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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended August 28, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



Commission file number 0-23818



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MERIX CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|OREGON                                                         |  | 93-1135197                             
|(State or other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)



|                                         |  |           
|---------------------------------------- |  | ----------
|1521 Poplar Lane, Forest Grove, Oregon   |  | 97116     
|(Address of principal executive offices) |  | (Zip Code)



(503)
359-9300

(Registrants telephone number)



---



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 the filing requirements for the past 90 days.    Yes  x    No ̈



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



The number of shares of the Registrants Common Stock outstanding as of October 4, 2004 was 19,197,111 shares.



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##### Table of Contents

MERIX CORPORATION

FORM 10-Q

TABLE OF CONTENTS



|        |  |                       |  |                                                                                       |  |                                                                                         |  |     
|------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | ----
|        |  |                       |  |                                                                                       |  |                                                                                         |  | Page
|Part I  |  | Financial Information |  |                                                                                      
|        |  |                       | 
|        |  | Item 1.               |  | Financial Statements:                                                                 |  |                                                                                        
|        |  |                       |  |                                                                                      
|        |  |                       |  |                                                                                       |  | Balance Sheets as of August 28, 2004 and May 29, 2004                                   |  | 2   
|        |  |                       |  |                                                                                      
|        |  |                       |  |                                                                                       |  | Statements of Operations for the three months ended August 28, 2004 and August 30, 2003 |  | 3   
|        |  |                       |  |                                                                                      
|        |  |                       |  |                                                                                       |  | Statement of Shareholders Equity from May 29, 2004 through August 28, 2004             |  | 4   
|        |  |                       |  |                                                                                      
|        |  |                       |  |                                                                                       |  | Statements of Cash Flows for the three months ended August 28, 2004 and August 30, 2003 |  | 5   
|        |  |                       |  |                                                                                      
|        |  |                       |  |                                                                                       |  | Notes to Financial Statements                                                           |  | 6   
|        |  |                       | 
|        |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10                                                                                     
|        |  |                       | 
|        |  | Item 3.               |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 13                                                                                     
|        |  |                       | 
|        |  | Item 4.               |  | Controls and Procedures                                                               |  | 14                                                                                     
|        |  |                      
|Part II |  | Other Information     |  |                                                                                      
|        |  |                       | 
|        |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                      |  | 14                                                                                     
|        |  |                       | 
|        |  |                       |  | Signature                                                                             |  | 15                                                                                     



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##### Table of Contents

PART I. FINANCIAL INFORMATION



MERIX CORPORATION

BALANCE SHEETS

(in thousands, unaudited)



|                                                                                                                                         |  |                 |         |   |              |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                         |  | August 28, 2004 |         |   | May 29, 2004 |  
|                                                                                                                                         | 
|Assets                                                                                                                                   |  |                 |         |   |              |   |         |  
|                                                                                                                                         |  |                
|Cash and cash equivalents                                                                                                                |  | $               | 116,988 |   |              | $ | 124,530 |  
|Accounts receivable, net of allowance of $923 and $926                                                                                   |  |                 | 30,976  |   |              |   | 30,051  |  
|Inventories                                                                                                                              |  |                 | 9,524   |   |              |   | 9,622   |  
|Other current assets                                                                                                                     |  |                 | 1,723   |   |              |   | 1,312   |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Total current assets                                                                                                                     |  |                 | 159,211 |   |              |   | 165,515 |  
|                                                                                                                                         |  |                
|Property, plant and equipment, net                                                                                                       |  |                 | 88,510  |   |              |   | 84,021  |  
|Other assets                                                                                                                             |  |                 | 595     |   |              |   | 645     |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Total assets                                                                                                                             |  | $               | 248,316 |   |              | $ | 250,181 |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Liabilities and Shareholders Equity                                                                                                     |  |                 |         |   |              |   |         |  
|                                                                                                                                         |  |                
|Accounts payable                                                                                                                         |  | $               | 19,652  |   |              | $ | 19,255  |  
|Accrued compensation                                                                                                                     |  |                 | 2,745   |   |              |   | 3,997   |  
|Accrued warranty                                                                                                                         |  |                 | 1,086   |   |              |   | 1,061   |  
|Other accrued liabilities                                                                                                                |  |                 | 2,117   |   |              |   | 2,085   |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Total current liabilities                                                                                                                |  |                 | 25,600  |   |              |   | 26,398  |  
|                                                                                                                                         |  |                
|Long-term debt                                                                                                                           |  |                 | 25,000  |   |              |   | 25,000  |  
|Other long-term liability                                                                                                                |  |                 | 630     |   |              |   | 368     |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Total liabilities                                                                                                                        |  |                 | 51,230  |   |              |   | 51,766  |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Commitments and contingencies (Note 9)                                                                                                   |  |                 |        |   |              |   |        |  
|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 August 28, 2004: 19,175 shares, May 29, 2004: 19,068
shares |  |                 | 199,927 |   |              |   | 198,979 |  
|Unearned compensation                                                                                                                    |  |                 | (422    | ) |              |   | (119    | )
|Accumulated deficit                                                                                                                      |  |                 | (2,419  | ) |              |   | (445    | )
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Total shareholders equity                                                                                                               |  |                 | 197,086 |   |              |   | 198,415 |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  
|Total liabilities and shareholders equity                                                                                               |  | $               | 248,316 |   |              | $ | 250,181 |  
|                                                                                                                                         |  |                 |         |   |              |   |         |  



The accompanying notes
are an integral part of the financial statements.



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MERIX CORPORATION

STATEMENTS OF OPERATIONS

(in thousands, except per share amounts, unaudited)



|                                       |  |                    |        |   |                 |   |        |  
|-------------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | -
|                                       |  | Three Months Ended |       
|                                       |  | August 28, 2004    |        |   | August 30, 2003 |  
|Net sales                              |  | $                  | 42,130 |   |                 | $ | 30,728 |  
|Cost of sales                          |  |                    | 37,737 |   |                 |   | 28,660 |  
|                                       |  |                    |        |   |                 |   |        |  
|Gross profit                           |  |                    | 4,393  |   |                 |   | 2,068  |  
|                                       |  |                   
|Operating expenses:                    |  |                    |        |   |                 |   |        |  
|Engineering                            |  |                    | 1,801  |   |                 |   | 1,307  |  
|Selling, general and administrative    |  |                    | 4,527  |   |                 |   | 2,662  |  
|                                       |  |                    |        |   |                 |   |        |  
|Total operating expenses               |  |                    | 6,328  |   |                 |   | 3,969  |  
|                                       |  |                   
|Operating loss                         |  |                    | (1,935 | ) |                 |   | (1,901 | )
|Interest and other expense, net        |  |                    | (38    | ) |                 |   | (346   | )
|                                       |  |                    |        |   |                 |   |        |  
|Loss before taxes                      |  |                    | (1,973 | ) |                 |   | (2,247 | )
|                                       |  |                   
|Income tax expense                     |  |                    | 1      |   |                 |   |       |  
|                                       |  |                    |        |   |                 |   |        |  
|Net loss                               |  | $                  | (1,974 | ) |                 | $ | (2,247 | )
|                                       |  |                    |        |   |                 |   |        |  
|Net loss per share:                    |  |                    |        |   |                 |   |        |  
|Basic                                  |  | $                  | (0.10  | ) |                 | $ | (0.15  | )
|                                       |  |                    |        |   |                 |   |        |  
|Diluted                                |  | $                  | (0.10  | ) |                 | $ | (0.15  | )
|                                       |  |                    |        |   |                 |   |        |  
|Shares used in per share calculations: |  |                    |        |   |                 |   |        |  
|Basic                                  |  |                    | 19,113 |   |                 |   | 14,701 |  
|                                       |  |                    |        |   |                 |   |        |  
|Diluted                                |  |                    | 19,113 |   |                 |   | 14,701 |  
|                                       |  |                    |        |   |                 |   |        |  



The accompanying notes
are an integral part of the financial statements.



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MERIX CORPORATION

STATEMENT OF SHAREHOLDERS EQUITY

(in thousands, unaudited)



|                                                  |  |              |  |                      |         |  |                 |      |   |       |   |        |   |  |   |         |  
|------------------------------------------------- |  | ------------ |  | -------------------- | ------- |  | --------------- | ---- | - | ----- | - | ------ | - |  | - | ------- | -
|                                                  |  | Common Stock |  | UnearnedCompensation |         |  | RetainedDeficit |      |   | Total |  
|                                                  |  | Shares       |  | Amount               |         |  |                
|Balance at May 29, 2004                           |  | 19,068       |  | $                    | 198,979 |  | $               | (119 | ) |       | $ | (445   | ) |  | $ | 198,415 |  
|Net loss                                          |  |             |  |                      |        |  |                 |     |   |       |   | (1,974 | ) |  |   | (1,974  | )
|Exercise of stock options                         |  | 29           |  |                      | 187     |  |                 |     |   |       |   |       |   |  |   | 187     |  
|Issuance of stock under defined contribution plan |  | 43           |  |                      | 434     |  |                 |     |   |       |   |       |   |  |   | 434     |  
|Issuance of restricted stock to employees         |  | 35           |  |                      | 327     |  |                 | (327 | ) |       |   |       |   |  |   |        |  
|Amortization of unearned compensation             |  |             |  |                      |        |  |                 | 24   |   |       |   |       |   |  |   | 24      |  
|                                                  |  |              |  |                      |         |  |                 |      |   |       |   |        |   |  |   |         |  
|Balance at August 28, 2004                        |  | 19,175       |  | $                    | 199,927 |  | $               | (422 | ) |       | $ | (2,419 | ) |  | $ | 197,086 |  
|                                                  |  |              |  |                      |         |  |                 |      |   |       |   |        |   |  |   |         |  



The accompanying notes
are an integral part of the financial statements.



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MERIX CORPORATION

STATEMENTS OF CASH FLOWS

(in thousands, unaudited)



|                                                                            |  |                    |         |   |                 |   |        |  
|--------------------------------------------------------------------------- |  | ------------------ | ------- | - | --------------- | - | ------ | -
|                                                                            |  | Three Months Ended |        
|                                                                            |  | August 28,2004     |         |   | August 30, 2003 |  
|Cash flows from operating activities:                                       |  |                    |         |   |                 |   |        |  
|Net loss                                                                    |  | $                  | (1,974  | ) |                 | $ | (2,247 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                    |         |   |                 |   |        |  
|Depreciation and amortization                                               |  |                    | 3,293   |   |                 |   | 2,441  |  
|Contribution of common stock to defined contribution plan                   |  |                    | 434     |   |                 |   | 348    |  
|Loss on impairment and disposal of assets                                   |  |                    | 26      |   |                 |   | 25     |  
|Expense for stock based compensation                                        |  |                    | 24      |   |                 |   | 20     |  
|Other                                                                       |  |                    | 6       |   |                 |   | (7     | )
|Changes in assets and liabilities:                                          |  |                    |         |   |                 |   |        |  
|Accounts receivable                                                         |  |                    | (925    | ) |                 |   | (2,496 | )
|Inventories                                                                 |  |                    | 98      |   |                 |   | (674   | )
|Other assets                                                                |  |                    | (435    | ) |                 |   | (592   | )
|Accounts payable                                                            |  |                    | (462    | ) |                 |   | 2,580  |  
|Accrued compensation                                                        |  |                    | (1,252  | ) |                 |   | (804   | )
|Accrued warranty                                                            |  |                    | 25      |   |                 |   | 186    |  
|Other accrued liabilities                                                   |  |                    | 32      |   |                 |   | 294    |  
|                                                                            |  |                    |         |   |                 |   |        |  
|Net cash used in operating activities                                       |  |                    | (1,110  | ) |                 |   | (926   | )
|                                                                            |  |                    |         |   |                 |   |        |  
|Cash flows from investing activities:                                       |  |                    |         |   |                 |   |        |  
|Investment maturities                                                       |  |                    |        |   |                 |   | 1,514  |  
|Capital expenditures                                                        |  |                    | (6,619  | ) |                 |   | (557   | )
|                                                                            |  |                    |         |   |                 |   |        |  
|Net cash (used in) provided by investing activities                         |  |                    | (6,619  | ) |                 |   | 957    |  
|                                                                            |  |                    |         |   |                 |   |        |  
|Cash flows from financing activities:                                       |  |                    |         |   |                 |   |        |  
|Exercise of stock options                                                   |  |                    | 187     |   |                 |   | 139    |  
|                                                                            |  |                    |         |   |                 |   |        |  
|Net cash provided by financing activities                                   |  |                    | 187     |   |                 |   | 139    |  
|                                                                            |  |                    |         |   |                 |   |        |  
|(Decrease) increase in cash and cash equivalents                            |  |                    | (7,542  | ) |                 |   | 170    |  
|Cash and cash equivalents at beginning of period                            |  |                    | 124,530 |   |                 |   | 42,451 |  
|                                                                            |  |                    |         |   |                 |   |        |  
|Cash and cash equivalents at end of period                                  |  | $                  | 116,988 |   |                 | $ | 42,621 |  
|                                                                            |  |                    |         |   |                 |   |        |  
|Supplemental non-cash activity:                                             |  |                    |         |   |                 |   |        |  
|Issuance of restricted stock to employees                                   |  | $                  | 327     |   |                 | $ | 305    |  
|Increase to the asset retirement obligation                                 |  | $                  | 256     |   |                 | $ |       |  
|                                                                            |  |                   
|Supplemental disclosures:                                                   |  |                    |         |   |                 |   |        |  
|Cash paid for interest, net of amounts capitalized                          |  | $                  | 405     |   |                 | $ | 405    |  



The accompanying notes
are an integral part of the financial statements.



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MERIX CORPORATION

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



Note 1. BASIS OF PRESENTATION



The
accompanying unaudited financial statements of Merix Corporation (the Company) have been prepared pursuant to Securities and Exchange Commission rules and regulations. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and
notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended May 29, 2004.



The financial information included herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement
of the results for interim periods. The results of operations for the three months ended August 28, 2004 are not necessarily indicative of the results to be expected for the full fiscal year.



The Companys fiscal year is the 52 or 53-week period ending the last
Saturday in May. Fiscal years 2004 and 2005 are 52-week years ending May 29, 2004 and May 28, 2005, respectively.



Note 2. INVENTORIES



|                |  |                |       |             |   |      
|--------------- |  | -------------- | ----- | ----------- | - | -----
|                |  | August 28,2004 |       | May 29,2004
|Raw materials   |  | $              | 1,594 |             | $ | 1,248
|Work in process |  |                | 5,627 |             |   | 6,826
|Finished goods  |  |                | 2,303 |             |   | 1,548
|                |  |                |       |             |   |      
|Total           |  | $              | 9,524 |             | $ | 9,622
|                |  |                |       |             |   |      



Note 3. PROPERTY, PLANT AND
EQUIPMENT



|                                   |  |                |         |   |             |   |         |  
|---------------------------------- |  | -------------- | ------- | - | ----------- | - | ------- | -
|                                   |  | August 28,2004 |         |   | May 29,2004 |  
|Land                               |  | $              | 2,190   |   |             | $ | 2,190   |  
|Buildings and grounds              |  |                | 33,250  |   |             |   | 33,071  |  
|Leasehold improvements             |  |                | 16,755  |   |             |   | 16,117  |  
|Machinery and equipment            |  |                | 106,744 |   |             |   | 102,857 |  
|Construction in progress           |  |                | 10,197  |   |             |   | 7,309   |  
|                                   |  |                |         |   |             |   |         |  
|Total                              |  |                | 169,136 |   |             |   | 161,544 |  
|Accumulated depreciation           |  |                | (80,626 | ) |             |   | (77,523 | )
|                                   |  |                |         |   |             |   |         |  
|Property, plant and equipment, net |  | $              | 88,510  |   |             | $ | 84,021  |  
|                                   |  |                |         |   |             |   |         |  



Note 4. NET LOSS PER SHARE



Basic net loss per share is computed using the weighted
average number of shares of common stock outstanding for the period. Diluted net loss per share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares related to stock options and the
convertible debenture outstanding during the period.



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The following incremental shares were excluded from the calculation of diluted net loss because including
these shares would have been antidilutive:



|                               |  |                |  |                
|------------------------------ |  | -------------- |  | ---------------
|                               |  | August 28,2004 |  | August 30, 2003
|Incremental shares related to: |  |                |  |                
|Outstanding stock options      |  | 1,616,484      |  | 1,639,543      
|Convertible debenture          |  | 1,287,996      |  | 1,287,996      
|                               |  |                |  |                
|Total                          |  | 2,904,480      |  | 2,927,539      
|                               |  |                |  |                



Note 5. STOCK BASED COMPENSATION
PLAN



The Company accounts for its stock-based
compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation. If the Company had used the fair value based method of accounting for its plans, the Companys net loss and net loss per share would approximate the pro forma disclosures below:



|                                                                                                                 |  |                    |        |   |                 |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | -
|                                                                                                                 |  | Three months ended |       
|                                                                                                                 |  | August 28, 2004    |        |   | August 30, 2003 |  
|Net loss as reported                                                                                             |  | $                  | (1,974 | ) |                 | $ | (2,247 | )
|                                                                                                                 |  |                   
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects       |  |                    | 24     |   |                 |   |       |  
|Deduct: Total stock based compensation expense determined under the fair value method for all awards, net of tax |  |                    | (1,343 | ) |                 |   | (1,525 | )
|                                                                                                                 |  |                    |        |   |                 |   |        |  
|Net loss pro forma                                                                                               |  | $                  | (3,293 | ) |                 | $ | (3,772 | )
|Net loss per share, as reported                                                                                  |  |                    |        |   |                 |   |        |  
|Basic                                                                                                            |  | $                  | (0.10  | ) |                 | $ | (0.15  | )
|Diluted                                                                                                          |  | $                  | (0.10  | ) |                 | $ | (0.15  | )
|Net loss per share, pro forma                                                                                    |  |                    |        |   |                 |   |        |  
|Basic                                                                                                            |  | $                  | (0.17  | ) |                 | $ | (0.26  | )
|Diluted                                                                                                          |  | $                  | (0.17  | ) |                 | $ | (0.26  | )
|                                                                                                                 |  |                   
|Weighted average assumptions:                                                                                    |  |                    |        |   |                 |   |        |  
|Risk-free interest rate                                                                                          |  |                    | 2.28   | % |                 |   | 1.74   | %
|Expected dividend yield                                                                                          |  |                    | 0      | % |                 |   | 0      | %
|Expected lives                                                                                                   |  |                    | 2.77   |   |                 |   | 3.15   |  
|Expected volatility                                                                                              |  |                    | 72     | % |                 |   | 96     | %



Note 6. ACCRUED WARRANTY



Warranty activity for the three months ended August 28,
2004 and August 30, 2003 consisted of the following:



|                                                                    |  |                    |       |   |                |   |       |  
|------------------------------------------------------------------- |  | ------------------ | ----- | - | -------------- | - | ----- | -
|                                                                    |  | Three months ended |      
|                                                                    |  | August 28,2004     |       |   | August 30,2003 |  
|Balance at the beginning of the period                              |  | $                  | 1,061 |   |                | $ | 892   |  
|Accruals for warranties issued during the period                    |  |                    | 574   |   |                |   | 541   |  
|Accruals or changes in estimates related to pre-existing warranties |  |                    | (83   | ) |                |   |      |  
|Settlements made during the period                                  |  |                    | (466  | ) |                |   | (355  | )
|                                                                    |  |                    |       |   |                |   |       |  
|Balance at the end of the period                                    |  | $                  | 1,086 |   |                | $ | 1,078 |  
|                                                                    |  |                    |       |   |                |   |       |  



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Note 7. CONCENTRATIONS OF CREDIT RISK



The Company does not believe that at August 28, 2004, it had any significant credit risks. Financial instruments that
potentially subject the Company to concentrations of credit risk consist principally of investments and trade accounts receivable. The risk in investments is limited due to the creditworthiness of investees comprising the portfolio and the diversity
of the portfolio. For the purposes of evaluating risk in receivables, the Company considers the entity from which the receivable is due, which can be either an original equipment manufacturer (OEM) customer or its electronic
manufacturing service provider, depending upon the billing arrangement. In total, five entities represented approximately 68% of the net trade accounts receivable balance at August 28, 2004, individually ranging from 5% to 45%. Forty six percent of
trade accounts receivable, all of which are denominated in U.S. dollars, are with entities located outside of the United States. The risk in trade accounts receivable is limited due to the creditworthiness of entities that we sell to and the
relatively stable geopolitical environment of the countries in which these entities reside. The Company has not had significant losses related to its accounts receivable in the past.



Note 8. SALES BY GEOGRAPHIC AREA



Net sales by geographic area are attributed to the country in which the OEM customer is domiciled, as opposed to the domicile of its electronic
manufacturing service provider, if any. Because most sales to electronic manufacturing service providers are directed by the OEM customer, which negotiates product pricing and volumes directly with the Company, the geographic locale of the
electronic manufacturing service provider does not materially affect the Companys sales. During the quarter ended August 28, 2004, one European OEM customer accounted for 6% of net sales. In the quarter ended August 30, 2003, there were no
material revenues from any individual foreign country.



Net
sales by geographic area are as follows:



|         |  |                    |        |                |   |       
|-------- |  | ------------------ | ------ | -------------- | - | ------
|         |  | Three months ended
|         |  | August 28,2004     |        | August 30,2003
|Domestic |  | $                  | 36,595 |                | $ | 27,387
|Europe   |  |                    | 4,695  |                |   | 2,867 
|Other    |  |                    | 840    |                |   | 474   
|         |  |                    |        |                |   |       
|Total    |  | $                  | 42,130 |                | $ | 30,728
|         |  |                    |        |                |   |       



Our five largest OEM
customers, which vary from quarter to quarter, comprised 64% and 69% of our net sales during the first quarter of fiscal 2005 and fiscal 2004, respectively. Two OEM customers accounted for 27% and 20% of net sales in the first quarter of fiscal
2005, all of which were domestic sales. Two OEM customers accounted for 41% and 13% of net sales in the first quarter of fiscal 2004, all of which were domestic sales.



Note 9. COMMITMENTS AND CONTINGENCIES



Litigation



In the normal course of business, the Company is party to various legal claims, actions and complaints. In the first quarter of fiscal 2005, four class
action complaints were filed against the Company and certain of its executive officers and directors alleging that the defendants violated the federal securities laws by making certain alleged false and misleading statements. Also in the first
quarter of fiscal 2005, two shareholder derivative complaints were filed, purportedly on behalf of the Company against the Companys executive officers and directors and against the Company as a nominal defendant. In each complaint, the
plaintiffs seek unspecified damages from the defendants. A potential loss or range of loss that could arise from these complaints is not estimable or probable at this time. The Company has recorded charges totaling $550 for estimated probable costs
associated with defending these claims.



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Commitments



The Company had capital commitments of approximately $4,183 as of August 28, 2004, primarily relating to the purchase of manufacturing equipment.



In August 2000, the Company entered into a lease agreement for
a manufacturing facility located in Wood Village, Oregon related to an ongoing capacity expansion program. Lease payments began in July 2001 and will escalate at specific points over the minimum ten year term of the lease, and rent expense is
recognized on the straight line basis. The Company has the option to extend the initial term of the lease for three consecutive periods of five years each. The lease is classified as an operating lease.



In February 2004, the Company renewed a letter of credit for $94 to satisfy
requirements of the lease agreement for the Wood Village facility. This letter of credit expires on February 26, 2005, and is collateralized with cash. In February 2004, the Company issued a letter of credit for $692 in relation to the purchase of
manufacturing equipment. This letter of credit has been canceled.



The Company has consignment agreements with certain suppliers for raw material inventory, some of which obligate us to purchase inventory on hand upon termination of the agreement. As of the end of the first quarter of fiscal 2005,
potential commitments under these agreements were insignificant.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



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, including statements regarding industry prospects and future results of operations or financial position, made in this Quarterly Report are forward looking. We use words such as anticipates,
believes, expects, future and intends and 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 are described in the section entitled 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. We undertake no obligation to revise 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.



Overview



We are a leading manufacturer of technologically advanced electronic
interconnect solutions for use in sophisticated electronic equipment. Our principal products are complex multilayer 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.



Results
of Operations



Net Sales



Net sales were $42.1 million in the first quarter of fiscal 2005, an
increase of 37% from net sales of $30.7 million in the first quarter of fiscal 2004. This increase was primarily due to an increase in average pricing and partially due to an increase in unit shipments.



Average pricing increased by 28% in the first quarter of fiscal 2005 compared
to the same period in fiscal 2004. The increase in average pricing is primarily a result of product mix changes. Product mix changes affect average pricing as pricing on circuit boards varies significantly based on board complexity, materials used,
assembly requirements and speed of delivery. In general, average pricing is higher for boards that utilize high-speed laminate materials or thermal management solutions because these boards require higher cost materials. Sales of these higher priced
boards as a percent of total sales have increased in the first quarter of fiscal 2005 as compared to the same period in fiscal 2004 resulting from shifts in customer demand, partially offset by a reduction in quick-turn and premium services revenue
as a percent of sales in the first quarter of fiscal 2005 compared to the same period in the prior year.



Unit shipments were 8% higher in the first quarter of fiscal 2005 compared to the same period in the prior year. The increase in unit shipments is the
result of increased demand from new and existing customers due to the incremental efforts of our enhanced sales force bringing new customers to us, obtaining new programs from existing customers as well as our strategy of seeking quick-turn
business. We also believe that we have gained market share as the result of the elimination of some of our competitors capacity due to plant closures.



Net sales of quick-turn and premium services (products that we sell at a premium over our standard base price as a result of rapid prototype manufacturing
or compressed lead-time volume orders), comprised 27% of net sales in the first quarter of fiscal 2005 compared to 33% in the first quarter of fiscal 2004. While net sales of quick-turn and premium services consisted principally of compressed
lead-time volume orders in the first quarter of fiscal 2004, net sales of quick-turn and premium services in the first quarter of fiscal 2005 consisted of a relatively equal mix of prototype and compressed lead-time volume orders. We believe the
increase in the level of prototype orders is primarily the result of our focus to grow this business.



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Sales attributed to our five largest original equipment manufacturer (OEM) customers
comprised 64% and 69% of our net sales in the first quarter of fiscal 2005 and 2004, respectively. Two OEM customers accounted for more than 10% of our net sales in the first quarter of fiscal 2005 and 2004. We expect to continue to depend upon a
small number of customers for a significant portion of our net sales for the foreseeable future. The loss of or decrease in orders from one or more major customers could materially reduce our sales.



Sales attributed to OEMs include sales made through the OEMs electronic
manufacturing service providers. We expect sales to OEMs through their electronic manufacturing service providers to continue to represent a significant portion of our net sales. Approximately 67% and 76% of our net sales were through electronic
manufacturing service providers in the first quarter of fiscal 2005 and 2004, respectively. Although our contractual relationship is with the electronic manufacturing service provider, most of our shipments to electronic manufacturing service
providers are directed by OEMs who negotiate product pricing and volumes directly with us. In addition, we are on the approved vendor list of several electronic manufacturing service providers and continue to be awarded incremental discretionary
orders directly from certain electronic manufacturing service providers. We expect these discretionary orders to increase in the future as we strengthen our direct relationships with these electronic manufacturing service providers.



The following table shows, for the periods indicated, the percentage of our
net sales to the principal end markets we serve ($ in thousands):



|                             |  |                    |   |                 |   |        |  |     |   |  |   |       
|---------------------------- |  | ------------------ | - | --------------- | - | ------ |  | --- | - |  | - | ------
|                             |  | Three Months Ended
|                             |  | August 28, 2004    |   | August 30, 2003
|End Markets (1)              |  |                    |   |                 |   |        |  |     |   |  |   |       
|Communications               |  | 82                 | % |                 | $ | 34,522 |  | 78  | % |  | $ | 23,911
|High-end Computing & Storage |  | 6                  | % |                 |   | 2,569  |  | 11  | % |  |   | 3,215 
|Test and Measurement         |  | 7                  | % |                 |   | 2,750  |  | 6   | % |  |   | 1,949 
|Other                        |  | 5                  | % |                 |   | 2,289  |  | 5   | % |  |   | 1,653 
|                             |  |                    |   |                 |   |        |  |     |   |  |   |       
|Total                        |  | 100                | % |                 | $ | 42,130 |  | 100 | % |  | $ | 30,728
|                             |  |                    |   |                 |   |        |  |     |   |  |   |       

---

|(1) | Sales to contract manufacturers are classified by the end markets of their OEM customers.
|--- | -----------------------------------------------------------------------------------------



Sales in the communications end market represented a larger percentage of sales in the first quarter of fiscal 2005 compared to the same
period in the prior year, reflecting a further increase in the number of our communications customers. We have identified the communications end market as a primary area for growth and we continue to add new customers in this end market.



Our 90-day backlog was approximately $25.2 million at the end of the first
quarter of fiscal 2005 and $19.8 million at the end of fiscal 2004. A substantial portion of our backlog is typically scheduled for delivery within 60 days.



Future demand and product pricing depend on many factors including capacity utilization in the industry, product mix, competitive pressure in the printed
circuit board industry, levels of advanced technology, and economic conditions affecting the markets we serve and the electronics industry in general. The current uncertainty regarding the sustainability and level of an economic recovery in our
product markets continues to make our forecasting difficult.



Gross Margin



Gross margin as a percentage of net sales was 10.4% and
6.7% in the first quarter of fiscal 2005 and fiscal 2004, respectively. The increase in gross margin was primarily due to a more profitable sales mix (see Net Sales above), partially offset by increases in both direct and indirect
manufacturing costs. Cost of goods sold during the first quarter of fiscal 2005 reflects the cost of expanded capacity compared to the first quarter of fiscal 2004, due largely to the commencement of production at our Wood Village facility that
began in the fourth quarter of fiscal 2004. While capacity expansion is critical for future growth, it has increased our cost structure and caused a decline in the overall utilization of our installed capacity.



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Capacity utilization also declined due to a shift in product mix which resulted in less efficient use of resources within
the facility. Lower capacity utilization reduces gross margin because it results in a higher cost per unit produced. In addition, we have experienced increases in supplier pricing on certain materials and supplies. We expect our customers to resist
absorbing increased material costs in the form of higher prices for our product.



Engineering



Engineering expenses were $1.8
million or 4.3% of net sales in the first quarter of fiscal 2005 compared to $1.3 million or 4.2% of net sales in the first quarter of fiscal 2004. The increase in engineering expense in fiscal 2005 primarily resulted from an increase in average
headcount from the prior year to support increased operations.



Selling,
General and Administrative



Selling, general and
administrative expenses were $4.5 million or 10.7% of net sales and $2.7 million or 8.7% of net sales in the first quarter of fiscal 2005 and fiscal 2004, respectively. The first quarter of fiscal 2005 included expenses of $768 thousand related to
the abandonment of a business opportunity in Asia and approximately $250 thousand for audit and consulting fees pursuant to compliance with the internal control provisions of Sarbanes-Oxley Section 404. The increase in selling, general and
administrative expense also resulted from an increase in labor due to higher average headcount from the prior year to support increased operations.



Interest and Other Income (Expense), net



Interest and other income (expense), net was a net expense of $38 thousand in the first quarter of fiscal 2005 and $346 thousand in the first quarter of
fiscal 2004. Interest income increased in the first quarter of fiscal 2005 due to increased yields on higher levels of cash and cash equivalents.



Income Taxes



The provision for income taxes for the first quarter of fiscal 2005 represents our minimum state income tax obligation. Our effective income tax rate was
approximately zero for the first quarter of fiscal 2005 and fiscal 2004 due to adjustments to a valuation allowance against deferred tax assets that was established as a result of an accumulation of net operating losses. We incurred additional net
operating tax losses in the first quarter of fiscal 2005 and fiscal 2004 and we increased our gross deferred tax asset and the corresponding valuation allowance, which resulted in no income tax benefit for these quarters.



The internal revenue code limits the amount of otherwise taxable income that
may be offset by net operating loss carryforwards if certain changes in stock ownership occur, including certain changes in ownership of stock by passive institutional investors. If those changes in ownership of our stock have occurred or occur in
the future, we may be limited in the amount of net operating loss carryforwards that we can use in any given year to reduce our income subject to tax.



Liquidity and Capital Resources



At the end of the first quarter of fiscal 2005, we had $117.0 million in cash and cash equivalents. In the first quarter of fiscal 2005, we used cash
principally to finance capital expenditures and fund operating activities. We anticipate that these uses of our cash will continue in the foreseeable future.



Cash used in operating activities for the first quarter of fiscal 2005 was $1.1 million, compared to cash used in operations of $926 thousand in the first
quarter of fiscal 2004. Our operating cash outflow of $1.1 million for the first quarter of fiscal 2005 primarily reflects a net loss of $2.0 million, adjusted for $3.3 million of depreciation and amortization, offset by a net increase in working
capital accounts of $2.9 million, excluding cash and cash equivalents and short-term investments.



Cash used by investing activities in the first quarter of fiscal 2005 was $6.6 million due to capital expenditures for manufacturing equipment. Cash
provided by investing activities of $957 thousand in the



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first quarter of fiscal 2004 primarily related to the maturity of short-term investments. The Company had capital
commitments of approximately $4.2 million as of August 28, 2004, primarily relating to the purchase of manufacturing equipment.



Cash provided by financing activities in the first quarter of fiscal 2005 and fiscal 2004 was $187 thousand and $139 thousand, respectively, and
represents proceeds from the exercise of employee stock options.



We believe that our existing capital resources and expected cash generated from operations will be sufficient to meet our working capital and capital expenditure requirements through at least the next twelve months.



Risk Factors Affecting Business and Results of Operations



Certain statements in this report contain forward-looking information (as
defined in Section 27A of the Securities Act of 1933, as amended) that involves risks and uncertainties. Words such as anticipates, believes, expects, future and intends and similar
expressions identify forward-looking statements. These statements relate to future events or our future financial performance. These statements constitute forward-looking statements and are only predictions. Actual events or results may differ
materially. The differences could be caused by a number of factors or combination of factors, including the factors listed below and the risks detailed in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for
the fiscal year ended May 29, 2004.



Forward-looking statements
contained in this report relate to our plans and expectations as to future financial results and increased end-market demand, our customer base, the need for, use of and availability of capital resources and cash.



Many factors, including the following, could cause actual results to differ
materially from the forward-looking statements: a change in customer order levels, product mix or inventory levels; lower than expected or delayed sales; excess capacity in the printed circuit board industry and our ability to effectively utilize
our assets; the outcome of pending or future litigation; pricing and other competitive pressures in the industry from domestic and global competitors; our ability to successfully execute our quick-turn strategy; a change in the level of our
quick-turn sales; the ability of our emerging growth company customers to secure capital; our ability to generate profits sufficient to absorb deferred tax assets; our ability to reduce costs; and our ability to retain or attract employees with
sufficient know-how to conduct our manufacturing processes and maintain or increase our production output and quality. These factors or additional risks and uncertainties not known to us or that we currently deem immaterial may impair business
operations and may cause our actual results to differ materially from any forward-looking statement.



Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. We do not intend to update any of the forward-looking statements after the date of this report to conform them to actual results or to make changes in our expectations.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our funds available for investment. We ensure the safety and
preservation of our invested principal by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in high-credit quality securities. We do not believe that changes in interest rates will have a material effect
on our liquidity, financial condition or results of operations.



We do not have interest rate risk in our long-term debt and do not enter into interest rate swap agreements. A change in interest rates would not affect interest expense on the $25.0 million, 6.5% convertible debenture because that
instrument bears a fixed rate of interest. The fair value of the convertible debenture is sensitive to interest rate changes. Interest rate changes would result in increases or decreases in the fair value of the convertible debenture, due to
differences between market interest rates and the contractual interest rate of the convertible debenture. Unless we are able to call the convertible debenture and elect to do so, changes in the fair value of the debenture have no impact on our cash
flows or consolidated financial statements.



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We do not have foreign exchange risk as all sales are currently denominated in US dollars and foreign
expenditures are insignificant.



ITEM 4. CONTROLS AND PROCEDURES



An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our
disclosure controls and procedures as of August 28, 2004. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to ensure that material information required to be included in Merixs
Exchange Act reports would be made known to management by others within Merix.



There has been no change in Merixs internal control over financial reporting during the fiscal quarter ended August 28, 2004 that has materially affected, or is reasonably likely to materially affect,
Merixs internal control over financial reporting.



Our
CEO and CFO do not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Merix have been detected. These inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design
of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.



PART II. OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



See the
Exhibit Index for the exhibits filed as part of this report.



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SIGNATURE



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 this 6thday of October, 2004.



MERIX CORPORATIONBy:

/s/ Janie S. BrownJanie S. BrownSr. Vice President, Chief Financial Officer, Treasurer and Secretary(Principal Financial Officer)




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EXHIBIT INDEX



|              |  |                                                                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                               
|3.1           |  | Articles of Incorporation of the Company, as amended, incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended May 26, 2001.
|              | 
|3.2           |  | Bylaws of the Company, as amended, incorporated by reference to Exhibit 3.2 to the Companys Form 10-K for the fiscal year ended May 31, 1997.                     
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                            
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                            
|              | 
|32.1          |  | Section 1350 Certification of Chief Executive Officer                                                                                                              
|              | 
|32.2          |  | Section 1350 Certification of Chief Financial Officer