |                                               |   |         |  
|Purchases of property, plant and equipment                                               |  |                                      | (19,749 | ) |                                               |   | (14,918 | )
|Proceeds from disposal of property, plant and equipment                                  |  |                                      | 23      |   |                                               |   | 999     |  
|Purchases of investments                                                                 |  |                                      | (12,775 | ) |                                               |   | (12,550 | )
|Sales and maturities of investments                                                      |  |                                      | 21,800  |   |                                               |   | 31,075  |  
|                                                                                         |  |                                      |         |   |                                               |   |         |  
|Net cash provided by (used in) investing activities                                      |  |                                      | (10,701 | ) |                                               |   | 4,606   |  
|Cash flows from financing activities:                                                    |  |                                      |         |   |                                               |   |         |  
|Principal payments on long-term borrowings                                               |  |                                      | (2,500  | ) |                                               |   | (16,125 | )
|Payments on capital lease obligations                                                    |  |                                      | (437    | ) |                                               |   | (911    | )
|Proceeds from exercise of stock options                                                  |  |                                      | 1       |   |                                               |   | 5,335   |  
|Reacquisition of common stock                                                            |  |                                      | (86     | ) |                                               |   | (48     | )
|Due from affiliate, net                                                                  |  |                                      | 1,214   |   |                                               |   | (3,640  | )
|Distribution to minority shareholder                                                     |  |                                      | (1,144  | ) |                                               |   |        |  
|Other financing activities                                                               |  |                                      | (197    | ) |                                               |   |        |  
|                                                                                         |  |                                      |         |   |                                               |   |         |  
|Net cash used in financing activities                                                    |  |                                      | (3,149  | ) |                                               |   | (15,389 | )
|Effect of exchange rate changes                                                          |  |                                      | 39      |   |                                               |   | (2      | )
|                                                                                         |  |                                      |         |   |                                               |   |         |  
|Increase (decrease) in cash and cash equivalents                                         |  |                                      | (6,750  | ) |                                               |   | 12,184  |  
|Cash and cash equivalents:                                                               |  |                                      |         |   |                                               |   |         |  
|Beginning of period                                                                      |  |                                      | 17,175  |   |                                               |   | 12,280  |  
|                                                                                         |  |                                      |         |   |                                               |   |         |  
|End of period                                                                            |  | $                                    | 10,425  |   |                                               | $ | 24,464  |  
|                                                                                         |  |                                      |         |   |                                               |   |         |  
|Supplemental Cash Flow Information:                                                      |  |                                      |         |   |                                               |   |         |  
|Cash paid for income taxes                                                               |  | $                                    | 1,057   |   |                                               | $ | 1,090   |  
|Cash paid for interest                                                                   |  |                                      | 2,176   |   |                                               |   | 3,786   |  
|Supplemental Disclosure of Non-Cash Activity:                                            |  |                                      |         |   |                                               |   |         |  
|Issuance (reduction) of promissory note in Merix Asia acquisition                        |  | $                                    |        |   |                                               | $ | (3,406  | )
|Other purchase price adjustments                                                         |  |                                      |        |   |                                               |   | (1,435  | )

The accompanying noted are an integral part of the Consolidated Financial Statements.



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MERIX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | NATURE OF BUSINESS
|-- | ------------------

Merix Corporation, an Oregon corporation, was
formed in March 1994. Merix is a leading global manufacturing service provider for technologically advanced printed circuit boards (PCBs) for original equipment manufacturer (OEM) customers and their electronic manufacturing
service (EMS) providers. The Companys principal products are complex multi-layer rigid PCBs, which are the platforms used to interconnect microprocessors, integrated circuits and other components that are essential to the operation
of electronic products and systems. The market segments the Company serves are primarily in commercial equipment for the Communications and Networking, Computing and Peripherals, Industrial and Medical, Defense and Aerospace and Automotive markets.
The Companys markets are generally characterized by rapid technological change, high levels of complexity and short product life-cycles, as new and technologically superior electronic equipment is continually being developed.



|2. | BASIS OF PRESENTATION
|-- | ---------------------

The accompanying consolidated financial
statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in the Annual Report on Form 10-K prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant to those rules or regulations. The interim consolidated financial statements are unaudited, however, they reflect all normal recurring adjustments and non-recurring
adjustments that are, in the opinion of management, necessary for a fair presentation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the
Companys 2007 Annual Report on Form 10-K. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Companys fiscal year consists of a 52 or 53 week period that ends on the last Saturday in May. Fiscal 2008 is a 53 week fiscal year ending on May 31, 2008. The first quarter of fiscal 2008 ended
September 1, 2007 and included 14 weeks. Accordingly, the year-to-date period ended March 1, 2008 included 40 weeks and the year-to-date period ended February 24, 2007 included 39 weeks.



|3. | BASIS OF CONSOLIDATION
|-- | ----------------------

The consolidated financial statements
include the accounts of Merix Corporation and its wholly-owned and majority-owned subsidiaries. Except for activity related to Merix Asia, for which certain intercompany amounts cannot be eliminated as discussed below, all inter-company accounts,
transactions and profits have been eliminated in consolidation.

The Companys financial reporting systems at Merix Asia are predominantly manual in
nature. Due to the manual nature of the systems, Merix Asia requires significant time to process and review the transactions in order to assure the financial information is properly stated. Additionally, Merix Asia performs a complex financial
consolidation of its subsidiaries prior to the Companys final consolidation. The time required to complete Merix Asias consolidation, record intercompany transactions and properly report any adjustments, intervening and/or subsequent
events requires the use of a one-month lag in consolidating the financial statements for Merix Asia with Merix Corporation. Inter-company transactions which occurred during these periods have been eliminated in consolidation. Inter-company balances
resulting from transactions with Merix Asia during the one-month lag period have been netted and presented as a current asset or current liability on the consolidated balance sheet. The net intercompany payable, which was included as a component of
other accrued liabilities, totaled $2.0 million as of March 1, 2008 and $0.8 million as of May 26, 2007.



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The Company selected a new enterprise resource planning (ERP) system to support its transition to a global
business in May 2006. The Company is currently in the process of implementing the new ERP system, which, when complete, will allow for the streamlining of business processes and may eventually eliminate the need for the one-month reporting lag for
Merix Asia.



|4. | RECLASSIFICATIONS
|-- | -----------------

Certain immaterial reclassifications were made
to the prior period financial statements to conform to the current period presentation.



|5. | EARNINGS PER SHARE
|-- | ------------------

Basic earnings per share (EPS) and
diluted EPS are computed using the methods prescribed by Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. Following is a reconciliation of the income (loss) from continuing operations and
shares used for basic EPS and diluted EPS (in thousands, except per share amounts):



|                                                                                            |  |                                   |         |   |                                       |        |                 |   |       |                                 |  |        |       |                 |        |  |   |     
|------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | ------------------------------------- | ------ | --------------- | - | ----- | ------------------------------- |  | ------ | ----- | --------------- | ------ |  | - | ----
|                                                                                            |  | Thirteen Weeks EndedMarch 1, 2008 |         |   | Thirteen Weeks EndedFebruary 24, 2007
|                                                                                            |  | Loss fromContinuingOperations     |         |   | Shares                                |        | Per ShareAmount |   |       | Income fromContinuingOperations |  | Shares |       | Per ShareAmount
|Basic EPS                                                                                   |  | $                                 | (13,354 | ) |                                       | 21,079 |                 | $ | (0.63 | )                               |  | $      | 1,771 |                 | 20,575 |  | $ | 0.09
|Effect of dilutive stock options                                                            |  |                                   |        |   |                                       |       |                 |   |      |                                 |  |        |      |                 | 236    |  |   |    
|                                                                                            |  |                                   |         |   |                                       |        |                 |   |       |                                 |  |        |       |                 |        |  |   |     
|Diluted EPS                                                                                 |  | $                                 | (13,354 | ) |                                       | 21,079 |                 | $ | (0.63 | )                               |  | $      | 1,771 |                 | 20,811 |  | $ | 0.09
|                                                                                            |  |                                   |         |   |                                       |        |                 |   |       |                                 |  |        |       |                 |        |  |   |     
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  |                                   |         |   |                                       |        |                 |   |       |                                 |  |        |       |                 |        |  |   |     
|Stock options                                                                               |  |                                   |         |   |                                       | 3,113  |                 |   |       |                                 |  |        |       |                 | 1,851  |  |   |     
|                                                                                            |  |                                   |         |   |                                       |        |                 |   |       |                                 |  |        |       |                 |        |  |   |     
|Convertible notes                                                                           |  |                                   |         |   |                                       | 4,608  |                 |   |       |                                 |  |        |       |                 | 4,608  |  |   |     
|                                                                                            |  |                                   |         |   |                                       |        |                 |   |       |                                 |  |        |       |                 |        |  |   |     



|                                                                                            |  |                                |         |   |                                          |        |                 |   |       |                                 |  |        |       |                 |        |  |   |       |  
|------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---------------------------------------- | ------ | --------------- | - | ----- | ------------------------------- |  | ------ | ----- | --------------- | ------ |  | - | ----- | -
|                                                                                            |  | Forty Weeks EndedMarch 1, 2008 |         |   | Thirty-Nine Weeks EndedFebruary 24, 2007 |       
|                                                                                            |  | Loss fromContinuingOperations  |         |   | Shares                                   |        | Per ShareAmount |   |       | Income fromContinuingOperations |  | Shares |       | Per ShareAmount |       
|Basic EPS                                                                                   |  | $                              | (22,012 | ) |                                          | 21,002 |                 | $ | (1.05 | )                               |  | $      | 8,347 |                 | 20,302 |  | $ | 0.41  |  
|Effect of dilutive stock options                                                            |  |                                |        |   |                                          |       |                 |   |      |                                 |  |        |      |                 | 363    |  |   | (0.01 | )
|                                                                                            |  |                                |         |   |                                          |        |                 |   |       |                                 |  |        |       |                 |        |  |   |       |  
|Diluted EPS                                                                                 |  | $                              | (22,012 | ) |                                          | 21,002 |                 | $ | (1.05 | )                               |  | $      | 8,347 |                 | 20,665 |  | $ | 0.40  |  
|                                                                                            |  |                                |         |   |                                          |        |                 |   |       |                                 |  |        |       |                 |        |  |   |       |  
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  |                                |         |   |                                          |        |                 |   |       |                                 |  |        |       |                 |        |  |   |       |  
|Stock options                                                                               |  |                                |         |   |                                          | 3,003  |                 |   |       |                                 |  |        |       |                 | 1,316  |  |   |       |  
|                                                                                            |  |                                |         |   |                                          |        |                 |   |       |                                 |  |        |       |                 |        |  |   |       |  
|Convertible notes                                                                           |  |                                |         |   |                                          | 4,608  |                 |   |       |                                 |  |        |       |                 | 4,608  |  |   |       |  
|                                                                                            |  |                                |         |   |                                          |        |                 |   |       |                                 |  |        |       |                 |        |  |   |       |  



|6. | INVENTORIES
|-- | -----------

Inventories are valued at the lower of cost or market
value and include materials, labor and manufacturing overhead. Inventory cost is determined on the first-in, first-out (FIFO) basis.

The
Company includes a provision for inventories to cover excess inventories to their estimated net realizable values, as necessary. A change in customer demand for inventory is the primary indicator for reductions in inventory carrying values. The
Company records provisions for excess inventories based on historical experiences with customers, the ability to utilize inventory in other programs, the ability to redistribute inventory back to the suppliers and current and forecasted demand for
the inventory. As of March 1, 2008 and May 26, 2007, our inventory reserves totaled $3.8 million and $3.4 million, respectively.



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The Company maintains inventories on a consignment basis in the United States and in Asia. Consignment inventory is
recorded as inventory until the product is pulled from the consignment inventories by the customer and all risks and rewards of ownership of the consignment inventory have been transferred to the customer.

Inventories, net of related reserves, consisted of the following (in thousands):



|                           |  |              |        |             |   |       
|-------------------------- |  | ------------ | ------ | ----------- | - | ------
|                           |  | March 1,2008 |        | May 26,2007
|Raw materials              |  | $            | 6,617  |             | $ | 5,134 
|Work-in-process            |  |              | 9,047  |             |   | 7,297 
|Finished goods             |  |              | 3,952  |             |   | 7,670 
|Consignment finished goods |  |              | 7,706  |             |   | 5,130 
|                           |  |              |        |             |   |       
|Total inventories          |  | $            | 27,322 |             | $ | 25,231
|                           |  |              |        |             |   |       



|7. | ASSETS HELD FOR SALE
|-- | --------------------

In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company has recorded certain assets as current assets held for sale. Assets held for sale included the following (in thousands):



|                    |  |              |       |             |   |      
|------------------- |  | ------------ | ----- | ----------- | - | -----
|                    |  | March 1,2008 |       | May 26,2007
|Two parcels of land |  | $            | 1,146 |             | $ | 1,146
|Excess equipment    |  |              | 377   |             |   | 60   
|                    |  |              |       |             |   |      
|                    |  | $            | 1,523 |             | $ | 1,206
|                    |  |              |       |             |   |      

In accordance with SFAS No. 144, these assets are recorded at the lower of their carrying amount or fair
value, less cost to sell and are no longer being depreciated.



|8. | DISCONTINUED OPERATIONS
|-- | -----------------------

On September 29, 2006, Merix Asia
entered into an agreement with Citi-Power Investment Limited to sell Merix Hong Kongs 90% shareholding interest in the Lomber single-sided manufacturing facility located in Huizhou City in the Peoples Republic of China (Lomber
Facility) for a nominal amount. Also on September 29, 2006, Merix Asia entered into an agreement with Excel Hero (China) Limited to sell its 85.29% shareholding interest in its single-sided manufacturing facility located in Dongguan City
in the Peoples Republic of China (Dongguan Facility) for a nominal amount. On March 31, 2007, Merix Asia sold the stock of Merix Holding (Hong Kong) Limited, the holding company of the Lomber Facility and Dongguan Facility to
East Bridge Group Limited for an amount approximately equal to the book value of the facilities.

The results of operations for the Dongguan and Lomber
facilities have been reclassified as discontinued operations for all periods presented up through the date of sale. Certain financial information related to discontinued operations was as follows (in thousands):



|                                                                                 |  |                                  |       |                                     |   |        |  
|-------------------------------------------------------------------------------- |  | -------------------------------- | ----- | ----------------------------------- | - | ------ | -
|                                                                                 |  | ThirteenWeeks EndedFeb. 24, 2007 |       | Thirty-NineWeeks EndedFeb. 24, 2007 |  
|Revenue                                                                          |  | $                                | 1,976 |                                     | $ | 7,443  |  
|(Impairment) reversal of impairment related to assets of discontinued operations |  |                                  | 158   |                                     |   | (1,099 | )
|Pre-tax income (loss)                                                            |  |                                  | 314   |                                     |   | (760   | )



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|9. | GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS
|-- | ---------------------------------------------

Goodwill

The roll-forward of our goodwill was as follows (in thousands):



|                                                                                                                              |  |                               |        |   |                                     |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | - | ----------------------------------- | - | ------ | -
|                                                                                                                              |  | Forty WeeksEndedMarch 1, 2008 |        |   | Thirty-NineWeeks EndedFeb. 24, 2007 |  
|Balance, beginning of period                                                                                                  |  | $                             | 31,614 |   |                                     | $ | 89,889 |  
|Recognition of deferred tax assets related to Asia acquisition in accordance with SFAS No. 109, Accounting for Income Taxes |  |                               | (545   | ) |                                     |   |       |  
|Adjustment related to $3.4 million decrease in promissory note and $1.4 million purchase allocation adjustment                |  |                               |       |   |                                     |   | (4,841 | )
|                                                                                                                              |  |                               |        |   |                                     |   |        |  
|Balance, end of period                                                                                                        |  | $                             | 31,069 |   |                                     | $ | 85,048 |  
|                                                                                                                              |  |                               |        |   |                                     |   |        |  

Definite-Lived Intangible Assets

At March 1, 2008 and May 26, 2007, the Companys definite-lived intangible assets included customer relationships and a manufacturing sales representative network. The gross amount of the Companys
definite-lived intangible assets and the related accumulated amortization were as follows (in thousands):



|                                            |  |                    |  |              |        |   |             |   |        |  
|------------------------------------------- |  | ------------------ |  | ------------ | ------ | - | ----------- | - | ------ | -
|                                            |  | AmortizationPeriod |  | March 1,2008 |        |   | May 26,2007 |  
|Customer relationships                      |  | 6.5-10years        |  | $            | 17,168 |   |             | $ | 17,168 |  
|Accumulated amortization                    |  |                    |  |              | (7,798 | ) |             |   | (6,019 | )
|                                            |  |                    |  |              |        |   |             |   |        |  
|                                            |  |                    |  |              | 9,370  |   |             |   | 11,149 |  
|Manufacturing sales representatives network |  | 5.5 years          |  |              | 40     |   |             |   | 40     |  
|Accumulated amortization                    |  |                    |  |              | (24    | ) |             |   | (18    | )
|                                            |  |                    |  |              |        |   |             |   |        |  
|                                            |  |                    |  |              | 16     |   |             |   | 22     |  
|                                            |  |                    |  |              |        |   |             |   |        |  
|Total definite-lived intangible assets      |  |                    |  | $            | 9,386  |   |             | $ | 11,171 |  
|                                            |  |                    |  |              |        |   |             |   |        |  

Amortization expense was as follows (in thousands):



|                                            |  |                               |       |                                     |   |      
|------------------------------------------- |  | ----------------------------- | ----- | ----------------------------------- | - | -----
|                                            |  | FortyWeeks EndedMarch 1, 2008 |       | Thirty-NineWeeks EndedFeb. 24, 2007
|Customer relationships                      |  | $                             | 1,779 |                                     | $ | 1,819
|Non-compete agreement                       |  |                               |      |                                     |   | 323  
|Manufacturing sales representatives network |  |                               | 6     |                                     |   | 5    
|                                            |  |                               |       |                                     |   |      
|                                            |  | $                             | 1,785 |                                     | $ | 2,147
|                                            |  |                               |       |                                     |   |      

Amortization is as follows over the next five fiscal years and thereafter (in thousands):



|                         |  |                       |       |                                          |   |   
|------------------------ |  | --------------------- | ----- | ---------------------------------------- | - | --
|                         |  | CustomerRelationships |       | ManufacturingSalesRepresentativesNetwork
|Remainder of fiscal 2008 |  | $                     | 518   |                                          | $ | 2 
|2009                     |  |                       | 1,975 |                                          |   | 7 
|2010                     |  |                       | 1,759 |                                          |   | 7 
|2011                     |  |                       | 1,552 |                                          |   |  
|2012                     |  |                       | 1,120 |                                          |   |  
|Thereafter               |  |                       | 2,446 |                                          |   |  
|                         |  |                       |       |                                          |   |   
|                         |  | $                     | 9,370 |                                          | $ | 16
|                         |  |                       |       |                                          |   |   



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|10. | ACCRUED WARRANTY
|--- | ----------------

The Company generally warrants its products for a
period of up to twelve months from the point of sale. However, in selected circumstances, Merix Asia grants longer warranty periods to certain customers of up to three years. The Company records a liability for the estimated cost of the warranty
upon transfer of ownership of the products to the customer. The warranty liability is calculated based on historical experience of expenses resulting from the warranty program for the twelve preceding months for Merix Oregon and Merix San Jose and
for the preceding three year period for Merix Asia. In addition, just prior to the filing date of this Form 10-Q, the Company became aware of a warranty issue at Merix Asia with an estimated cost of $0.5 million to $2.2 million. Based on information
currently available, the Company estimated the cost associated with this warranty issue was $0.5 million at March 1, 2008 and, accordingly, included this amount within its statement of operations for both the thirteen and forty week periods
ended March 1, 2008.

Warranty activity, adjusted for discontinued operations, was as follows (in thousands):



|                             |  |                               |        |   |                                     |   |        |  
|---------------------------- |  | ----------------------------- | ------ | - | ----------------------------------- | - | ------ | -
|                             |  | FortyWeeks EndedMarch 1, 2008 |        |   | Thirty-NineWeeks EndedFeb. 24, 2007 |  
|Balance, beginning of period |  | $                             | 2,129  |   |                                     | $ | 2,297  |  
|Expense incurred             |  |                               | 3,173  |   |                                     |   | 2,459  |  
|Settlements made             |  |                               | (2,616 | ) |                                     |   | (2,320 | )
|                             |  |                               |        |   |                                     |   |        |  
|Balance, end of period       |  | $                             | 2,686  |   |                                     | $ | 2,436  |  
|                             |  |                               |        |   |                                     |   |        |  



|11. | ADOPTION OF FASB INTERPRETATION NO. 48
|--- | --------------------------------------

The Company adopted
Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48) on May 27, 2007. Upon the
implementation of FIN 48, the Company did not recognize any increase or decrease in the liability for unrecognized tax benefits.

The Company files income
tax returns in the U.S. federal jurisdiction and in various state and local and foreign jurisdictions. The Company is no longer subject to Internal Revenue Service (IRS) examinations for fiscal years prior to fiscal 2001, state or local
examinations prior to fiscal 2002, and foreign income tax examinations before fiscal year 2001. The Company does not currently have any examinations in process.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. This policy did not change as a result of the adoption of FIN 48. During the thirteen or forty week periods ended
March 1, 2008, the Company did not recognize any interest or penalties associated with unrecognized tax benefits.



|12. | COMPREHENSIVE INCOME (LOSS)
|--- | ---------------------------

The following table sets forth the
calculation of comprehensive income (loss) for the periods indicated (in thousands):



|                                                                  |  |                      |         |   |                               |   |       |                                     |  |   |         |   |  |   |       |  
|----------------------------------------------------------------- |  | -------------------- | ------- | - | ----------------------------- | - | ----- | ----------------------------------- |  | - | ------- | - |  | - | ----- | -
|                                                                  |  | Thirteen Weeks Ended |         |   | FortyWeeks EndedMarch 1, 2008 |   |       | Thirty-NineWeeks EndedFeb. 24,
2007 | 
|                                                                  |  | March 1, 2008        |         |   | Feb. 24, 2007                 |   |       |                                    
|Net income (loss)                                                 |  | $                    | (13,354 | ) |                               | $ | 2,085 |                                     |  | $ | (22,012 | ) |  | $ | 7,489 |  
|Change in cumulative translation adjustment                       |  |                      | 13      |   |                               |   | (11   | )                                   |  |   | (39     | ) |  |   | (2    | )
|Change in unfunded liability related to long-service payment plan |  |                      | 1       |   |                               |   |      |                                     |  |   | 115     |   |  |   |      |  
|                                                                  |  |                      |         |   |                               |   |       |                                     |  |   |         |   |  |   |       |  
|Total comprehensive income (loss)                                 |  | $                    | (13,340 | ) |                               | $ | 2,074 |                                     |  | $ | (21,936 | ) |  | $ | 7,487 |  
|                                                                  |  |                      |         |   |                               |   |       |                                     |  |   |         |   |  |   |       |  



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|13. | SEGMENT INFORMATION
|--- | -------------------

The Company has three reportable business
segments defined by geographic location in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information: (1) Merix Oregon, (2) Merix San Jose and (3) Merix Asia. Operating segments
are defined as components of an enterprise for which separate financial information is available and regularly reviewed by senior management. The Companys operating segments are evidence of the internal structure of its organization. Each
segment operates in the same industry with production facilities that produce similar customized products for its customers. The production facilities, sales management and chief decision-makers for all processes are managed by the same executive
team. The Companys chief operating decision maker is its Chief Executive Officer. Segment disclosures are presented to the gross profit level as this is the primary performance measure for which the segment managers are responsible. No other
operating results information is provided to the chief operating decision maker for review at the segment level. The following tables reconcile certain financial information by segment. Certain fiscal 2007 balances have been revised to reflect the
impact of discontinued operations as discussed in Note 8.

Net sales by segment were as follows (in thousands):



|               |  |                      |        |                               |   |                                     |  |   |         |  |   |        
|-------------- |  | -------------------- | ------ | ----------------------------- | - | ----------------------------------- |  | - | ------- |  | - | -------
|               |  | Thirteen Weeks Ended |        | FortyWeeks EndedMarch 1, 2008 |   | Thirty-NineWeeks EndedFeb. 24,
2007
|               |  | March 1, 2008        |        | Feb. 24, 2007                 |   |                                    
|Merix Oregon   |  | $                    | 41,151 |                               | $ | 53,680                              |  | $ | 133,057 |  | $ | 163,805
|Merix San Jose |  |                      | 7,485  |                               |   | 9,715                               |  |   | 24,650  |  |   | 27,383 
|Merix Asia     |  |                      | 45,639 |                               |   | 36,893                              |  |   | 133,376 |  |   | 115,736
|               |  |                      |        |                               |   |                                     |  |   |         |  |   |        
|               |  | $                    | 94,275 |                               | $ | 100,288                             |  | $ | 291,083 |  | $ | 306,924
|               |  |                      |        |                               |   |                                     |  |   |         |  |   |        

Gross margin by segment was as follows (in thousands):



|               |  |                      |       |                               |   |                                     |  |   |        |  |   |       
|-------------- |  | -------------------- | ----- | ----------------------------- | - | ----------------------------------- |  | - | ------ |  | - | ------
|               |  | Thirteen Weeks Ended |       | FortyWeeks EndedMarch 1, 2008 |   | Thirty-NineWeeks EndedFeb. 24,
2007
|               |  | March 1, 2008        |       | Feb. 24, 2007                 |   |                                    
|Merix Oregon   |  | $                    | 2,788 |                               | $ | 11,334                              |  | $ | 14,289 |  | $ | 39,286
|Merix San Jose |  |                      | 1,530 |                               |   | 2,967                               |  |   | 5,096  |  |   | 8,066 
|Merix Asia     |  |                      | 5,363 |                               |   | 3,305                               |  |   | 14,498 |  |   | 8,435 
|               |  |                      |       |                               |   |                                     |  |   |        |  |   |       
|               |  | $                    | 9,681 |                               | $ | 17,606                              |  | $ | 33,883 |  | $ | 55,787
|               |  |                      |       |                               |   |                                     |  |   |        |  |   |       

Total assets by segment were as follows (in thousands):



|               |  |              |         |             |   |        
|-------------- |  | ------------ | ------- | ----------- | - | -------
|               |  | March 1,2008 |         | May 26,2007
|Merix Oregon   |  | $            | 135,107 |             | $ | 162,217
|Merix San Jose |  |              | 27,576  |             |   | 29,807 
|Merix Asia     |  |              | 111,700 |             |   | 94,833 
|               |  |              |         |             |   |        
|               |  | $            | 274,383 |             | $ | 286,857
|               |  |              |         |             |   |        



|14. | SIGNIFICANT CUSTOMERS
|--- | ---------------------

Information regarding customers that
accounted for 10% or more of the Companys net sales was as follows:



|                                                                           |  |                      |     |  |                               |   |  |                                    |     |  |    |  
|-------------------------------------------------------------------------- |  | -------------------- | --- |  | ----------------------------- | - |  | ---------------------------------- | --- |  | -- | -
|                                                                           |  | Thirteen Weeks Ended |     |  | FortyWeeks EndedMarch 1, 2008 |   |  | Thirty-NineWeeks EndedFeb. 24,2007 |    
|                                                                           |  | March 1, 2008        |     |  | Feb. 24, 2007                 |   |  |                                   
|Percentage of consolidated net sales represented by significant customer 1 |  | 11                   | %   |  | 15                            | % |  | 11                                 | %   |  | 15 | %
|Percentage of consolidated net sales represented by significant customer 2 |  | *                    | (1) |  | 13                            | % |  | *                                  | (1) |  | 11 | %



|(1) | Less than 10%.
|--- | --------------



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##### Table of Contents

The companies comprising the Companys largest OEM customers vary from period to period. Net sales to these
significant customers in the periods presented primarily related to the Merix Oregon operating segment.

At March 1, 2008, five entities represented
approximately 54% of the Companys net accounts receivable balance, individually ranging from approximately 5% to approximately 18%. The Company has not experienced significant losses related to its accounts receivable in the past.



|15. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Litigation

The Company is, from time to time, made subject to various legal claims, actions and complaints in the ordinary course of its business. The Company has recorded
charges for the estimated probable costs associated with defending these claims. Except as disclosed below, the Company believes that its legal accruals are adequate and that the outcome of the litigation should not have a material adverse effect on
its consolidated results of operations, financial condition or liquidity.

Four purported class action complaints were filed against the Company and
certain of its executive officers and directors in the first quarter of fiscal 2005. The complaints were consolidated in a single action entitled In re Merix Corporation Securities Litigation, Lead Case No. CV 04-826-MO, in the U.S. District
Court for the District of Oregon. After the court granted the Companys motion to dismiss without prejudice, plaintiffs filed a second amended complaint. That complaint alleged that the defendants violated the federal securities laws by making
certain inaccurate and misleading statements in the prospectus used in connection with the January 2004 public offering of approximately $103.4 million of the Companys common stock. In September 2006, the Court dismissed that complaint with
prejudice. The plaintiffs appealed to the Ninth Circuit Court of Appeals. The parties have submitted briefs to the Court of Appeals.

The plaintiffs seek
unspecified damages. A potential loss or range of loss that could arise from these cases is not estimable or probable at this time. The Company has recorded charges for estimated probable costs associated with defending these claims, as it is its
policy to accrue legal fees when it is probable that it will have to defend against known claims or allegations and it can reasonably estimate the amount of anticipated expense.

Environmental Matters

The process to manufacture printed circuit boards requires adherence to environmental
regulations regarding the storage, use, handling and disposal of chemicals, solid wastes and other hazardous materials as well as air quality standards applicable in each of the jurisdictions in which we operate. The Companys Huiyang and
Huizhou facilities in the Peoples Republic of China do not currently comply with all applicable environmental permits and requirements. The Company has worked cooperatively with regulators in the Peoples Republic of China and is
executing a remediation plan designed to achieve compliance and avoid any unplanned fines, penalties or costs. The Company paid approximately $0.3 million related to this plan in the first three quarters of fiscal 2008 and anticipates incurring an
additional $0.5 million in costs related to this plan in the remainder of fiscal 2008. Improvement in environmental performance at the affected sites is consistent with our plans to achieve full compliance by the completion of all aspects of the
plan. The Company believes that its other facilities comply in all material respects with applicable environmental laws and regulations. The Company has in the past, however, received certain notices of violations and has been required to engage in
certain minor corrective activities. There can be no assurance that violations will not occur in the future.

Commitments

As of March 1, 2008, the Company had capital commitments of approximately $11.6 million, primarily relating to the purchase of machinery and equipment.



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|16. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

The Company paid the following amounts
to Huizhou Desay Holdings Co. Ltd. and its wholly-owned subsidiary, a minority shareholder of two Merix Asia manufacturing facilities, during the periods indicated (in thousands):



|                               |  |                      |     |                               |   |                                     |  |   |       |  |   |    
|------------------------------ |  | -------------------- | --- | ----------------------------- | - | ----------------------------------- |  | - | ----- |  | - | ---
|                               |  | Thirteen Weeks Ended |     | FortyWeeks EndedMarch 1, 2008 |   | Thirty-NineWeeks EndedFeb. 24,
2007
|                               |  | March 1, 2008        |     | Feb. 24, 2007                 |   |                                    
|Consulting fees                |  | $                    | 48  |                               | $ | 43                                  |  | $ | 145   |  | $ | 129
|Operating lease rental fees    |  |                      | 74  |                               |   | 66                                  |  |   | 224   |  |   | 200
|Management fees                |  |                      | 18  |                               |   | 9                                   |  |   | 55    |  |   | 23 
|Capitalized construction costs |  |                      | 651 |                               |   |                                    |  |   | 1,406 |  |   |   
|Other fees                     |  |                      | 92  |                               |   | 72                                  |  |   | 322   |  |   | 300
|                               |  |                      |     |                               |   |                                     |  |   |       |  |   |    
|                               |  | $                    | 883 |                               | $ | 190                                 |  | $ | 2,152 |  | $ | 652
|                               |  |                      |     |                               |   |                                     |  |   |       |  |   |    



|17. | SEVERANCE AND IMPAIRMENT AND RESTRUCTURING CHARGES
|--- | --------------------------------------------------

Hong Kong
Facility

Effective July 13, 2007, the Company committed to phasing out operations at its Hong Kong facility over approximately 18 months and
closing the facility. The Company is taking this action to consolidate its Asian operations at its lower-cost facilities in China. The Company is also embarking on an expansion of facilities at its Huiyang plant to increase its manufacturing
capacity in China. The Company expects to incur approximately $4.5 million to $5.5 million of cash restructuring costs in connection with phasing out the Hong Kong facility (excluding amounts to be paid out of the Long Service Payment Plan). The
Company expects to receive a total of approximately $2.0 million to $3.0 million, $1.6 million of which had been received as of March 1, 2008, from the Long Service Payment Plan as a refund against the expected cash restructuring
costs. Net charges of approximately $0.2 million and $1.2 million, respectively, of the restructuring costs were charged to the statement of operations related to these actions in the thirteen and forty week periods ended March 1, 2008. We
expect to incur approximately $0.3 million of such costs in the fourth quarter of fiscal 2008 with the remaining approximately $0.1 million expected to be charged to the statement of operations in the first quarter of fiscal 2009. The production at
this facility was closed as of March 31, 2008 and full closure of the facility was completed in the fourth quarter of fiscal 2008.

Wood
Village, Oregon Facility

On January 8, 2008, the Company approved a plan to close its manufacturing facility located in Wood Village, Oregon.
Under the plan, the Company transitioned its production from its Wood Village facility to its manufacturing facility located in Forest Grove, Oregon. Overall Oregon inner layer production capacity was reduced by approximately 45% and panel capacity
was reduced by approximately 15%. The decision to close the facility was brought about by a number of factors including the continued migration of traditional Merix business to Merix Asia as well as other Asian based competitors. In addition,
continued erosion of Merix North American gross margins over the last 6 quarters was a factor in the decision to close the facility. Some of the margin erosion is believed to be caused by the normal cyclicality that is part of the PCB
industry. The manufacturing operations of the Wood Village facility were shut-down March 1, 2008, and the Company expects to fully close the facility by May 2008. The closure of the facility and other restructuring actions resulted in the
elimination of approximately 200 positions.

The Company incurred charges totaling approximately $13.9 million in the third quarter of fiscal 2008 relating
to the closure of the Wood Village facility, as well as other smaller restructuring costs. Included in the third quarter fiscal 2008 charges were approximately $12.0 million related to asset impairments, $1.1 million related to severance payments,
$0.7 million related to adjustments to the Asset Retirement Obligation accrual for the Wood Village lease and approximately $0.1 million for other related costs. In April 2008, the Company entered into an agreement to sublease the facility. See Note
22 for additional information.

Executive Severance

In the third quarter of fiscal 2008, the Company terminated its Executive Vice President of Global Operations. In accordance with the executive employment agreement related to this termination, we recorded $0.4 million of severance and
related costs, which will be paid in the fourth quarter of fiscal 2008.



12



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Restructuring Accrual

A roll-forward of the Companys restructuring accrual for the first three quarters of fiscal 2008 was as follows (in thousands):



|                                               |  |                    |     |                  |   |             |  |   |                     |   |  |   |      
|---------------------------------------------- |  | ------------------ | --- | ---------------- | - | ----------- |  | - | ------------------- | - |  | - | -----
|                                               |  | BalanceMay 26,2007 |     | ChargedtoExpense |   | AmountsPaid |  |   | BalanceMarch 1,2008
|Merix Asias Chief Executive Officer severance |  | $                  | 453 |                  | $ |            |  | $ | (453                | ) |  | $ |     
|Other executive severance                      |  |                    |    |                  |   | 365         |  |   |                    |   |  |   | 365  
|Other Asia severance                           |  |                    |    |                  |   | 199         |  |   | (199                | ) |  |   |     
|Hong Kong plant closure                        |  |                    |    |                  |   | 1,173       |  |   | (768                | ) |  |   | 405  
|Wood Village and Forest Grove severance        |  |                    |    |                  |   | 1,117       |  |   | (744                | ) |  |   | 373  
|                                               |  |                    |     |                  |   |             |  |   |                     |   |  |   |      
|                                               |  | $                  | 453 |                  | $ | 2,854       |  | $ | (2,164              | ) |  | $ | 1,143
|                                               |  |                    |     |                  |   |             |  |   |                     |   |  |   |      

Total severance and impairment and restructuring charges were as follows (in thousands):



|                                                     |  |                      |        |                               |   |                                     |  |   |        |  |   |      
|---------------------------------------------------- |  | -------------------- | ------ | ----------------------------- | - | ----------------------------------- |  | - | ------ |  | - | -----
|                                                     |  | Thirteen Weeks Ended |        | FortyWeeks EndedMarch 1, 2008 |   | Thirty-NineWeeks EndedFeb. 24,
2007
|                                                     |  | March 1, 2008        |        | Feb. 24, 2007                 |   |                                    
|Hong Kong plant closure                              |  | $                    | 180    |                               | $ |                                    |  | $ | 1,173  |  | $ |     
|Asia asset impairment                                |  |                      | 92     |                               |   |                                    |  |   | 206    |  |   |     
|Asia severance                                       |  |                      | 85     |                               |   |                                    |  |   | 199    |  |   |     
|Wood Village severance                               |  |                      | 1,117  |                               |   |                                    |  |   | 1,117  |  |   |     
|Wood Village asset impairments                       |  |                      | 11,928 |                               |   |                                    |  |   | 11,928 |  |   |     
|Forest Grove asset impairment                        |  |                      | 108    |                               |   |                                    |  |   | 108    |  |   |     
|Increase to Wood Village asset retirement obligation |  |                      | 731    |                               |   |                                    |  |   | 731    |  |   |     
|Cash severance related to termination of CEO         |  |                      |       |                               |   | 612                                 |  |   |       |  |   | 612  
|Stock-based severance related to termination of CEO  |  |                      |       |                               |   | 136                                 |  |   |       |  |   | 136  
|Costs related to hiring of new CEO                   |  |                      |       |                               |   | 75                                  |  |   |       |  |   | 75   
|Other executive severance                            |  |                      | 365    |                               |   | 200                                 |  |   | 365    |  |   | 200  
|Legal and other charges                              |  |                      | 34     |                               |   |                                    |  |   | 34     |  |   |     
|                                                     |  |                      |        |                               |   |                                     |  |   |        |  |   |      
|                                                     |  | $                    | 14,640 |                               | $ | 1,023                               |  | $ | 15,861 |  | $ | 1,023
|                                                     |  |                      |        |                               |   |                                     |  |   |        |  |   |      



|18. | STOCK-BASED COMPENSATION
|--- | ------------------------

In February 2008, the Company granted
performance-based stock options covering a total of 540,000 shares of its common stock. The options vest as to 25% on various dates in October and November 2008 if certain targets are met and as to the remaining 75 % in April 2009 if the
remaining targets are met. Once vested, the options will be fully exercisable and will expire seven years from their vest date. The fair value of the performance-based stock options, utilizing the Black-Scholes option pricing model, was $0.5
million, which is being recognized as an expense over the respective vesting periods.

At the Companys Annual Meeting of Shareholders, which was held
on October 9, 2007, the Companys shareholders approved the Merix 2007 Employee Stock Purchase Plan (ESPP). The ESPP allows employees to purchase Merix common stock at a discount using payroll deductions. The ESPP provides for
the issuance of up to 750,000 shares of the Companys common stock. The ESPP became effective January 2008 and the first purchase of shares will be July 20, 2008. As of March 1, 2008, we had a liability of $84,000 included as a
component of accrued compensation on our consolidated balance sheet related to future ESPP purchases.

The Companys stock-based compensation expense
was included in its statements of operations as follows (in thousands):



|                   |  |                      |     |                               |   |                                     |  |   |       |  |   |      
|------------------ |  | -------------------- | --- | ----------------------------- | - | ----------------------------------- |  | - | ----- |  | - | -----
|                   |  | Thirteen Weeks Ended |     | FortyWeeks EndedMarch 1, 2008 |   | Thirty-NineWeeks EndedFeb. 24,
2007
|                   |  | March 1, 2008        |     | Feb. 24, 2007                 |   |                                    
|Cost of sales      |  | $                    | 33  |                               | $ | 70                                  |  | $ | 173   |  | $ | 234  
|Operating expenses |  |                      | 546 |                               |   | 633                                 |  |   | 1,704 |  |   | 1,446
|                   |  |                      |     |                               |   |                                     |  |   |       |  |   |      
|                   |  | $                    | 579 |                               | $ | 703                                 |  | $ | 1,877 |  | $ | 1,680
|                   |  |                      |     |                               |   |                                     |  |   |       |  |   |      



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|19. | SUBORDINATED NOTE PAYABLE
|--- | -------------------------

Under the terms of the subordinated note
payable related to the Merix Asia acquisition, a principal payment of approximately $2.1 million would ordinarily have been due December 1, 2007. However, the Company exercised its rights under the subordinated note to not make this
payment due to Merix claims against the seller. On January 25, 2008, the Company settled these claims and made a payment of $2.5 million to settle all remaining obligations under the subordinated promissory note. The remaining balance of
$5.1 million outstanding on the subordinated note payable, plus $53,000 of accrued interest, was eliminated in exchange for the Company releasing the seller from all past and any future claims relating to the Merix Asia acquisition. The $53,000 of
accrued interest that was eliminated was included as a component of gain on settlement of debt on our statement of operations during the quarter ended March 1, 2008. The Company does not expect any of the other settlement terms to have a
material impact on its results of operations or financial position.



|20. | NEW ACCOUNTING PRONOUNCEMENTS
|--- | -----------------------------

SFAS No. 161

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, which requires certain
disclosures related to derivative instruments. SFAS No. 161 is effective prospectively for interim periods and fiscal years beginning after November 15, 2008. The Company is currently evaluating the effects, if any, that the adoption of
SFAS No. 161 will have on its financial position and results of operations.

SFAS No. 141R and SFAS No. 160

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements. SFAS Nos. 141R and 160 require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests
(previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both statements are effective for periods beginning on or after
December 15, 2008 and earlier adoption is prohibited. SFAS No. 141R will be applied to business combinations occurring after the effective date and SFAS No. 160 will be applied prospectively to all noncontrolling interests, including
any that arose before the effective date. The Company is currently analyzing the effects of adopting SFAS Nos. 141R and 160.

SFAS No. 159

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which
permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company is
currently analyzing the effects of adopting SFAS No. 159.

FASB Staff Position No. AUG AIR-1

In September 2006, the FASB issued Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, which prohibits accruing for the future
cost of periodic major overhauls and planned maintenance of plant and equipment in annual and interim periods. This Staff Position is effective for fiscal years beginning after December 15, 2006 and must be retrospectively applied. As the
Company does not accrue for such future costs, the adoption of AUG AIR-1 in the first quarter of fiscal 2008 did not have any effect on its consolidated financial position, results of operations or cash flows.

SFAS No. 157

In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. Where applicable, this statement simplifies and codifies
related guidance within generally accepted accounting principles. SFAS No. 157 does not apply under SFAS No. 123R, does not eliminate the practicability exceptions to fair value measurements in accounting pronouncements within the scope of
the statement, and does not apply under accounting pronouncements that require or permit measurements that are similar to fair value but that are not intended to measure fair value. SFAS No. 157 is effective for financial



14



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##### Table of Contents

assets and liabilities for fiscal years beginning after November 15, 2007. The effective date for non-financial assets and liabilities that are not
required or permitted to be recognized or disclosed at fair value on a recurring basis has been deferred to fiscal years beginning after November 15, 2008. The Company is currently analyzing the effects of adopting SFAS No. 157.

FASB Interpretation No. 48

See Note 11
for information regarding the adoption of FIN 48.

EITF Issue No. 06-3

In June 2006, the FASB ratified EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation). The scope of EITF No. 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing activity between a seller and a customer and may include, but is not limited to, sales, use,
value added and some excise taxes. EITF No. 06-3 also concluded that the presentation of taxes within its scope on either a gross (included in revenues and costs) or net (excluded from revenues) basis is an accounting policy decision subject to
appropriate disclosure. The Company currently presents all taxes on a net basis and has elected not to change its presentation method. EITF No. 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006.
The adoption of EITF No. 06-3 in the first quarter of fiscal 2008 did not have a material effect on the Companys consolidated financial position, results of operations or cash flows.



|21. | DEFERRED TAXES
|--- | --------------

In the third quarter of fiscal 2008, we reversed
$1.5 million of valuation allowance against certain Merix Asia deferred tax assets. This reversal is reflected on the balance sheet as a $1.5 million increase in deferred tax assets and a $0.5 million decrease to goodwill; and a decrease to tax
expense of $1.0 million on the statement of operations.

Our effective income tax rate is negative 2.5% for the forty week period ended March 1, 2008
and differs from tax computed at the federal statutory rate primarily as a result of our mix of earnings in various tax jurisdictions, the diversity in income tax rates, and our continuous assessment of the realization of our deferred tax
assets. The effective tax rate reflects current taxes expected to be paid in profitable jurisdictions and maintenance of valuation allowances in jurisdictions with cumulative losses or profitability risks. The thirteen week period ended
March 1, 2008 included the current period reversal of valuation allowances previously established on certain Merix Asia deferred tax assets discussed above.



|22. | SUBSEQUENT EVENTS
|--- | -----------------

Hong Kong Facility Closure

The production at our Hong Kong facility was closed in March 2008 and full closure of the facility was completed in the fourth quarter of fiscal
2008. Of the remaining estimated restructuring charges (net of amounts to be paid out of the Long Service Payment Plan), $0.3 million are expected to be charged to the statement of operations in the fourth quarter of fiscal 2008 with the remaining
approximately $0.1 million expected to be charged to the statement of operations in the first quarter of fiscal 2009.

Wood Village Facility Sublease

In April 2008, the Company entered into a sublease agreement for its Wood Village facility for an amount equal to its rental obligation, although
the landlord has not yet approved such sublease. Assuming approval by the landlord, the Company will be required to refurbish certain assets and, accordingly, its asset retirement obligation of $1.5 million was included as a component of other
current liabilities as of March 1, 2008. With the sublease in place, the Company does not expect to incur any material charges in future quarters related to the closure of this facility.



15



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, made in this Quarterly Report are forward-looking, including, but not limited to, statements regarding industry prospects and cyclicality;
future results of operations or financial position; our expectations regarding increased margins, growth in revenues and expansion of our customer base, both domestically and in Asia; our expectations regarding the restructuring of our Asian
operations, including additional investments by us in our Asian operations, costs of the restructuring and growth of the synergy business; our expectations regarding the shut down of our Wood Village facility; our expectations regarding
the results of the implementation of a new enterprise resource planning system; our expectations regarding remediation of material weaknesses in internal controls over financial reporting; our intentions and expectations regarding credit facilities;
anticipated levels or backlog and our use of backlog; the sufficiency of our capital resources; our accounting and tax policies; and the outcome of any litigation to which we are a party. We use words such as anticipates,
believes, expects, future and intends and other similar expressions to identify forward-looking statements. Forward-looking statements reflect managements current expectations, plans or
projections and are inherently uncertain. Actual results could differ materially from managements expectations, plans or projections. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date of this report. Certain risks and uncertainties that could cause our actual results to differ significantly from managements expectations, plans and projections are described in Part II, Item 1A, Risk Factors under
the subheading Risk Factors Affecting Business and Results of Operations. This section, along with other sections of this Quarterly Report, describes some, but not all, of the factors that could cause actual results to differ
significantly from managements expectations, plans and projections. We do not intend to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are urged, however, to review the factors set forth in reports that we file from time to time with the Securities and Exchange Commission, including our most recent Annual Report on From 10-K for the fiscal year ended
May 26, 2007.

Business

We are a leading global
manufacturing service provider for technologically advanced printed circuit boards (PCBs) for original equipment manufacturer (OEM) customers and their electronic manufacturing service (EMS) providers. Our
principal products are complex multi-layer rigid printed circuit boards, which are the platforms used to interconnect microprocessors, integrated circuits and other components that are essential to the operation of electronic products and systems.
The market segments we serve are primarily in commercial equipment in the Communications and Networking, Computing and Peripherals, Industrial and Medical, Defense and Aerospace and Automotive markets. Our markets are generally characterized by
rapid technological change, high levels of complexity and short product life-cycles, as new and technologically superior electronic equipment is continually being developed.

Current Events

In recent months, certain areas of Southern China have been facing power supply constraints, which
resulted from extreme winter weather in the area. In order to deal with the power constraints, the Southern China Province Government has initiated a power supply rationing plan. This rationing program affects our Huizhou and Huiyang facilities,
whereby the facilities receive six days of full power for operations and then one day of power rationing lasting from 7:00 a.m. to 11:00 p.m. every Monday. In order to minimize the effect on our operations, we realigned our routine equipment
maintenance program to coincide with the one day of power rationing. The power rationing is scheduled to be in effect through May 2008.

During the quarter
ended March 1, 2008, we closed our Wood Village, Oregon mass lamination operation effectively reducing our overall inner layer Oregon production capacity by approximately 45% and panel capacity by approximately 15%. As a result of the decreased
capacity, we have had to increase our Forest



16



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##### Table of Contents

Grove factory lead times to between 10 to 14 weeks. These long lead times are believed to be uncompetitive in the North American market and could lead to
lost orders or lower customer demand in future quarters.

In July 2007, we announced our intent to close our Hong Kong based manufacturing facility. The
closure of the outer layer portion of the facility was completed in October 2007 and the closure inner layer portion of the facility was completed in March 2008. The final closure occurred in the fourth quarter of fiscal 2008.

Changes in Previously Reported Amounts

On April 9, 2008, we issued a
news release announcing our results of operations for the third quarter ended March 1, 2008. We reported a loss from continuing operations of $12.5 million, or $0.59 per diluted share, based on net sales of $94.3 million and cost of sales of
$83.8 million for the third quarter of fiscal 2008.

As part of our closing procedures for the first month of our fourth quarter of fiscal 2008, management
discovered that our Oregon inventory levels were overstated. We further determined that the balances for the third quarter of fiscal 2008 were also in error by $0.8 million. As a result of correcting this error, our cost of sales for the thirteen
and forty week periods ended March 1, 2008 increased by $0.8 million, gross margin decreased by $0.8 million and operating loss, loss from continuing operations and net loss for both the thirteen and forty week periods ended March 1, 2008 each
increased by $0.8 million. Also, the diluted net loss per share for both the thirteen and forty week periods ended March 1, 2008 increased by $0.04 per share. Comparable changes were required to reduce inventories, current assets and total assets in
the balance sheet as of March 1, 2008 and to adjust the statement of cash flows for the forty week period ended March 1, 2008. There was no impact on cash flows from operations or net cash flows.

Operating Segments

Today, our business has three operating segments:
(1) Merix Oregon, (2) Merix San Jose and (3) Merix Asia. Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by senior management. Each operating
segment operates predominately in the same industry with production facilities that produce similar customized products for our global customers. However, over the last year, the Company has been analyzing its business and performance based upon
North American and Asia markets and operating performance. This is due to our approach to offering our customers (most of which are North American based) a service offering that focuses on North American based services that enable the smooth
transition to its lower cost Asian based business. As a result, we are assessing our operating segments and may, in future quarters, reduce the number of reportable segments to two. The chief decision maker for all of our operating segments is our
Chief Executive Officer.

Markets and Customers

We
have a broad customer base and our customers include leading OEMs in the electronics and automotive industries. Information regarding customers that accounted for 10% or more of our net sales was as follows:



|                                                                           |  |                      |     |  |                               |   |  |                                     |     |  |    |  
|-------------------------------------------------------------------------- |  | -------------------- | --- |  | ----------------------------- | - |  | ----------------------------------- | --- |  | -- | -
|                                                                           |  | Thirteen Weeks Ended |     |  | FortyWeeks EndedMarch 1, 2008 |   |  | Thirty-NineWeeks EndedFeb. 24, 2007 |    
|                                                                           |  | March 1, 2008        |     |  | Feb. 24, 2007                 |   |  |                                    
|Percentage of consolidated net sales represented by significant customer 1 |  | 11                   | %   |  | 15                            | % |  | 11                                  | %   |  | 15 | %
|Percentage of consolidated net sales represented by significant customer 2 |  | *                    | (1) |  | 13                            | % |  | *                                   | (1) |  | 11 | %



|(1) | Less than 10%.
|--- | --------------

The companies comprising our largest OEM customers vary
from period to period. Net sales to these significant customers in the periods presented primarily related to our Merix Oregon operating segment. The reduced concentration of revenues to the two customers noted above is due to a number of
factors including changes in demand for our customers products, business cycle variations, services transitioning from higher cost North American production to lower cost Asian based solutions, offered by both the Company and its competitors,
as well as lower average selling prices.

Approximately 55% and 52%, respectively, of our OEM sales in the first three quarters of fiscal 2008 and 2007
were made to EMS providers. Although our contractual relationship is with the EMS provider, most of our shipments to EMS providers are directed by OEMs that negotiate product pricing and volumes directly with us. In addition, we are on the approved
vendor list of several EMS providers and are awarded incremental discretionary orders directly from some of them. We expect these discretionary orders to increase in the future as we strengthen our direct relationships with these EMS providers.

Backlog

Backlog comprises purchase orders received
and, in some instances, forecast requirements released for production under customer contracts. Backlog shippable within the next 90 days totaled $66.7 million and $56.2 million at March 1, 2008 and May 26, 2007, respectively.

Customers may cancel or postpone all scheduled orders, in most cases without penalty. Therefore, backlog may not be a meaningful indicator of future financial
results.



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Critical Accounting Policies and Use of Estimates

We reaffirm the information included under the heading Critical Accounting Policies and Use of Estimates appearing at page 39 of our Annual Report on Form 10-K for the year ended May 26, 2007, which
was filed with the Securities and Exchange Commission on August 14, 2007.

Results of Operations

The following table sets forth our statement of operations data, both in absolute dollars and as a percentage of net sales (dollars in thousands).



|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|----------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------------------------------------- | ----- | -- |  | - | ------- | - |  | ----- | -
|                                                                                    |  | Thirteen Weeks Ended(1)March 1, 2008 |         |   | Thirteen Weeks Ended(1)February 24, 2007    |      
|Net sales                                                                           |  | $                                    | 94,275  |   |                                             | 100.0 | %  |  | $ | 100,288 |   |  | 100.0 | %
|Cost of sales                                                                       |  |                                      | 84,594  |   |                                             | 89.7  |    |  |   | 82,682  |   |  | 82.4  |  
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Gross margin                                                                        |  |                                      | 9,681   |   |                                             | 10.3  |    |  |   | 17,606  |   |  | 17.6  |  
|Engineering                                                                         |  |                                      | 2,094   |   |                                             | 2.2   |    |  |   | 1,911   |   |  | 1.9   |  
|Selling, general and administrative                                                 |  |                                      | 9,930   |   |                                             | 10.5  |    |  |   | 10,617  |   |  | 10.6  |  
|Amortization of identifiable intangible assets                                      |  |                                      | 527     |   |                                             | 0.6   |    |  |   | 624     |   |  | 0.6   |  
|Severance                                                                           |  |                                      | 1,747   |   |                                             | 1.9   |    |  |   | 1,023   |   |  | 1.0   |  
|Impairment and restructuring charges                                                |  |                                      | 12,893  |   |                                             | 13.7  |    |  |   |        |   |  |      |  
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Operating income (loss)                                                             |  |                                      | (17,510 | ) |                                             | (18.6 | )  |  |   | 3,431   |   |  | 3.4   |  
|Other income (expense), net                                                         |  |                                      | 3,914   |   |                                             | 4.2   |    |  |   | (1,073  | ) |  | (1.1  | )
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Income (loss) from continuing operations before income taxes and minority interests |  |                                      | (13,596 | ) |                                             | (14.4 | )  |  |   | 2,358   |   |  | 2.4   |  
|Income tax expense (benefit)                                                        |  |                                      | (511    | ) |                                             | (0.5  | )  |  |   | 367     |   |  | 0.4   |  
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Income (loss) from continuing operations before minority interests                  |  | $                                    | (13,085 | ) |                                             | (13.9 | )% |  | $ | 1,991   |   |  | 2.0   | %
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|                                                                                    |  |                                     
|                                                                                    |  | Forty Weeks Ended(1)March 1, 2008    |         |   | Thirty-Nine Weeks Ended(1)February 24, 2007 |      
|Net sales                                                                           |  | $                                    | 291,083 |   |                                             | 100.0 | %  |  | $ | 306,924 |   |  | 100.0 | %
|Cost of sales                                                                       |  |                                      | 257,200 |   |                                             | 88.4  |    |  |   | 251,137 |   |  | 81.8  |  
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Gross margin                                                                        |  |                                      | 33,883  |   |                                             | 11.6  |    |  |   | 55,787  |   |  | 18.2  |  
|Engineering                                                                         |  |                                      | 6,680   |   |                                             | 2.3   |    |  |   | 5,067   |   |  | 1.7   |  
|Selling, general and administrative                                                 |  |                                      | 32,136  |   |                                             | 11.0  |    |  |   | 33,575  |   |  | 10.9  |  
|Amortization of identifiable intangible assets                                      |  |                                      | 1,785   |   |                                             | 0.6   |    |  |   | 2,147   |   |  | 0.7   |  
|Severance                                                                           |  |                                      | 2,854   |   |                                             | 1.0   |    |  |   | 1,023   |   |  | 0.3   |  
|Impairment and restructuring charges                                                |  |                                      | 13,007  |   |                                             | 4.5   |    |  |   |        |   |  |      |  
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Operating income (loss)                                                             |  |                                      | (22,579 | ) |                                             | (7.8  | )  |  |   | 13,975  |   |  | 4.6   |  
|Other income (expense), net                                                         |  |                                      | 1,719   |   |                                             | 0.6   |    |  |   | (4,061  | ) |  | (1.3  | )
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Income (loss) from continuing operations before income taxes and minority interests |  |                                      | (20,860 | ) |                                             | (7.2  | )  |  |   | 9,914   |   |  | 3.2   |  
|Income tax expense                                                                  |  |                                      | 445     |   |                                             | 0.2   |    |  |   | 1,315   |   |  | 0.4   |  
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  
|Income (loss) from continuing operations before minority interests                  |  | $                                    | (21,305 | ) |                                             | (7.3  | )% |  | $ | 8,599   |   |  | 2.8   | %
|                                                                                    |  |                                      |         |   |                                             |       |    |  |   |         |   |  |       |  



|(1) | Percentages may not add due to rounding.
|--- | ----------------------------------------

Net sales decreased $6.0
million, or 6.0%, to $94.3 million, in the thirteen weeks ended March 1, 2008 (the third quarter of fiscal 2008) compared to $100.3 million in the thirteen weeks ended February 24, 2007 (the third quarter of fiscal 2007). Net sales
decreased $15.8 million, or 5.2%, to $291.1 million in the forty week period ended March 1, 2008 compared to $306.9 million in the thirty-nine week period ended February 24, 2007.

The North American PCB industry is highly cyclical and has cycles that generally last between 12 and 24 months. Further, the variations between peak and trough demand
often fluctuate by 20% to 25%, thus causing revenues to vary significantly depending on the market cycle. The decreases in net sales in the fiscal 2008 periods primarily reflect changes in the macro business cycles and, to a lesser extent, the
impacts related to the then pending closure of the Wood Village facility. During the fiscal 2007 periods, market demand for PCBs was viewed by most industry analysts as being at or near the top of the last business cycle. In contrast, the



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fiscal 2008 periods overall PCB demand was much lower. Our Oregon and San Jose segments were affected most by the decrease in demand where demand for
North American full lead time production has been lower. Partially offsetting the decrease in demand in North American production was an increase at our Asia segment, as described in more detail below.

Net Sales by Segment

Net sales by segment were as follows (in
thousands):



|               |  |                      |        |                               |   |                                     |  |   |         |  |   |        
|-------------- |  | -------------------- | ------ | ----------------------------- | - | ----------------------------------- |  | - | ------- |  | - | -------
|               |  | Thirteen Weeks Ended |        | FortyWeeks EndedMarch 1, 2008 |   | Thirty-NineWeeks EndedFeb. 24,
2007
|               |  | March 1, 2008        |        | Feb. 24, 2007                 |   |                                    
|Merix Oregon   |  | $                    | 41,151 |                               | $ | 53,680                              |  | $ | 133,057 |  | $ | 163,805
|Merix San Jose |  |                      | 7,485  |                               |   | 9,715                               |  |   | 24,650  |  |   | 27,383 
|Merix Asia     |  |                      | 45,639 |                               |   | 36,893                              |  |   | 133,376 |  |   | 115,736
|               |  |                      |        |                               |   |                                     |  |   |         |  |   |        
|               |  | $                    | 94,275 |                               | $ | 100,288                             |  | $ | 291,083 |  | $ | 306,924
|               |  |                      |        |                               |   |                                     |  |   |         |  |   |        

Per Unit Information

Selected statistical information is summarized below. We define unit as the number of panels. Percentage increases (decreases) in unit volume and pricing were as follows:



|                     |  |                                                                                   |    |  |                                                                                   |   
|-------------------- |  | --------------------------------------------------------------------------------- | -- |  | --------------------------------------------------------------------------------- | --
|                     |  | Thirteen Weeks EndedMarch 1, 2008Compared to ThirteenWeeks EndedFebruary 24, 2007 |    |  | Forty Weeks EndedMarch 1, 2008Compared to Thirty-NineWeeks EndedFebruary 24, 2007 |   
|                     | 
|Merix Oregon:        |  |                                                                                   |    |  |                                                                                   |   
|Unit volume          |  | (15                                                                               | )% |  | (13                                                                               | )%
|Average unit pricing |  | (10                                                                               | )% |  | (6                                                                                | )%
|                     |  |                                                                                  
|Merix San Jose:      |  |                                                                                   |    |  |                                                                                   |   
|Unit volume          |  | (32                                                                               | )% |  | (15                                                                               | )%
|Average unit pricing |  | 14                                                                                | %  |  | 6                                                                                 | % 
|                     |  |                                                                                  
|Merix Asia:          |  |                                                                                   |    |  |                                                                                   |   
|Unit volume          |  | 10                                                                                | %  |  | (2                                                                                | )%
|Average unit pricing |  | 13                                                                                | %  |  | 18                                                                                | % 
|                     |  |                                                                                  
|Overall:             |  |                                                                                   |    |  |                                                                                   |   
|Unit volume          |  | 6                                                                                 | %  |  | (3                                                                                | )%
|Average unit pricing |  | (12                                                                               | )% |  | (2                                                                                | )%

Merix Oregon

The decreases in net sales at Merix Oregon in the thirteen and forty week periods ended March 1, 2008 compared to the same periods of the prior fiscal year were primarily due to lower North American demand caused by the normal
cyclicality that is inherent in the PCB industry. In addition, revenue in the thirteen week period ended March 1, 2008 was reduced due to lower capacity resulting from the pending closure of our Wood Village facility in the last month of that
period. To a lesser extent, revenues declined from the comparable prior year periods due to North American production transitioning to either Merix Asia or to other lower-cost offshore competitors. The decreases in average unit pricing were due to a
number of factors including aggressively working to grow our quick-turn business by accepting lower-priced, more competitive orders, effectively decreasing our unit selling prices as well as due to lower market demand for full lead time services.
The decreases in average unit pricing were partially offset by growth in the sale of higher priced, higher technology high-density interconnect (HDI) and military panels. As more of our traditional Merix Oregon business has transitioned
to Merix Asia or other Asian competitors, we intend to focus on increasing our quick-turn and military market sales. The U.S. government does not allow the sourcing of components used in the manufacture of defense-related equipment from facilities
that are located outside of the U.S.



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Merix San Jose

Net sales at Merix San Jose decreased in the thirteen and forty week periods ended March 1, 2008 compared to the same periods of the prior fiscal due primarily to market cyclicality. The effect of the market downturn was partially
offset by increases in average unit pricing. The increases in average unit pricing were due primarily to our efforts to grow the volume of less than 10-day lead time products, which inherently carry a higher price premium compared to longer lead
time work. We intend to continue to shorten average San Jose lead times to drive increased panel prices.

Merix Asia

The increases in net sales at Merix Asia in the thirteen and forty week periods ended March 1, 2008 compared to the same periods of the prior fiscal year were
primarily due to a 13% and 18% increase, respectively, in the average unit price caused by a change in product mix as well as price increases on certain legacy products to improve the overall profitability of the book of business. In addition, the
transition to Merix Asia of products previously manufactured at Merix Oregon contributed to the increases in net sales. The thirteen week period ended March 1, 2008 was also positively affected by a 10% increase in unit volume, which resulted
primarily from a growth in business to traditional Merix Oregon customers of new part numbers as well as parts previously manufactured in Oregon. In the forty week period ended March 1, 2008, unit volume was down 2% due to the factors mentioned
above being offset by targeted decreases of lower layer count parts, effectively reducing panel shipments, while increasing the average layer count, resulting in higher value, higher profit parts shipments.

During the second quarter of fiscal 2008, we closed the outer layer capabilities of our Hong Kong facility and shifted that work to our China facilities. We did not lose
any significant business as a result of this shutdown. In addition, the forty week period ended March 1, 2008 benefited from one extra week of activity compared to the same period of the prior fiscal year.

Net Sales by End Market

The following tables show, for the
periods indicated, the amount of net sales to each of our principal end-user markets and the percentage of the end-user markets sales to our consolidated net sales (dollars in thousands):



|                            |  |                      |        |  |                   |   |  |   |         |  |       |  
|--------------------------- |  | -------------------- | ------ |  | ----------------- | - |  | - | ------- |  | ----- | -
|                            |  | Thirteen Weeks Ended |       
|                            |  | March 1, 2008        |        |  | February 24, 2007 |  
|Communications & Networking |  | $                    | 40,447 |  | 42.9              | % |  | $ | 45,752  |  | 45.6  | %
|Automotive                  |  |                      | 17,517 |  | 18.6              | % |  |   | 16,490  |  | 16.5  | %
|Computing & Peripherals     |  |                      | 9,970  |  | 10.6              | % |  |   | 14,326  |  | 14.3  | %
|Industrial & Medical        |  |                      | 8,371  |  | 8.9               | % |  |   | 8,550   |  | 8.5   | %
|Defense & Aerospace         |  |                      | 6,533  |  | 6.9               | % |  |   | 5,014   |  | 5.0   | %
|Other                       |  |                      | 11,437 |  | 12.1              | % |  |   | 10,156  |  | 10.1  | %
|                            |  |                      |        |  |                   |   |  |  
|                            |  | $                    | 94,275 |  | 100.0             | % |  | $ | 100,288 |  | 100.0 | %
|                            |  |                      |        |  |                   |   |  |  



|                            |  |                               |         |  |                                         |   |  |   |         |  |       |  
|--------------------------- |  | ----------------------------- | ------- |  | --------------------------------------- | - |  | - | ------- |  | ----- | -
|                            |  | FortyWeeks EndedMarch 1, 2008 |         |  | Thirty-NineWeeks EndedFebruary 24, 2007 |  
|Communications & Networking |  | $                             | 119,799 |  | 41.1                                    | % |  | $ | 135,675 |  | 44.2  | %
|Automotive                  |  |                               | 58,416  |  | 20.1                                    | % |  |   | 54,662  |  | 17.8  | %
|Computing & Peripherals     |  |                               | 26,354  |  | 9.0                                     | % |  |   | 44,467  |  | 14.5  | %
|Industrial & Medical        |  |                               | 28,431  |  | 9.8                                     | % |  |   | 25,224  |  | 8.2   | %
|Defense & Aerospace         |  |                               | 18,826  |  | 6.5                                     | % |  |   | 14,979  |  | 4.9   | %
|Other                       |  |                               | 39,257  |  | 13.5                                    | % |  |   | 31,917  |  | 10.4  | %
|                            |  |                               |         |  |                                         |   |  |  
|                            |  | $                             | 291,083 |  | 100.0                                   | % |  | $ | 306,924 |  | 100.0 | %
|                            |  |                               |         |  |                                         |   |  |  

The decreases in Communications & Networking in the thirteen and forty week periods ended March 1,
2008 compared to the same periods of the prior fiscal year were due primarily to the normal cyclicality of the North American market discussed above, the ultimate demand for our customers products, lower average selling prices, as well as the
loss of certain North American business to Asian competitors. Our business plans



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anticipate regaining some of the lost business once our China factories increase their capacity and capabilities, which is anticipated in the first half of
fiscal 2009.

The increases in Automotive in the fiscal 2008 periods compared to the same periods of the prior fiscal year were due primarily to
managements fiscal 2007 decision to disengage from certain unprofitable automotive programs and parts that reduced revenue in the fiscal 2007 periods. These unprofitable programs have since been replaced by additional automotive revenue that
is more profitable.

The decreases in Computing & Peripherals during the fiscal 2008 periods compared to the same periods of fiscal 2007 were due
to similar factors as discussed for the decreases in Communications & Networking, but were also impacted by managements fiscal 2007 decision to disengage from certain unprofitable business that was being produced by Merix Asia,
coupled with a temporary spike in demand from one customer in the first half of fiscal 2007 that has not since been repeated.

The increase in
Industrial & Medical and Defense & Aerospace in the forty week period ended March 1, 2008 compared to the same period of the prior fiscal year, as well as the increase in Defense & Aerospace in the thirteen week
period of fiscal 2008 compared to the same period of the prior fiscal year, were due primarily to our deliberate efforts to penetrate these markets to both diversify our customer base and grow revenue, as well as overall market growth in the
Defense & Aerospace segment.

The increases in Other in the fiscal 2008 periods compared to the same periods of the prior fiscal year were
primarily driven by the growth in sales to EMS customers in both Asia and North America.

Net Sales by Geographic Region

Net sales by geographic region are defined by the region where the product is manufactured. Accordingly, net sales by geographic region are the same as net sales by
segment.

Cost of Sales and Gross Margin

Cost
of sales includes manufacturing costs, such as materials, labor (both direct and indirect) and factory overhead.

A number of costs, including those for
labor, utilities and manufacturing supplies, incurred by our plants in the Peoples Republic of China (PRC) are denominated in Chinese Renminbi. Strengthening or weakening of the Chinese Renminbi relative to the U.S. Dollar
affects our cost of sales and profitability. Recent increases in the value of the Chinese Renminbi relative to the U.S. Dollar have caused the costs of our Chinese operations to increase as stated in U.S. Dollars.

Cost of sales increased $1.9 million, or 2.3%, to $84.6 million in the thirteen week period ended March 1, 2008 compared to $82.7 million in the thirteen week
period ended February 24, 2007 and increased $6.1 million, or 2.4%, to $257.2 million in the forty week period ended March 1, 2008 compared to $251.1 million in the thirty-nine week period ended February 24, 2007. The increases were
primarily due to the extra week reported in our first quarter of fiscal 2008, as well as higher per layer costs, somewhat offset by a reduction in volume processed in our North American factories.



21



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##### Table of Contents

Our gross margin by segment was as follows (in thousands):



|                                                                         |  |                      |       |   |                               |   |        |                                     |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | -------------------- | ----- | - | ----------------------------- | - | ------ | ----------------------------------- |  | - | ------ | - |  | - | ------ | -
|                                                                         |  | Thirteen Weeks Ended |       |   | FortyWeeks EndedMarch 1, 2008 |   |        | Thirty-NineWeeks EndedFeb. 24,
2007 | 
|                                                                         |  | March 1, 2008        |       |   | Feb. 24, 2007                 |   |        |                                    
|Merix Oregon                                                             |  | $                    | 2,788 |   |                               | $ | 11,334 |                                     |  | $ | 14,289 |   |  | $ | 39,286 |  
|Merix San Jose                                                           |  |                      | 1,530 |   |                               |   | 2,967  |                                     |  |   | 5,096  |   |  |   | 8,066  |  
|Merix Asia                                                               |  |                      | 5,363 |   |                               |   | 3,305  |                                     |  |   | 14,498 |   |  |   | 8,435  |  
|                                                                         |  |                      |       |   |                               |   |        |                                     |  |   |        |   |  |   |        |  
|                                                                         |  | $                    | 9,681 |   |                               | $ | 17,606 |                                     |  | $ | 33,883 |   |  | $ | 55,787 |  
|                                                                         |  |                      |       |   |                               |   |        |                                     |  |   |        |   |  |   |        |  
|                                                                        
|Our gross margin as a percentage of net sales by segment was as follows: | 
|                                                                         |  |                      |      
|                                                                         |  | Thirteen Weeks Ended |       |   | FortyWeeks EndedMarch 1, 2008 |   |        | Thirty-NineWeeks EndedFeb. 24,
2007 | 
|                                                                         |  | March 1, 2008        |       |   | Feb. 24, 2007                 |   |        |                                    
|Merix Oregon                                                             |  |                      | 6.8   | % |                               |   | 21.1   | %                                   |  |   | 10.7   | % |  |   | 24.0   | %
|Merix San Jose                                                           |  |                      | 20.4  | % |                               |   | 30.5   | %                                   |  |   | 20.7   | % |  |   | 29.5   | %
|Merix Asia                                                               |  |                      | 11.8  | % |                               |   | 9.0    | %                                   |  |   | 10.9   | % |  |   | 7.3    | %
|Overall                                                                  |  |                      | 10.3  | % |                               |   | 17.6   | %                                   |  |   | 11.6   | % |  |   | 18.2   | %

Merix Oregon

Our gross margin (both in whole dollars and as a percentage of net sales) at Merix Oregon decreased primarily due to lower demand impacting the factory utilization rates as well as lower average selling prices, which contributed to the
lower net sales as discussed above. Factory margins are heavily influenced by factory utilization rates because the cost structure needed to produce PCBs is heavily weighted to fixed or step-variable costs. Thus, lower demand resulted in lower
utilization rates and decreases in gross margin as a percentage of net sales. In addition, we hired additional personnel in the second quarter of fiscal 2008 in anticipation of increased business which did not materialize.

Merix San Jose

Our gross margins at Merix San Jose decreased
primarily as a result of the decreases in the gross margin as a percentage of net sales, as well as decreased net sales. The decreases in the gross margin as a percentage of net sales were due primarily to lower demand impacting the factory
utilization rates. During the early part of the first quarter of fiscal 2008, the facility underwent the implementation of a new enterprise resource planning (ERP) system that significantly changed processes, data availability and
resource planning, among other things. As a result, there was a temporary adverse effect on the efficiency level of the facility, which also contributed to the decrease in profitability. The negative impact of the ERP implementation did not
significantly impact the second or third quarters of fiscal 2008. The downturn in the business cycle discussed above also negatively affected both selling prices and gross margins at Merix San Jose in the fiscal 2008 periods.

Merix Asia

Our gross margins at Merix Asia increased
primarily as a result of improvements in the product mix, as well as better factory utilization rates at the China-based facilities. In addition, we have been able to adjust our unit pricing in fiscal 2008 to reflect the increased copper pricing,
which occurred during the first half of fiscal 2007. One of the primary strategies in acquiring Merix Asia was to eliminate lower-margin and unprofitable business while growing higher-margin, higher-technology business in Asia that was enabled by
Merix North America business knowledge. This new business has been termed synergy business. Synergy business as a percentage of total Merix Asia sales has increased to 28.3% of revenue in the first three quarters of fiscal 2008 from
15.1% in the first three quarters of fiscal 2007. Synergy business represents sales of products that were not sold by Merix Asia prior to our acquisition and that are enabled by our North America sales force. We anticipate that synergy business will
continue to grow as a percentage of Merix Asias total net sales, even with the closure of our Hong Kong facility. We estimate that approximately 25% of the synergy revenue was from products previously manufactured at our Oregon factories, with
the remaining being incremental business from new or existing North American customers. We also expect to gain efficiencies in the remainder of fiscal 2008 related to the closing of the outer layer portion of our Hong Kong facility and the transfer
of that work to our China facilities.



22



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Engineering Costs

Engineering costs include indirect labor, materials and overhead to support customer design and manufacturing of products and for research and development of new products and or enhancements to existing products.

Engineering costs increased $0.2 million, or 9.6%, to $2.1 million in the thirteen week period ended March 1, 2008 compared to $1.9 million in the thirteen week
period ended February 24, 2007 and increased $1.6 million, or 31.8%, to $6.7 million in the forty week period ended March 1, 2008 compared to $5.1 million in the thirty-nine week period ended February 24, 2007. The increases were due
primarily to increases in headcount as we refilled positions that were left open from turnover in previous periods. In addition, the forty week period ended March 1, 2008 had one additional week of activity compared to the thirty-nine week
period ended February 24, 2007.

Selling, General and Administrative Costs

Selling, general and administrative (SG&A) costs include indirect labor, travel, outside services and overhead incurred in our sales, marketing, management and administrative support functions.

SG&A costs decreased $0.7 million, or 6.5%, to $9.9 million in the thirteen week period ended March 1, 2008 compared to $10.6 million in the
thirteen week period ended February 24, 2007 and decreased $1.5 million, or 4.3%, to $32.1 million in the forty week period ended March 1, 2008 compared to $33.6 million in the thirty-nine week period ended February 24, 2007. The
decreases were primarily due to the restructuring efforts we completed early in the third quarter of fiscal 2008, as well as the reversal of $0.4 million of previously accrued bonuses.

Amortization of Identifiable Intangible Assets

Amortization of identifiable intangible assets was $0.5
million and $1.8 million, respectively, in the thirteen and forty week periods ended March 1, 2008 compared to $0.6 million and $2.1 million, respectively, in the comparable periods of the prior fiscal year. Our identifiable intangible assets
balance at March 1, 2008 was $9.4 million and current amortization is approximately $0.6 million per quarter.

Severance and Impairment and
Restructuring Charges

Total severance and impairment and restructuring charges were as follows (in thousands):



|                                                     |  |                      |        |                               |   |                                     |  |   |        |  |   |      
|---------------------------------------------------- |  | -------------------- | ------ | ----------------------------- | - | ----------------------------------- |  | - | ------ |  | - | -----
|                                                     |  | Thirteen Weeks Ended |        | FortyWeeks EndedMarch 1, 2008 |   | Thirty-NineWeeks EndedFeb. 24,
2007
|                                                     |  | March 1, 2008        |        | Feb. 24, 2007                 |   |                                    
|Hong Kong plant closure                              |  | $                    | 180    |                               | $ |                                    |  | $ | 1,173  |  | $ |     
|Asia asset impairment                                |  |                      | 92     |                               |   |                                    |  |   | 206    |  |   |     
|Asia severance                                       |  |                      | 85     |                               |   |                                    |  |   | 199    |  |   |     
|Wood Village severance                               |  |                      | 1,117  |                               |   |                                    |  |   | 1,117  |  |   |     
|Wood Village asset impairments                       |  |                      | 11,928 |                               |   |                                    |  |   | 11,928 |  |   |     
|Forest Grove asset impairment                        |  |                      | 108    |                               |   |                                    |  |   | 108    |  |   |     
|Increase to Wood Village asset retirement obligation |  |                      | 731    |                               |   |                                    |  |   | 731    |  |   |     
|Cash severance related to termination of CEO         |  |                      |       |                               |   | 612                                 |  |   |       |  |   | 612  
|Stock-based severance related to termination of CEO  |  |                      |       |                               |   | 136                                 |  |   |       |  |   | 136  
|Costs related to hiring of new CEO                   |  |                      |       |                               |   | 75                                  |  |   |       |  |   | 75   
|Other executive severance                            |  |                      | 365    |                               |   | 200                                 |  |   | 365    |  |   | 200  
|Legal and other charges                              |  |                      | 34     |                               |   |                                    |  |   | 34     |  |   |     
|                                                     |  |                      |        |                               |   |                                     |  |   |        |  |   |      
|                                                     |  | $                    | 14,640 |                               | $ | 1,023                               |  | $ | 15,861 |  | $ | 1,023
|                                                     |  |                      |        |                               |   |                                     |  |   |        |  |   |      

See also Note 17 of Notes to Consolidated Financial Statements.



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Interest Expense

Interest expense decreased to $0.9 million and $3.1 million, respectively, in the thirteen and forty week periods ended March 1, 2008 compared to $1.3 million and $4.3 million, respectively, in the comparable periods of the prior
fiscal year. The decreases were due primarily to the repayment of $16.1 million of debt in the first three quarters of fiscal 2007, as well as a $3.4 million reduction in our $11.0 million subordinated promissory note in connection with the
reduction in the purchase price of Merix Asia in the second quarter of fiscal 2007. Also, in January 2008, we repaid $2.5 million on the subordinated promissory note and the remaining $5.1 million of outstanding principal was eliminated in exchange
for us settling all past and any future claims against the note holder in relation to our Merix Asia acquisition. Our average borrowing rate was 4.16% in the first three quarters of fiscal 2008 compared to 4.42% in the first three quarters of fiscal
2007.

Gain on Settlement of Debt

Under the
terms of the subordinated note payable related to the Merix Asia acquisition, a principal payment of approximately $2.1 million would ordinarily have been due December 1, 2007. However, we exercised our rights under the subordinated
note to not make this payment due to Merix claims against the seller. On January 25, 2008, we settled these claims and made a payment of $2.5 million to settle all remaining obligations under the subordinated promissory note. The
remaining balance of $5.1 million outstanding on the subordinated note payable, plus $53,000 of accrued interest, was eliminated in exchange for us releasing the seller from all past and any future claims relating to the Merix Asia acquisition. The
$53,000 of accrued interest that was eliminated was included as a component of gain on settlement of debt on our statement of operations during the quarter ended March 1, 2008. We do not expect any of the other settlement terms to have a
material impact on our results of operations or financial position.

Income Tax Expense

In the third quarter of fiscal 2008, we reversed $1.5 million of valuation allowance against certain Merix Asia deferred tax assets. This reversal is reflected on
the balance sheet as a $1.5 million increase in deferred tax assets and a $0.5 million decrease to goodwill; and a decrease to tax expense of $1.0 million on the statement of operations.

Our effective income tax rate is negative 2.2% for the forty week period ended March 1, 2008 and differs from tax computed at the federal statutory rate primarily as a result of our mix of earnings in various tax
jurisdictions, the diversity in income tax rates, and our continuous assessment of the realization of our deferred tax assets. The effective tax rate reflects current taxes expected to be paid in profitable jurisdictions and maintenance of
valuation allowances in jurisdictions with cumulative losses or profitability risks. The thirteen week period ended March 1, 2008 included the current period reversal of valuation allowances previously established on certain Merix Asia
deferred tax assets discussed above.

Discontinued Operations

On September 29, 2006, Merix Holding (Hong Kong) Limited (Merix Hong Kong) entered into an agreement with Citi-Power Investment Limited to sell Merix Hong Kongs 90% shareholding interest in the
Lomber single-sided manufacturing facility located in Huizhou City in the PRC (Lomber Facility) for a nominal amount. Also on September 29, 2006, Merix Hong Kong entered into an agreement with Excel Hero (China) Limited to sell its
85.29% shareholding interest in its single-sided manufacturing facility located in Dongguan City in the PRC (Dongguan Facility) for a nominal amount. On April 1, 2007, we transferred our interests in the two single-sided facilities
on terms substantially similar to those described above.



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The results of operations for the Dongguan and Lomber facilities have been reclassified as discontinued operations for
all periods presented up to the date of sale. Certain financial information related to discontinued operations was as follows (in thousands):



|                                                                                 |  |                                  |       |                                     |   |        |  
|-------------------------------------------------------------------------------- |  | -------------------------------- | ----- | ----------------------------------- | - | ------ | -
|                                                                                 |  | ThirteenWeeks EndedFeb. 24, 2007 |       | Thirty-NineWeeks EndedFeb. 24,
2007 |  
|                                                                                 | 
|Revenue                                                                          |  | $                                | 1,976 |                                     | $ | 7,443  |  
|(Impairment) reversal of impairment related to assets of discontinued operations |  |                                  | 158   |                                     |   | (1,099 | )
|Pre-tax income (loss)                                                            |  |                                  | 314   |                                     |   | (760   | )

Liquidity and Capital Resources

Our sources of liquidity and capital resources as of March 1, 2008 consisted of $10.4 million of cash and cash equivalents and $53.0 million available under our revolving bank credit agreement, described below.
We expect our capital resources to be sufficient to fund our operations and known capital requirements for at least one year from March 1, 2008, although we may seek additional sources of funds.

We have a Loan and Security Agreement with a bank group (the Loan Agreement) under which the lenders currently provide a revolving line of credit of up to
$55.0 million based on a borrowing base consisting primarily of our accounts receivable. This loan agreement expires in September 2010. The obligations under the Loan Agreement are secured by substantially all of our U.S. assets. The borrowings bear
interest at (a) either the prime rate or LIBOR, plus (b) an additional margin based on certain performance criteria. As of March 1, 2008, approximately $53 million was available for future borrowings on the revolving line of credit.
The Loan Agreement contains a number of restrictive covenants, all of which we were in compliance with as of March 1, 2008. Specifically, our ability to invest or loan additional funds to Merix Asia is limited, subject to certain conditions, to
$25 million in the aggregate at any time. This limit may negatively affect Merix Asia and, in particular, our plans to expand the production capacity of our plant in Huiyang in the PRC. As of April 7, 2008, we had invested approximately $16.1
million against this limit.

In the first three quarters of fiscal 2008, cash and cash equivalents and short-term investments decreased $15.8 million to
$10.4 million as of March 1, 2008 from $26.2 million as of May 26, 2007 primarily as a result of the use of $19.7 million for the purchase of property, plant and equipment, the use of $2.9 million for the repayment of long-term borrowings
and capital leases and a $1.1 million distribution to a minority shareholder, offset by $7.1 million provided by operations (as described in more detail below), the net maturity of investments of $9.0 million and a $1.2 million decrease in due from
affiliate.

Accounts receivable, net of allowances for bad debts, increased $2.1 million to $78.9 million as of March 1, 2008 from
$76.8 million as of May 26, 2007. Our days sales outstanding, calculated on a quarterly basis, was 76 days at March 1, 2008 and 75 days at May 26, 2007.

Inventories, net of obsolescence and other reserves, increased $2.1 million to $27.3 million as of March 1, 2008 compared to $25.2 million as of May 26, 2007. The increase primarily was due to
increased raw materials, work in process and consigned finished goods at Merix Asia as a result of positioning inventory to minimize the effect a decrease in our overall capacity related to the Chinese New Year holiday period that occurs in the
fourth quarter of our fiscal year. Our annualized inventory turnover rate, calculated on a quarterly basis, was 12.4 times for the quarter ended March 1, 2008 and 12.5 times for the quarter ended May 26, 2007.

Other current assets increased $5.1 million to $11.9 million as of March 1, 2008 compared to $6.8 million as of May 26, 2007. This was primarily due
to a $3.5 million increase in prepaid value added taxes in foreign jurisdictions due to the timing difference of receiving a tax refund from the PRC local government for taxes paid to PRC local vendors for the purchase of materials, a $0.7 million
increase in prepaid employee benefits related to our Oregon facilities and a $0.3 million increase in prepaid property taxes on real estate for our U.S. facilities.



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Accounts payable increased $11.1 million to $56.2 million as of March 1, 2008 compared to $45.1 million as
of May 26, 2007. This was primarily due to increased focus on improving the management of working capital, including an effort to purchase products and services on more favorable payment terms from our vendors.

Other accrued liabilities increased $3.5 million to $11.4 million as of March 1, 2008 compared to $7.9 million as of May 26, 2007. This was primarily
due to a $1.2 million increase in our net intercompany payable, a $0.8 million increase in interest payable due to the timing of payments on our 4% convertible debentures, the inclusion of our $1.5 million asset retirement obligation related to our
Wood Village facility, which was previously included as a component of other long-term liabilities, and $0.3 million of customer deposits at March 1, 2008 compared to none at May 26, 2007. In April 2008, we entered into a sublease
agreement for our Wood Village facility, which requires us to refurbish certain assets. Accordingly, the asset retirement obligation was reclassified to a current liability as of March 1, 2008.

Expenditures for property, plant and equipment of $19.7 million in the first three quarters of fiscal 2008 primarily consisted of expenditures for the expansion and
improvement of the process technology at our China-based facilities, improvement of the process technology and increasing the process speed of our North American facility and the continuing implementation of a company-wide ERP system. We estimate
our total capital expenditures in fiscal 2008 to be approximately $25 to $30 million. A significant portion of this spending is related to a project for expanding both the capacity and the technological capabilities of our Huiyang, China-based
factory. We anticipate that this investment will allow us to expand margins and profitably grow our revenues in this region and accelerate Merix Asias technological capabilities to better support our customers needs.

Other long-term liabilities decreased $1.0 million to $0.8 million as of March 1, 2008 compared to $1.8 million as of May 26, 2007. This was primarily due to
the transfer of our asset retirement obligation related to our Wood Village facility to other accrued liabilities as discussed above, which totaled $1.1 million as of May 26, 2007.

Recently Issued Accounting Pronouncements

See Note 20 of Notes to Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet
arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There
have been no material changes in our reported market risks and risk management policies since the filing of our Annual Report on Form 10-K for the fiscal year ended May 26, 2007, which was filed with the Securities and Exchange Commission on
August 14, 2007.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure
Controls and Procedures

Our management evaluated, with the participation and under the supervision of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of March 1, 2008 to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to
our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.



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Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably
likely to materially affect our internal control over financial reporting.

Material Weaknesses

After considering the errors that resulted in the restatement of our first quarter of fiscal 2008 financial results, management has concluded that a material weakness
existed in our internal control over financial reporting as of September 1, 2007. Specifically, we did not maintain adequate controls over the processing and recording of transactions related to customer returns of products for warranty rework
or credit.

After considering the errors that were detected by our internal control testing and as part of our closing process related to the reporting of
the quarterly results for the third quarter of fiscal 2008, management concluded that a material weakness existed in our internal control as of March 1, 2008. Specifically, we did not maintain adequate controls over the reconciliation of
inter-company accounts and certain work in process inventories.

In our assessment of the effectiveness of our internal control over financial reporting as
of May 26, 2007, the following material weakness was identified:

Merix Asia was acquired in September 2005. Upon acquisition, Merix Asia had weak
internal controls over financial reporting and needed to develop processes to strengthen its accounting systems and control environment management. We have devoted significant time and resources to improving the internal controls over financial
reporting since the acquisition. However, Merix management did not maintain sufficient controls to adequately monitor the accounting and financial reporting of our Merix Asia operations. This material weakness resulted in adjustments to our 2007
annual consolidated financial statements that were identified by management and the external auditors. Additionally, this control deficiency could result in a material misstatement to the interim or annual consolidated financial statements that
would not be prevented or detected in a timely manner. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Remediation Steps to Address Material Weaknesses

The material weaknesses noted above have not been remediated as of the end of third
quarter of fiscal 2008.

We are in the process of remediating the material weakness related to the processing and recording of customer returns of product
for warranty rework or credit. Among other controls, beginning in December 2007, we have added a monthly comprehensive review of customer return transactions by the employee groups involved in processing returns to ensure that all known transactions
have been properly recorded. However, this control has not been tested sufficiently for management to conclude that the material weakness has been remediated.

We are in the process of remediating the material weakness related to the reconciliation of inter-company accounts and certain work in process inventories. Among other controls we have initiated is a change in the process and documentation
required to complete an account reconciliation. In addition, we are including historical account trend and activity information to assist both the preparer and reviewer in analyzing the reasonableness of the account balance in relation to prior
periods. We are also initiating a more robust monthly account balance review process to be led by senior finance and accounting management.

Because of the
material weakness identified in our fiscal 2007 evaluation of internal control over financial reporting, we have initiated a series of remediation actions. We have implemented quarterly physical inventory counts at our Asia operations which will
continue until our global ERP system is in place for our Asia operations. Previously, this was an annual control which highlighted an inventory issue at the end of fiscal 2007. Further actions will be taken throughout fiscal 2008.



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PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

See Note 15 of Notes to Consolidated Financial
Statements.



|Item 1A. | Risk Factors
|-------- | ------------

RISK FACTORS AFFECTING BUSINESS AND RESULTS OF
OPERATIONS

Investing in our securities involves a high degree of risk. If any of the following risks occur, the market price of our shares of common
stock and other securities could decline and investors could lose all or part of their investment. In addition, the following risk factors and uncertainties could cause our actual results to differ materially from those projected in our
forward-looking statements, whether made in this Quarterly Report on Form 10-Q or the other documents we file with the SEC, or in our annual or quarterly reports to shareholders, future press releases, or orally, whether in presentations, responses
to questions or otherwise.

We are dependent upon the electronics industry, which is highly cyclical and suffers significant downturns in demand
resulting in excess manufacturing capacity and increased price competition.

The electronics industry, on which a substantial portion of our
business depends, is cyclical and subject to significant downturns characterized by diminished product demand, rapid declines in average selling prices and over-capacity. This industry has experienced periods characterized by relatively low demand
and price depression and is likely to experience recessionary periods in the future. Economic conditions affecting the electronics industry, in general, or specific customers, in particular, have adversely affected our operating results in the past
and may do so in the future.

The electronics industry is characterized by intense competition, rapid technological change, relatively short product
life-cycles and pricing and margin pressures. These factors adversely affect our customers and we suffer similar effects. Our customers are primarily high-technology equipment manufacturers in the Communications and Networking, Computing and
Peripherals, Industrial and Medical, Defense and Aerospace and Automotive markets of the electronics industry. Due to the uncertainty in the markets served by most of our customers, we cannot accurately predict our future financial results or
accurately anticipate future orders. At any time, our customers can discontinue or modify products containing components manufactured by us, adjust the timing of orders and shipments or affect our mix of consolidated net sales generated from
quick-turn services and premium revenues versus standard lead time production, any of which could have a material adverse effect on our results of operations.

Lower sales may cause gross profits and operating results to decrease because many of our operating costs are fixed.

A significant
portion of our factory costs of sales and operating expenses are relatively fixed in nature, and planned expenditures are based in part on anticipated orders. If we do not receive orders as anticipated or if revenue is reduced by reductions in the
proportion of our quick-turn services and premium business, our operating results will be adversely affected. Revenue shortfalls have historically resulted in an underutilization of our installed capacity and, together with adverse pricing, have
decreased our gross profits. Future decreases in demand or pricing will likely decrease our gross profits and have a material adverse impact on our results of operations.

Competition in the printed circuit board market is intense and we could lose sales if we are unable to compete effectively.

The market for printed circuit boards is intensely competitive, highly fragmented and rapidly changing. We expect competition to persist, which could result in continued reductions in pricing and gross profits and
loss of market share. We believe our major competitors are United States, Asian and other international independent manufacturers of multi-layer printed circuit boards, backplanes and other electronic assemblies, and companies that offer quick-turn
services. Those competitors include Daeduck Electronics Co., DDi Corp., Elec and Eltek., Meadville Holdings, Ltd., LG Electronics, Multek Corporation (a division of Flextronics International Ltd.), Sanmina-SCI Corporation, TTM Technologies, Inc.,
WUS Printed Circuits Company Ltd. and ViaSystems, Inc.



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Some of our competitors and potential competitors may have a number of advantages over us, including:



| |  |  | significantly greater financial, technical, marketing and manufacturing resources;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | preferred vendor status with some of our existing and potential customers;
| | - |  | --------------------------------------------------------------------------



| |  |  | more focused production facilities that may allow them to produce and sell products at lower price points;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | more capital; and
| | - |  | -----------------



| |  |  | larger customer bases.
| | - |  | ----------------------

In addition, these
competitors may have the ability to respond more quickly to new or emerging technologies, be more successful in entering or adapting to existing or new end markets, adapt more quickly to changes in customer requirements and devote greater resources
to the development, promotion and sale of their products than we can. Consolidation in the printed circuit board industry, which we expect to continue, could result in an increasing number of larger printed circuit board companies with greater
market power and resources. Such consolidation could in turn increase price competition and result in other competitive pressures for us. We must continually develop improved manufacturing processes to meet our customers needs for complex,
high technology products, and our basic interconnect technology is generally not subject to significant proprietary protection. We may not be able to maintain or expand our sales if competition increases and we are unable to respond effectively.

Other considerations that affect our ability to compete include providing manufacturing services that are competitively priced, providing continually
evolving technical capabilities, having competitive lead times and meeting specified delivery dates. Currently, most of our North American operations have lead times that extend well beyond what is generally competitive in the market. Also, our on
time delivery has been adversely affected in recent months by the impact of the Wood Village closure. The lead times at our Forest Grove facility have been increased to between 10 to 14 weeks. These lead times are believed to be uncompetitive in the
North American market and could lead to lost orders or lower customer demand in future quarters.

During recessionary periods in the electronics industry,
our competitive advantages in providing an integrated manufacturing solution and responsive customer service may be less important to our customers than when they are in more favorable economic climates.

If competitive production capabilities increase in Asia, where production costs are lower, we may lose market share in both North America and Asia and our gross
profits may be materially adversely affected by increased pricing pressure.

Printed circuit board manufacturers in Asia and other geographies often
have significantly lower production costs than our North American operations and may even have cost advantages over Merix Asia. Production capability improvements by foreign and domestic competitors may play an increasing role in the printed circuit
board markets in which we compete, which may adversely affect our revenues and profitability. While printed circuit board manufacturers in these locations have historically competed primarily in markets for less technologically advanced products,
they are expanding their manufacturing capabilities to produce higher layer count, higher technology printed circuit boards.

Success in Asia may
adversely affect our U.S. operations.

To the extent Asian printed circuit board manufacturers, including Merix Asia, are able to compete
effectively with products historically manufactured in the United States, our facilities in the United States may not be able to compete as effectively and parts of our North American operations may not remain viable.

The cyclical nature of automotive production and sales could adversely affect Merix business.

A significant portion of Merix Asias products are sold to customers in the automotive industry. As a result, Merix Asias results of operations may be
materially and adversely affected by market conditions in the automotive industry. Automotive production and sales are cyclical and depend on general economic conditions and other factors, including consumer spending and preferences. In addition,
automotive production and sales can be affected by labor relations issues, regulatory requirements, trade agreements and other factors. Any significant economic decline that results in a reduction in automotive production and sales by Merix
Asias customers could have a material adverse effect on Merix business, results of operations and financial condition.



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We rely on suppliers for the timely delivery of materials used in manufacturing our printed circuit boards, and an
increase in industry demand, a shortage of supply or an increase in the price of raw materials may increase the cost of the raw materials we use and may limit our ability to manufacture certain products and adversely impact our gross profits.

To manufacture our printed circuit boards, we use materials such as laminated layers of fiberglass, copper foil and chemical solutions which we
order from our suppliers. Suppliers of laminates and other raw materials that we use may from time to time extend lead times, limit supplies or increase prices due to capacity constraints or other factors, which could adversely affect our gross
profits and our ability to deliver our products on a timely basis. We have recently experienced, and expect that we will continue to experience, significant increases in the cost of laminate materials, copper products and oil-based or oil-derivative
raw materials. These cost increases have had an adverse impact on our gross profits and the impact has been particularly significant on our Asian operations which have fixed price arrangements with a number of large automotive customers. Some of our
products use types of laminates that are only available from a single supplier that holds a patent on the material. Although other manufacturers of advanced printed circuit boards also must use the single supplier and our OEM customers generally
determine the type of laminates used, a failure to obtain the material from the single supplier for any reason may cause a disruption, and possible cancellation, of orders for printed circuit boards using that type of laminate, which in turn would
cause a decrease in our consolidated net sales.

Acquisitions may be costly and difficult to integrate, may divert and dilute management resources
and may dilute shareholder value. Recently, we announced our intention to accelerate the expansion of both production capability and capacity at our China-based factories. This expansion, coupled with the phased closure of our Hong Kong-based
facility scheduled to be completed by the fourth quarter of fiscal 2008, will further increase the risk of integration of Merix Asia. There is no guarantee that the expansion and closure will be completed as planned.

As part of our business strategy, we have made and may continue to make acquisitions of, or investments in, companies, products or technologies that complement our
current products, augment our market coverage, enhance our technical capabilities or production capacity or that may otherwise offer growth opportunities. In connection with our San Jose and Asian acquisitions, we have experienced, and in any future
acquisitions or investments, we could experience:



| |  |  | problems integrating the purchased operations, technologies or products;
| | - |  | ------------------------------------------------------------------------



| |  |  | failure to achieve potential sales, materials costs and other synergies;
| | - |  | ------------------------------------------------------------------------



| |  |  | unanticipated expenses and working capital requirements;
| | - |  | --------------------------------------------------------



| |  |  | diversion of managements attention and loss of key employees;
| | - |  | --------------------------------------------------------------



| |  |  | further charges and asset impairments related to the acquisitions;
| | - |  | ------------------------------------------------------------------



| |  |  | fewer resources for our legacy businesses as they are being redirected to the acquired entities to integrate their business processes; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | problems completing anticipated technology transfers to our Asian operations.
| | - |  | -----------------------------------------------------------------------------

In addition, in connection with any future acquisitions or investments, we could:



| |  |  | issue stock that would dilute our current shareholders percentage ownership;
| | - |  | -----------------------------------------------------------------------------



| |  |  | incur debt and assume liabilities that could impair our liquidity;
| | - |  | ------------------------------------------------------------------



| |  |  | incur amortization expenses related to intangible assets;
| | - |  | ---------------------------------------------------------



| |  |  | uncover previous unknown liabilities; or
| | - |  | ----------------------------------------



| |  |  | incur large and immediate write-offs that would reduce net income.
| | - |  | ------------------------------------------------------------------

Any of these factors could prevent us from realizing anticipated benefits of an acquisition or investment, including operational synergies, economies of scale and increased profit margins and revenue. Acquisitions are
inherently risky, and any acquisition may not be successful. Failure to manage and successfully integrate acquisitions could harm our business and operating results in a material way. Even when an acquired company has already developed and marketed
products, product enhancements may not be made in a timely fashion. In addition, unforeseen issues might arise with respect to such products after the acquisition.



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If we do not effectively manage the expansion of our operations, our business may be harmed, and the increased
costs associated with the expansion may not be offset by increased consolidated net sales.

We recently announced our intentions to significantly
expand the Huiyang, China-based facility and any other future capacity expansion with respect to our facilities will expose us to significant start-up risks including:



| |  |  | delays in receiving and installing required manufacturing equipment;
| | - |  | --------------------------------------------------------------------



| |  |  | inability to retain management personnel and skilled employees, or labor shortages in general;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | difficulties scaling up production, including producing products at competitive costs and yields, at our expanded facilities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | challenges in coordinating management of operations and order fulfillment between our U.S. and Asian facilities;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | a need to improve and expand our management information systems and financial controls to accommodate our expanded operations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | additional unanticipated costs;
| | - |  | -------------------------------



| |  |  | shortfalls in production volumes as a result of unanticipated start-up or expansion delays that could prevent us from meeting our customers delivery schedules
or production needs; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our Forwarding Looking Statements depend upon a number of assumptions and include our ability to execute tactical changes that may adversely impact both short-term
and long-term financial performance.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The success of our expansion efforts will depend upon our ability to expand, train, retain and
manage our employee base in both Asia and North America. In connection with our expansion efforts in Asia, we expect to require additional employees throughout the company. If we are unable to attract, train and retain new workers, or manage our
employee base effectively, our ability to fully utilize our Asian assets will likely be impaired. If we are unable to effectively expand, train and manage our employee base, our business and results of operations could be adversely affected.

In addition, if our consolidated net sales do not increase sufficiently to offset the additional fixed operating expenses associated with our Asian
operations, our consolidated results of operations may be adversely affected. If demand for our products does not meet anticipated levels, the value of the expanded operations could be significantly impaired, which would adversely affect our results
of operations and financial condition.

Our restructuring efforts, capacity build out and technological changes will require significant capital
investment and coud adversely impact our liquidity.

We are currently undergoing a major expansion at our Huiyang, China based facility and are
improving our technological capabilities through the addition of new capital in both our North American and China based facilities. This expansion, and other capital requirements, will require $25 million to $30 million of capital expenditures in
fiscal 2008 and additional spending in 2009. We anticipate funding this expansion from operations, existing cash and cash equivalents and bank credit facilities. Currently, we are not profitable and, if financial performance deteriorates further, we
may have to significantly reduce capital spending that could impair our ability to successfully restructure our business and compete effectively. Further, our bank credit facilities provide credit based upon a number of covenants, which we are
currently in compliance with. However, business conditions or our execution on a number of critical initiatives to support the capacity and technology expansion efforts could impair our ability to access these facilities.

Power supply shortages in certain areas of southern China have caused the government to impose a power supply rationing program and additional or extended power
supply rationings could adversely affect our China operations.

In recent months, certain areas of Southern China have been facing power supply
constraints, which resulted from extreme winter weather in the area. In order to deal with the power constraints, the Southern China Province Government has initiated a power supply rationing plan. This rationing program affects our Huizhou and
Huiyang facilities, whereby the facilities receive six days of full power for operations and then one day of power rationing lasting from 7:00 a.m. to 11:00 p.m. every Monday. In order to minimize the effect on our operations, we realigned our
routine equipment maintenance program to coincide with the one day of power rationing. The power rationing is scheduled to be in effect through May 2008. There may be further restrictions regarding power and other key services that may impair our
ability to compete effectively as well as adversely



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affect revenues and production costs. Any additional or extended power supply rationing could adversely affect our China operations.

China mandated shutdowns could impact our supply chain and have a material adverse effect on our China operations.

China recently announced a 9-week shutdown, beginning July, 2008, of all polluting factories within a 200 kilometer
radius from Beijing to clear the smog during the Olympic and Paralympics Games that begin on July 17thand run through
September 20th. The shutdown covers Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia and Shandong provinces. The Chinese government may expand
the radius in the future if the air quality does not improve sufficiently prior to the Olympic Games. Also, there could be a suspension of material transportation, and curtailment of power plant operation to further improve air quality. We do not
own facilities within the shut-down area; however, the shutdown could impact the purchase of production materials and power from our suppliers located within these areas, which could cause production delays and adversely impact our results of
operations. There could be other unintended consequences that cannot be currently anticipated.

If we are unable to respond to rapid technological
change and process development, we may not be able to compete effectively.

The market for our products is characterized by rapidly changing
technology and continual implementation of new production processes. The success of our business depends in large part upon our ability to maintain and enhance our technological capabilities, to manufacture products that meet changing customer
needs, and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. In addition, the printed circuit board industry could encounter competition from new or revised manufacturing and production technologies
that render existing manufacturing and production technology less competitive or obsolete. We may not be able to respond effectively to the technological requirements of the changing market. If we need new technologies and equipment to remain
competitive, the development, acquisition and implementation of those technologies and equipment may require us to make significant capital investments. We may not be able to raise the necessary additional funds at all or as rapidly as necessary to
respond to technological changes as quickly as our competitors.

We are subject to risks associated with currency fluctuations, which could have a
material adverse effect on our results of operations and financial condition.

A significant portion of our costs are denominated in foreign
currencies, including the Hong Kong Dollar and the Chinese Renminbi. Substantially all of our consolidated net sales are denominated in U.S. Dollars. As a result, changes in the exchange rates of these foreign currencies to the U.S. Dollar will
affect our cost of sales and operating margins and could result in exchange losses. The exchange rate of the Chinese Renminbi to the U.S. Dollar is closely monitored by the Chinese government. Recent increases in the value of the Renminbi
relative to the U.S. Dollar have caused the costs of our Chinese operations to increase relative to related dollar-denominated sales. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted.
We may enter into exchange rate hedging programs from time to time in an effort to mitigate the impact of exchange rate fluctuations. However, hedging transactions may not be effective and may result in foreign exchange hedging losses.

Our bank credit covenant that limits our incremental investment in Merix Asia may restrict our ability to adequately fund our Asian operations and our growth
plans in Asia.

Merix has a bank credit agreement covenant that limits the incremental investment into Merix Asia to $25 million. As
of April 7, 2008, we had advanced Merix Asia approximately $16.1 million against the incremental investment limit. If our Asian operations at any time require an amount of cash greater than our available capital resources, or than is permitted
to be advanced under applicable credit agreements, or otherwise, there is risk that we will not be able to fund our Asian operations and the growth plans in Asia.

Failure to maintain good relations with minority investors in our China manufacturing facilities could materially adversely affect our ability to manage our Asian operations.

Currently, we have two printed circuit board manufacturing plants in the PRC that are each partially owned by a separate Chinese company. While we are the majority
interest holder in both of these companies, there are minority interest holders in each of them. The aggregate minority interest in these companies ranges from 5% to 15%. These minority holders are local investors with close ties to local economic
development and other



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government agencies. The investors lease to our Chinese operating companies the land on which the plants are located. In connection with the negotiation of
their investments, the local investors secured certain rights to be consulted and consent to certain operating and investment matters concerning the plants and to board representation. The joint venture relating to our Huizhou facility is scheduled
to terminate in November 2008, unless it is extended. Failure to extend the Huizhou joint venture or failure to maintain good relations with the investors in either China joint venture could materially adversely affect our ability to manage the
operations of one or more of the plants and our ability to realize the anticipated benefits of the Asian acquisition.

We do not currently have
options to renew our leased manufacturing facility in the PRC and failure to renew such lease could adversely affect our ability to realize the anticipated benefits of the Asian acquisition.

Our Huizhou manufacturing facility is leased from a Chinese company under an operating lease that expires in 2010 and does not contain a lease renewal option. Although
the landlord also has a minority interest in our subsidiary that operates the facility, this minority interest holder may not renew our lease. Failure to maintain good relations with this investor could materially adversely affect our ability to
negotiate the renewal of our operating lease or to continue to operate the plant. Although we have renewed this lease, failure to successfully renew such lease in the future could materially adversely affect our ability to realize the anticipated
benefits of the Asian acquisition. In addition, the lease renewal allows early termination by either party, so failure to maintain good relations with this investor could materially impact our continued leasehold of the facility. Further, zoning and
changes in laws in China could impair the ability of the landlord to extend or renew the lease.

New labor laws in the PRC may adversely affect our
results of operations.

As of April 7, 2008, we had approximately 2,260 employees in the PRC. In July, 2007 the PRC government enacted a new
labor law that became effective on January 1, 2008 that significantly impacts the cost of a companys decision to reduce its workforce. Further, the law requires certain terminations to be based upon seniority and not merit. In the event
we decide to significantly change or decrease our workforce in the PRC, the new labor law could adversely affect our ability to enact such changes in a manner that is most advantageous to our circumstances or in a timely and cost effective manner.

We may detect additional material weaknesses or significant deficiencies or may not be able to remediate the material weaknesses in our internal
control over financial reporting, which may adversely affect investor confidence in us and our stock price.

A material weakness is a control
deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. In connection with
managements assessments of our internal control over financial reporting, we identified the following material weakness in our internal control over financial reporting:



| |  |  | After considering the errors that resulted in the restatement of our first quarter of fiscal 2008 financial results, management has concluded that a material
weakness existed in our internal control over financial reporting. Specifically, we did not maintain adequate controls over the processing and recording of transactions related to customer returns of products for warranty rework or credit.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | After considering the errors that were detected by our internal control testing and as part of our closing process related to the reporting of the quarterly results
for the third quarter of fiscal 2008, management concluded that a material weakness existed in our internal control as of March 1, 2008. Specifically, we did not maintain adequate controls over the reconciliation of inter-company accounts and
certain work in process inventories.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Merix Asia was acquired in September 2005. Upon acquisition, Merix Asia had weak internal controls over financial reporting and needed to develop processes to
strengthen its accounting systems and control environment management. We have devoted significant time and resources to improving the internal controls over financial reporting since the acquisition. However, as of May 26, 2007, Merix
management did not maintain sufficient controls to adequately monitor the accounting and financial reporting of our Merix Asia operations. This material weakness resulted in adjustments to our 2007 annual consolidated financial statements that were
identified by management and the external auditors. Additionally, this control deficiency could result in a material misstatement to the interim or annual consolidated financial statements that would not be prevented or detected in a timely
manner. Accordingly, management has determined that this control deficiency constitutes a material weakness.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We continue to integrate
our businesses that include developing and installing a new global ERP system.



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While the integration process continues and new systems and processes are initiated, we may uncover additional internal control deficiencies that could rise
to the level of a material weakness or uncover errors in financial reporting. Material weaknesses in our internal control over financial reporting may cause investors to lose confidence in us, which could have an adverse effect on our business and
stock price.

Automotive customers have higher quality requirements and long qualification times and, if we do not meet these requirements, our
business could be materially adversely affected.

For safety reasons, our automotive customers have strict quality standards that generally exceed
the quality requirements of our other customers. Because a significant portion of Merix Asias products are sold to customers in the automotive industry, if our manufacturing facilities in Asia do not meet these quality standards, our results
of operations may be materially and adversely affected. These automotive customers may require long periods of time to evaluate whether our manufacturing processes and facilities meet their quality standards. If we were to lose automotive customers
due to quality control issues, we might not be able to regain those customers, or gain new automotive customers, for long periods of time, which could significantly decrease our consolidated net sales and profitability.

A small number of customers account for a substantial portion of our consolidated net sales and our consolidated net sales could decline significantly if we lose a
major customer or if a major customer orders fewer of our products or cancels or delays orders.

Historically, we have derived a significant portion
of our consolidated net sales from a limited number of customers. Our five largest OEM customers, which vary from period to period, comprised 35% and 37% of our consolidated net sales during the first three quarters of fiscal 2008 and in all of
fiscal 2007, respectively. Net sales to one customer represented 11% of consolidated net sales during the first three quarters of fiscal 2008. Net sales to two customers individually represented 15% and 11% of consolidated net sales during fiscal
2007. We expect to continue to depend upon a small number of customers for a significant portion of our consolidated net sales for the foreseeable future. The loss of, or decline in, orders or backlog from one or more major customers could reduce
our consolidated net sales and have a material adverse effect on our results of operations and financial condition.

Some of our customers are relatively
small companies, and our future business with them may be significantly affected by their ability to continue to obtain financing. If they are unable to obtain adequate financing, they will not be able to purchase products, which, in the aggregate,
would adversely affect our consolidated net sales.

We are exposed to the credit risk of some of our customers and also as a result of a
concentration of our customer base.

Most of our sales are on an open credit basis, with standard industry payment terms. We monitor
individual customer payment capability in granting open credit arrangements, seek to limit open credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. During periods
of economic downturn in the global economy and the electronics and automotive industries, our exposure to credit risks from our customers increases. Although we have programs in place to monitor and mitigate the associated risk, those programs may
not be effective in reducing our credit risks.

In total, five entities represented approximately 54% of the consolidated net trade accounts receivable
balance at March 1, 2008, individually ranging from approximately 5% to approximately 18%. Our OEM customers direct our sales to a relatively limited number of electronic manufacturing service providers. Our contractual relationship is
typically with the electronic manufacturing service providers, who are obligated to pay us for our products. Because we expect our OEM customers to continue to direct our sales to electronic manufacturing service providers, we expect to continue to
be subject to the credit risk of a limited number of customers. This concentration of customers exposes us to increased credit risks. If one or more of our significant customers were to become insolvent or were otherwise unable to pay us, our
financial condition and results of operations would be adversely affected.



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Because we do not generally have long-term contracts with our customers, we are subject to uncertainties and
variability in demand by our customers, which could decrease consolidated net sales and negatively affect our operating results.

We generally do
not have long-term purchase commitments from our customers, and, consequently, our consolidated net sales are subject to short-term variability in demand by our customers. Customers generally have no obligation to order from us and may cancel,
reduce or delay orders for a variety of reasons. The level and timing of orders placed by our customers vary due to:



| |  |  | fluctuation in demand for our customers products;
| | - |  | --------------------------------------------------



| |  |  | changes in customers manufacturing strategies, such as a decision by a customer to either diversify or consolidate the number of printed circuit board
manufacturers used;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | customers inventory management;
| | - |  | --------------------------------



| |  |  | our own operational performance, such as missed delivery dates and repeated rescheduling; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | changes in new product introductions.
| | - |  | -------------------------------------

We have
experienced terminations, reductions and delays in our customers orders. Future terminations, reductions or delays in our customers orders could lower our production asset utilization, which would lower our gross profits, decrease our
consolidated net sales and negatively affect our business and results of operations.

Our operations in the Peoples Republic of China subject
us to risks and uncertainties relating to the laws and regulations of the Peoples Republic of China.

Under its current leadership, the
Chinese government has been pursuing economic reform policies, including the encouragement of foreign trade and investment and greater economic decentralization. However, the government of the PRC may not continue to pursue such policies. Despite
progress in developing its legal system, the PRC does not have a comprehensive and highly developed system of laws, particularly with respect to foreign investment activities and foreign trade. Enforcement of existing and future laws and contracts
is uncertain, and implementation and interpretation thereof may be inconsistent. As the Chinese legal system develops, the promulgation of new laws, changes to existing laws and the preemption of local regulations by national laws may adversely
affect foreign investors. For example, the PRC recently passed a unified enterprise income tax law, which changes and increases the income tax on foreign-owned facilities. The PRC also recently enacted new labor laws that became effective
January 1, 2008 that make it more difficult and expensive for companies to make changes in their workforce. In addition, some government policies and rules are not timely published or communicated in local districts, if they are published at
all. As a result, we may operate our business in violation of new rules and policies without having any knowledge of their existence. These uncertainties could limit the legal protections available to us. Any litigation in the PRC may be protracted
and result in substantial costs and diversion of resources and management attention.

Our failure to comply with environmental laws could adversely
affect our business.

Our operations are regulated under a number of federal, state and municipal environmental and safety laws and regulations
including laws in the PRC that govern, among other things, the discharge of hazardous and other materials into the air and water, as well as the handling, storage, labeling, and disposal of such materials. When violations of environmental laws
occur, we can be held liable for damages, penalties and costs of investigation and remedial actions. Violations of environmental laws and regulations may occur as a result of our failure to have necessary permits, human error, equipment failure or
other causes. Moreover, in connection with our acquisitions in San Jose, California and in Asia, we may be liable for any violations of environmental and safety laws at those facilities by prior owners. If we violate environmental laws, we may be
held liable for damages and the costs of investigations and remedial actions and may be subject to fines and penalties, and revocation of permits necessary to conduct our business. Any permit revocations could require us to cease or limit production
at one or more of our facilities, and harm our business, results of operations and financial condition. Even if we ultimately prevail, environmental lawsuits against us would be time consuming and costly to defend. Our failure to comply with
applicable environmental laws and regulations could limit our ability to expand facilities or could require us to acquire costly equipment or to incur other significant expenses to comply with these laws and regulations. In the future, environmental
laws may become more stringent, imposing greater compliance costs and increasing risks and penalties associated with violations. We operate in environmentally sensitive locations and we are subject to potentially conflicting and changing regulatory
agendas of political, business and environmental groups. Changes or restrictions on



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discharge limits, emissions levels, permitting requirements and material storage, handling or disposal might require a high level of unplanned capital
investment, operating expenses or, depending on the severity of the impact of the foregoing factors, costly plant relocation. It is possible that environmental compliance costs and penalties from new or existing regulations may harm our business,
results of operations and financial condition.

We are potentially liable for contamination at our current and former facilities as well as at sites where
we have arranged for the disposal of hazardous wastes, if such sites become contaminated. These liabilities could include investigation and remediation activities. It is possible that remediation of these sites could adversely affect our business
and operating results in the future.

Our Chinese manufacturing operations subject us to a number of risks we have not faced in the past.

A substantial portion of our current manufacturing operations is located in the PRC. The geographical distances between these facilities and our U.S.
headquarters create a number of logistical and communications challenges. We are also subject to a highly competitive market for labor in the PRC, which may require us to increase employee wages and benefits to attract and retain employees and spend
significant resources to train new employees due to high employee turnover, either of which could cause our labor costs to exceed our expectations.

In
addition, because of the location of these facilities, we could be affected by economic and political instability in the PRC, including:



| |  |  | lack of developed infrastructure;
| | - |  | ---------------------------------



| |  |  | currency fluctuations;
| | - |  | ----------------------



| |  |  | overlapping taxes and multiple taxation issues;
| | - |  | -----------------------------------------------



| |  |  | employment and severance taxes;
| | - |  | -------------------------------



| |  |  | the burdens of cost, compliance and interpretation of a variety of foreign laws;
| | - |  | --------------------------------------------------------------------------------



| |  |  | difficulty in attracting and training workers in foreign markets and problems caused by labor unrest; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | less protection of our proprietary processes and know-how.
| | - |  | ----------------------------------------------------------

Moreover, inadequate development or maintenance of infrastructure in the PRC, including inadequate power and water supplies, transportation or raw materials availability, communications infrastructure or the deterioration in the general
political, economic or social environment, could make it difficult and more expensive, and possibly prohibitive, to continue to operate our manufacturing facilities in the PRC.

Because we have significant foreign sales and presence, we are subject to political, economic and other risks we do not face in the domestic market.

With the acquisition of our Asian operations, we expect sales in, and product shipments to, non-U.S. markets to represent an increasingly significant portion of our total
sales in future periods. Our exposure to the business risks presented by foreign economies includes:



| |  |  | logistical, communications and other operational difficulties in managing a global enterprise;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | restrictions on the transfer of funds into or out of a country;
| | - |  | ---------------------------------------------------------------



| |  |  | longer sales and collection cycles;
| | - |  | -----------------------------------



| |  |  | potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | protectionist and trade laws and business practices that favor local companies;
| | - |  | -------------------------------------------------------------------------------



| |  |  | restrictive governmental actions;
| | - |  | ---------------------------------



| |  |  | burdens and costs of compliance with a variety of foreign laws;
| | - |  | ---------------------------------------------------------------



| |  |  | political and economic instability, including terrorist activities;
| | - |  | -------------------------------------------------------------------



| |  |  | natural disaster or outbreaks of infectious diseases affecting the regions in which we operate or sell products; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in collecting accounts receivable.
| | - |  | -----------------------------------------------



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Products we manufacture may contain manufacturing defects, which could result in reduced demand for our products
and liability claims against us.

We manufacture highly complex products to our customers specifications. These products may contain
manufacturing errors or failures despite our quality control and quality assurance efforts. Further, our technology expansion efforts increase the risk related to unanticipated yield issues, as well as to uncertainties related to future warranty
claims. Defects in the products we manufacture, whether caused by a design, manufacturing or materials failure or error, may result in delayed shipments, increased warranty costs, customer dissatisfaction, or a reduction in or cancellation of
purchase orders. If these defects occur either in large quantities or too frequently, our business reputation may be impaired. Since our products are used in products that are integral to our customers businesses, errors, defects or other
performance problems could result in financial or other damages to our customers beyond the cost of the printed circuit board, for which we may be liable in some cases. Although we generally attempt to sell our products on terms designed to limit
our exposure to warranty, product liability and related claims, in certain cases, the terms of our agreements allocate to Merix substantial exposure for product defects. In addition, even if we can contractually limit our exposure, existing or
future laws or unfavorable judicial decisions could negate these limitations of liability provisions. Product liability litigation against us, even if it were unsuccessful, would be time consuming and costly to defend. Although we maintain a
warranty reserve, this reserve may not be sufficient to cover our warranty or other expenses that could arise as a result of defects in our products.

We may incur material losses and costs as a result of product liability and warranty claims that may be brought against us.

We face
an inherent business risk of exposure to warranty and product liability claims in the event that our products, particularly those supplied by Merix Asia to the automotive industry, fail to perform as expected or such failure results, or is alleged
to result, in bodily injury and/or property damage. In addition, if any of our products are or are alleged to be defective; we may be required to participate in a recall of such products. As suppliers become more integral to the vehicle design
process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contributions when faced with product liability claims or recalls. In addition, vehicle manufacturers, who have
traditionally borne the cost associated with warranty programs offered on their vehicles, are increasingly requiring suppliers to guarantee or warrant their products and may seek to hold us responsible for some or all of the costs related to the
repair and replacement of parts supplied by us to the vehicle manufacturer. A successful warranty or product liability claim against us in excess of our available insurance coverage or established warranty and legal reserves or a requirement that we
participate in a product recall may have a material adverse effect on our business.

Just prior to the filing date of this Form 10-Q, we became aware of a
warranty issue at Merix Asia with an estimated cost of $0.5 million to $2.2 million. Based on information currently available, we estimated the cost associated with this warranty issue was $0.5 million at March 1, 2008 and, accordingly,
included this amount within our statement of operations for both the thirteen and forty week periods ended March 1, 2008.

As we commence our
work to implement a new enterprise resource planning (ERP) system, unexpected problems and delays could occur and could cause disruption to the management of our business and significantly increase costs.

We are currently using multiple ERP and other information systems. We began the initial design and implementation for a single world-wide ERP system during fiscal 2007.
We expect the new ERP system will become integral to our ability to accurately and efficiently maintain our books and records, record our transactions, provide critical information to our management and prepare our financial statements. Our work to
plan, develop and implement this new ERP system continues in fiscal 2008 as an active project. These systems are new to us and we have not had extensive experience with them. The new ERP system could eventually become more costly, difficult and
time-consuming to purchase and implement than we currently anticipate. Implementation of the new ERP system may require us to change certain internal business practices and training may be inadequate. We may encounter unexpected difficulties,
delays, internal control issues, costs, unanticipated adverse effects or other challenges, any of which may disrupt our business. Corrections and improvements may be required as we continue the implementation of our new system, procedures and
controls, and could cause us to incur additional costs and require additional management attention, placing burdens on our internal resources. Any delay in the implementation of, or disruption in the transition to our new or enhanced systems,
procedures or controls, could harm our ability to accurately



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forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and records, compete effectively and report financial
and management information on a timely and accurate basis. Failure to properly or adequately address these issues could result in the diversion of managements attention and resources and impact our ability to manage our business and our
results of operations.

If we lose key management, operations, engineering and sales and marketing personnel, we could experience reduced sales,
delayed product development and diversion of management resources.

Our success depends largely on the continued contributions of our key
management, administration, operations, engineering and sales and marketing personnel, many of whom would be difficult to replace. We generally do not have employment or non-compete agreements with our key personnel. If one or more members of our
senior management or key professionals were to resign, the loss of personnel could result in loss of sales, delays in new product development and diversion of management resources, which would have a negative effect on our business. We do not
maintain key man insurance policies on any of our personnel.

Successful execution of our day-to-day business operations, including our
manufacturing process, depends on the collective experience of our employees and we have experienced periods of high employee turnover. If high employee turnover persists, our business may suffer and we may not be able to compete effectively.

We rely on the collective experience of our employees, particularly in the manufacturing process, to ensure we continuously evaluate and adopt new
technologies and remain competitive. Although we are not generally dependent on any one employee or a small number of employees involved in our manufacturing process, we have experienced periods of high employee turnover generally and continue to
experience significantly high employee turnover at our Asian facilities. If we are not able to replace these people with new employees with comparable capabilities, our operations could suffer as we may be unable to keep up with innovations in the
industry or the demands of our customers. As a result, we may not be able to continue to compete effectively.

Pending or future litigation could
have a material adverse effect on our operating results and financial condition.

We are currently subject to legal proceedings and claims,
including a securities class action lawsuit as follows:

Four purported class action complaints were filed against us and certain of our executive officers
and directors in the first quarter of fiscal 2005. The complaints were consolidated in a single action entitled In re Merix Corporation Securities Litigation, Lead Case No. CV 04-826-MO, in the U.S. District Court for the District of Oregon.
After the court granted our motion to dismiss without prejudice, plaintiffs filed a second amended complaint. That complaint alleged that the defendants violated the federal securities laws by making certain inaccurate and misleading statements in
the prospectus used in connection with the January 2004 public offering of approximately $103.4 million of our common stock. In September 2006, the Court dismissed that complaint with prejudice. The plaintiffs appealed to the Ninth Circuit Court of
Appeals. The parties have submitted briefs to the Court of Appeals.

The plaintiffs seek unspecified damages. A potential loss or range of loss that could
arise from these cases is not estimable or probable at this time. We have recorded charges for estimated probable costs associated with defending these claims, as it is our policy to accrue legal fees when it is probable that we will have to defend
against known claims or allegations and we can reasonably estimate the amount of anticipated expense.

Where we can make a reasonable estimate of any
probable liability relating to pending litigation, we record a liability. Although we have created a reserve for some of the potential legal fees associated with litigation currently pending against us, we have not created any reserve for potential
liability for settlements or judgments because the potential liability is neither probable nor estimable. Even when we record a liability, the amount of our estimates of costs or liabilities could be wrong. In addition to the direct costs of
litigation, pending or future litigation could divert managements attention and resources from the operation of our business. Accordingly, our operating results and financial condition could be adversely affected.



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Restructuring efforts have required both restructuring and impairment charges and we may be required to record
asset impairment charges in the future, which would adversely affect our results of operations and financial condition.

We recorded impairment
charges against certain assets in fiscal 2007 and we recorded restructuring and impairment charges in the third quarter of fiscal 2008 for the closure of our Wood Village, Oregon manufacturing facility and other restructuring actions. As our
strategy evolves and due to the cyclicality of our business, rapid technological change and the migration of business to Asia, we might conclude in the future that some of our manufacturing facilities are surplus to our needs or will not generate
sufficient future cash flows to cover the net book value and, thus, we may be required to record an impairment charge. Such an impairment charge would adversely affect our results of operations and financial condition.

We may have exposure to income tax rate fluctuations as well as to additional tax liabilities, which would impact our financial position.

As a corporation with operations both in the United States and abroad, we are subject to taxes in both the United States and various foreign jurisdictions. Our effective
tax rate is subject to fluctuation as the income tax rates for each year are a function of the following factors, among others:



| |  |  | the effects of a mix of profits or losses earned by us and our subsidiaries in numerous tax jurisdictions with a broad range of income tax rates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to utilize net operating losses;
| | - |  | --------------------------------------------



| |  |  | changes in contingencies related to taxes, interest or penalties resulting from tax audits; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | changes in tax laws or the interpretation of such laws.
| | - |  | -------------------------------------------------------

Changes in the mix of these items and other items may cause our effective tax rate to fluctuate between periods, which could have a material adverse effect on our financial position.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and
various foreign jurisdictions.

Significant judgment is required in determining our provision for income taxes and other tax liabilities. Although we
believe that our tax estimates are reasonable, we cannot assure you that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.

RISKS RELATED TO OUR CORPORATE STRUCTURE AND STOCK

Our
stock price has fluctuated significantly, and we expect the trading price of our common stock to remain highly volatile.

The closing trading price
of our common stock has fluctuated from a low of less than $2.00 per share to a high of more than $70.00 per share over the past 13 years.

The market
price of our common stock may fluctuate as a result of a number of factors including:



| |  |  | actual and anticipated variations in our operating results;
| | - |  | -----------------------------------------------------------



| |  |  | general economic and market conditions, including changes in demand in the printed circuit board industry and the end markets which we serve;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | interest rates;
| | - |  | ---------------



| |  |  | geopolitical conditions throughout the world;
| | - |  | ---------------------------------------------



| |  |  | perceptions of the strengths and weaknesses of the printed circuit board industry and the end markets which it serves;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to pay principal and interest on our debt when due;
| | - |  | ---------------------------------------------------------------



| |  |  | developments in our relationships with our lenders, customers, and/or suppliers;
| | - |  | --------------------------------------------------------------------------------



| |  |  | announcements of alliances, mergers or other relationships by or between our competitors and/or our suppliers and customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of plant closings, layoffs, restructurings or bankruptcies by our competitors; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | developments related to regulations, including environmental and wastewater regulations.
| | - |  | ----------------------------------------------------------------------------------------



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We expect volatility to continue in the future. In recent years, the stock market in general has experienced extreme
price and volume fluctuations that have affected the printed circuit board industry and that may be unrelated to the operating performance of the companies within these industries. These broad market fluctuations may adversely affect the market
price of our common stock and limit our ability to raise capital or finance transactions using equity instruments.

A large number of our outstanding
shares and shares to be issued upon exercise of our outstanding options may be sold into the market in the future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

We may, in the future, sell additional shares of our common stock, or securities convertible into or exercisable for shares of our common stock, to raise capital. We
may also issue additional shares of our common stock, or securities convertible into or exercisable for shares of our common stock, to finance future acquisitions. Further, a substantial number of shares of our common stock are reserved for issuance
pursuant to stock options. As of March 1, 2008, we had 3,510,492 outstanding options, each to purchase one share of our common stock, issued to employees, officers and directors under our equity incentive plans. The options have exercise prices
ranging from $2.04 per share to $67.06 per share. These outstanding options could have a significant adverse effect on the trading price of our common stock, especially if a significant volume of the options was exercised and the stock
issued was immediately sold into the public market. Further, the exercise of these options could have a dilutive impact on other shareholders by decreasing their ownership percentage of our outstanding common stock. If we attempt to raise additional
capital through the issuance of equity or convertible debt securities, the terms upon which we will be able to obtain additional equity capital, if at all, may be negatively affected since the holders of outstanding options can be expected to
exercise them, to the extent they are able, at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable than those provided in such options.

Some provisions contained in our articles of incorporation, bylaws and rights agreement, as well as provisions of Oregon law, could inhibit a takeover attempt.

Some of the provisions of our articles of incorporation, bylaws, rights agreement and Oregons anti-takeover laws could delay or prevent a merger or acquisition
between us and a third party, or make a merger or acquisition with us less desirable to a potential acquirer, even in circumstances in which our shareholders may consider the merger or acquisition favorable. Our articles of incorporation authorize
our Board of Directors to issue series of preferred stock and determine the rights and preferences of each series of preferred stock to be issued. Our rights agreement is designed to enhance the Boards ability to protect shareholders against
unsolicited attempts to acquire control of us that do not offer an adequate price to all shareholders or are otherwise not in our best interests and the best interests of our shareholders. The rights issued under the rights agreement will cause
substantial dilution to any person or group who attempts to acquire a significant amount of common stock without approval of our Board of Directors. Any of these provisions that have the effect of delaying or deterring a merger or acquisition
between us and a third party could limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

We
repurchased the following shares of our common stock during the third quarter of fiscal 2008:



|                                    |  |                                |  |                            |      |                                                                |   |                                                              |  
|----------------------------------- |  | ------------------------------ |  | -------------------------- | ---- | -------------------------------------------------------------- | - | ------------------------------------------------------------ | -
|                                    |  | Total numberof sharespurchased |  | Averageprice paidper share |      | Total numberof sharespurchased aspart of publiclyannouncedplan |   | Maximumnumber ofshares thatmay yet bepurchasedunder the plan
|December 2, 2007 to January 5, 2008 |  | 1,034                          |  | $                          | 4.96 |                                                                |  |                                                              | 
|January 6, 2008 to February 2, 2008 |  |                               |  |                            |     |                                                                |  |                                                              | 
|February 3, 2008 to March 1, 2008   |  | 993                            |  |                            | 2.76 |                                                                |  |                                                              | 
|                                    |  |                                |  |                            |      |                                                                |   |                                                              |  
|Total                               |  | 2,027                          |  |                            | 3.88 |                                                                |  |                                                              | 
|                                    |  |                                |  |                            |      |                                                                |   |                                                              |  

Purchases during the third quarter of fiscal 2008 represented shares purchased by us in satisfaction of
withholding taxes due upon the vesting of restricted shares granted to our employees under our equity-based compensation plans. The shares are purchased from employees and the proceeds are remitted to pay the employees withholding taxes due at
the time the employees restricted stock awards vest.



|Item 5. | Other Information.
|------- | ------------------

The following disclosure would have otherwise
been filed on Form 8-K under the heading Item 2.02Results of Operations and Financial Condition.

On April 9, 2008, we issued a news
release announcing our results of operations for the third quarter ended March 1, 2008. We reported a loss from continuing operations of $12.5 million, or $0.59 per diluted share, based on net sales of $94.3 million and cost of sales of $83.8
million for the third quarter of fiscal 2008.

As part of our closing procedures for the first month of our fourth quarter of fiscal 2008, management
discovered that our Oregon inventory levels were overstated. We further determined that the balances for the third quarter of fiscal 2008 were also in error by $0.8 million. As a result of correcting this error, our cost of sales for the thirteen
and forty week periods ended March 1, 2008 increased by $0.8 million, gross margin decreased by $0.8 million and operating loss, loss from continuing operations and net loss for both the thirteen and forty week periods ended March 1, 2008 each
increased by $0.8 million. Also, the diluted net loss per share for both the thirteen and forty week periods ended March 1, 2008 increased by $0.04 per share. Comparable changes were required to reduce inventories, current assets and total assets in
the balance sheet at March 1, 2008 and to adjust the statement of cash flows for the forty week period ended March 1, 2008. There was no impact on cash flows from operations or net cash flows. The financial statements contained in this quarterly
report on Form 10-Q reflect the adjustments made to correct the error.



|Item 6. | Exhibits
|------- | --------

The following exhibits are filed herewith and this list
is intended to constitute the exhibit index:



|     |  |                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.                           
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.                           
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
|     | 
|99.1 |  | Press release dated April 9, 2008 (incorporated by reference to Exhibit 99.1 to the Form 8-K filed April 9, 2008).                                      



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.



|                      |  |  |  |                                                                                                
|--------------------- |  |  |  | -----------------------------------------------------------------------------------------------
|                      |  |  |  | MERIX CORPORATION                                                                              
|                      |  | 
|Dated: April 14, 2008 |  |  |  | /s/ MICHAEL D. BURGER                                                                          
|                      |  |  |  | Michael D. Burger Director, President and
Chief Executive Officer (Principal Executive Officer)



| |  |  |  |                                                                                                 
| |  |  |  | ------------------------------------------------------------------------------------------------
| |  | 
| |  |  |  | /s/ KELLY E. LANG                                                                               
| |  |  |  | Kelly E. Lang Executive Vice President and Chief
Financial Officer (Principal Financial Officer)
| |  | 
| |  |  |  | /s/ALLEN L. MUHICH                                                                              
| |  |  |  | Allen Muhich Vice President, Finance (Principal Accounting Officer)                             



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