##### Table of Contents

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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 September 1, 2007

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



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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 No.)



|                                                    |  |           
|--------------------------------------------------- |  | ----------
|15725 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 or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

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 October 9, 2007 was 20,016,849 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  September 1, 2007 and May 26, 2007                                                                    |  | 2 
|                               |  |                                                                                                                                    
|                               |  | Consolidated Statements of Operations  Fourteen Week Period Ended September 1, 2007 and Thirteen Week Period Ended August 26, 2006 |  | 3 
|                               |  |                                                                                                                                    
|                               |  | Consolidated Statements of Cash Flows  Fourteen Week Period Ended September 1, 2007 and Thirteen Week Period Ended August 26, 2006 |  | 4 
|                               |  |                                                                                                                                    
|                               |  | Notes to Consolidated Financial Statements                                                                                          |  | 5 
|                               |  |                                                                                                                                    
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                               |  | 13
|                               |  |                                                                                                                                    
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                          |  | 21
|                               |  |                                                                                                                                    
|Item 4.                        |  | Controls and Procedures                                                                                                             |  | 21
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                                    
|                               |  |                                                                                                                                    
|Item 1.                        |  | Legal Proceedings                                                                                                                   |  | 22
|                               |  |                                                                                                                                    
|Item 1A.                       |  | Risk Factors                                                                                                                        |  | 22
|                               |  |                                                                                                                                    
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                         |  | 32
|                               |  |                                                                                                                                    
|Item 6.                        |  | Exhibits                                                                                                                            |  | 33
|                               | 
|Signatures                     |  | 34                                                                                                                                 



1



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##### Table of Contents

PART I - FINANCIAL INFORMATION



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

MERIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ----------- | - | ------- | -
|                                                                                                                                                  |  | September 1,2007 |         |   | May 26,2007 |  
|ASSETS                                                                                                                                            |  |                  |         |   |             |   |         |  
|Current Assets:                                                                                                                                   |  |                  |         |   |             |   |         |  
|Cash and cash equivalents                                                                                                                         |  | $                | 26,604  |   |             | $ | 17,175  |  
|Short-term investments                                                                                                                            |  |                  |        |   |             |   | 9,025   |  
|Accounts receivable, net of allowances for doubtful accounts of $2,513 and $3,168                                                                 |  |                  | 75,988  |   |             |   | 76,825  |  
|Inventories, net                                                                                                                                  |  |                  | 26,961  |   |             |   | 25,231  |  
|Income taxes receivable                                                                                                                           |  |                  | 394     |   |             |   | 295     |  
|Assets held for sale                                                                                                                              |  |                  | 1,306   |   |             |   | 1,206   |  
|Other current assets                                                                                                                              |  |                  | 9,512   |   |             |   | 6,824   |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|Total current assets                                                                                                                              |  |                  | 140,765 |   |             |   | 136,581 |  
|                                                                                                                                                  |  |                 
|Property, plant and equipment, net of accumulated depreciation of $123,132 and $119,949                                                           |  |                  | 103,869 |   |             |   | 101,264 |  
|Goodwill                                                                                                                                          |  |                  | 31,544  |   |             |   | 31,614  |  
|Definite-lived intangible assets, net of accumulated amortization of $7,849 and $7,237                                                            |  |                  | 10,558  |   |             |   | 11,171  |  
|Leasehold land use rights, net                                                                                                                    |  |                  | 1,249   |   |             |   | 1,254   |  
|Deferred financing costs, net                                                                                                                     |  |                  | 4,479   |   |             |   | 4,732   |  
|Other assets                                                                                                                                      |  |                  | 242     |   |             |   | 241     |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|Total assets                                                                                                                                      |  | $                | 292,706 |   |             | $ | 286,857 |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|                                                                                                                                                  |  |                 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                              |  |                  |         |   |             |   |         |  
|Current Liabilities:                                                                                                                              |  |                  |         |   |             |   |         |  
|Current portion of long-term debt                                                                                                                 |  | $                | 2,294   |   |             | $ | 2,532   |  
|Accounts payable                                                                                                                                  |  |                  | 52,225  |   |             |   | 45,918  |  
|Accrued compensation                                                                                                                              |  |                  | 8,591   |   |             |   | 8,508   |  
|Accrued warranty                                                                                                                                  |  |                  | 1,938   |   |             |   | 2,129   |  
|Other accrued liabilities                                                                                                                         |  |                  | 9,245   |   |             |   | 7,076   |  
|Income taxes payable                                                                                                                              |  |                  | 284     |   |             |   | 352     |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|Total current liabilities                                                                                                                         |  |                  | 74,577  |   |             |   | 66,515  |  
|                                                                                                                                                  |  |                 
|Long-term debt                                                                                                                                    |  |                  | 75,503  |   |             |   | 75,503  |  
|Other long-term liabilities                                                                                                                       |  |                  | 1,923   |   |             |   | 1,845   |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|Total liabilities                                                                                                                                 |  |                  | 152,003 |   |             |   | 143,863 |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|Minority interest                                                                                                                                 |  |                  | 3,643   |   |             |   | 4,550   |  
|Commitments and contingencies                                                                                                                     |  |                  |         |   |             |   |         |  
|                                                                                                                                                  |  |                 
|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 20,994 shares at September 1, 2007 and 20,844 shares at
May 26, 2007 |  |                  | 213,392 |   |             |   | 212,334 |  
|Accumulated deficit                                                                                                                               |  |                  | (76,513 | ) |             |   | (74,055 | )
|Accumulated other comprehensive income                                                                                                            |  |                  | 181     |   |             |   | 165     |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|Total shareholders equity                                                                                                                        |  |                  | 137,060 |   |             |   | 138,444 |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  
|Total liabilities and shareholders equity                                                                                                        |  | $                | 292,706 |   |             | $ | 286,857 |  
|                                                                                                                                                  |  |                  |         |   |             |   |         |  

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



2



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##### Table of Contents

MERIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                                                          |  |                                              |         |   |                                            |   |         |  
|----------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ------------------------------------------ | - | ------- | -
|                                                                                          |  | For the FourteenWeeks EndedSeptember 1, 2007 |         |   | For the ThirteenWeeks EndedAugust 26, 2006 |  
|Net Sales                                                                                 |  | $                                            | 100,149 |   |                                            | $ | 102,979 |  
|Cost of sales                                                                             |  |                                              | 86,106  |   |                                            |   | 82,817  |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Gross profit                                                                              |  |                                              | 14,043  |   |                                            |   | 20,162  |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Operating Expenses:                                                                       |  |                                              |         |   |                                            |   |         |  
|Engineering                                                                               |  |                                              | 2,343   |   |                                            |   | 1,946   |  
|Selling, general and administrative                                                       |  |                                              | 11,506  |   |                                            |   | 11,489  |  
|Amortization of identifiable intangible assets                                            |  |                                              | 613     |   |                                            |   | 762     |  
|Severance charges                                                                         |  |                                              | 241     |   |                                            |   |        |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Total operating expenses                                                                  |  |                                              | 14,703  |   |                                            |   | 14,197  |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Operating income (loss)                                                                   |  |                                              | (660    | ) |                                            |   | 5,965   |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Other income (expense):                                                                   |  |                                              |         |   |                                            |   |         |  
|Interest income                                                                           |  |                                              | 294     |   |                                            |   | 335     |  
|Interest expense                                                                          |  |                                              | (1,096  | ) |                                            |   | (1,763  | )
|Other expense, net                                                                        |  |                                              | (348    | ) |                                            |   | (561    | )
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Total other expense, net                                                                  |  |                                              | (1,150  | ) |                                            |   | (1,989  | )
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Income (loss) from continuing operations before income taxes and minority interests       |  |                                              | (1,810  | ) |                                            |   | 3,976   |  
|Income tax expense                                                                        |  |                                              | 413     |   |                                            |   | 500     |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Income (loss) from continuing operations before minority interests                        |  |                                              | (2,223  | ) |                                            |   | 3,476   |  
|Minority interest in net income of consolidated subsidiaries                              |  |                                              | 236     |   |                                            |   | 66      |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Income (loss) from continuing operations                                                  |  |                                              | (2,459  | ) |                                            |   | 3,410   |  
|Income from discontinued operations, net of income tax expense of $0 and $0, respectively |  |                                              |        |   |                                            |   | 233     |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Net income (loss)                                                                         |  | $                                            | (2,459  | ) |                                            | $ | 3,643   |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Basic income (loss) per share from continuing operations                                  |  | $                                            | (0.12   | ) |                                            | $ | 0.17    |  
|Basic income per share from discontinued operations                                       |  |                                              |        |   |                                            |   | 0.01    |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Basic net income (loss) per share                                                         |  | $                                            | (0.12   | ) |                                            | $ | 0.18    |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Diluted income (loss) per share from continuing operations                                |  | $                                            | (0.12   | ) |                                            | $ | 0.16    |  
|Diluted income per share from discontinued operations                                     |  |                                              |        |   |                                            |   | 0.01    |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Diluted net income (loss) per share                                                       |  | $                                            | (0.12   | ) |                                            | $ | 0.17    |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Shares used in per share calculations:                                                    |  |                                              |         |   |                                            |   |         |  
|Basic                                                                                     |  |                                              | 20,909  |   |                                            |   | 19,944  |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  
|Diluted                                                                                   |  |                                              | 20,909  |   |                                            |   | 25,012  |  
|                                                                                          |  |                                              |         |   |                                            |   |         |  

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



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MERIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                         |  |                                              |         |   |                                            |   |        |  
|---------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ------------------------------------------ | - | ------ | -
|                                                                                         |  | For the FourteenWeeks EndedSeptember 1, 2007 |         |   | For the ThirteenWeeks EndedAugust 26, 2006 |  
|Cash flows from operating activities:                                                    |  |                                              |         |   |                                            |   |        |  
|Net income (loss)                                                                        |  | $                                            | (2,459  | ) |                                            | $ | 3,643  |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                              |         |   |                                            |   |        |  
|Depreciation and amortization                                                            |  |                                              | 5,621   |   |                                            |   | 5,970  |  
|Contribution of common stock to defined contribution plan                                |  |                                              | 382     |   |                                            |   | 435    |  
|Stock-based compensation expense, net                                                    |  |                                              | 760     |   |                                            |   | 477    |  
|Minority interest in net income of consolidated subsidiaries                             |  |                                              | 236     |   |                                            |   | 66     |  
|(Gain) loss on disposal of fixed assets                                                  |  |                                              | (17     | ) |                                            |   | 7      |  
|Changes in assets and liabilities:                                                       |  |                                              |         |   |                                            |   |        |  
|Accounts receivable, net                                                                 |  |                                              | 837     |   |                                            |   | (4,356 | )
|Inventories, net                                                                         |  |                                              | (1,730  | ) |                                            |   | (3,998 | )
|Income taxes receivable                                                                  |  |                                              | (99     | ) |                                            |   |       |  
|Other assets                                                                             |  |                                              | (2,695  | ) |                                            |   | (1,232 | )
|Accounts payable                                                                         |  |                                              | 5,451   |   |                                            |   | 9,474  |  
|Accrued compensation                                                                     |  |                                              | 83      |   |                                            |   | (3,956 | )
|Accrued warranty                                                                         |  |                                              | (191    | ) |                                            |   | (2     | )
|Income taxes payable                                                                     |  |                                              | (68     | ) |                                            |   | 403    |  
|Other accrued liabilities                                                                |  |                                              | 1,481   |   |                                            |   | 1,482  |  
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|Net cash provided by operating activities                                                |  |                                              | 7,592   |   |                                            |   | 8,413  |  
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|Cash flows from investing activities:                                                    |  |                                              |         |   |                                            |   |        |  
|Purchases of property, plant and equipment                                               |  |                                              | (5,828  | ) |                                            |   | (5,948 | )
|Proceeds from disposal of property, plant and equipment                                  |  |                                              | 23      |   |                                            |   | 8      |  
|Purchases of investments                                                                 |  |                                              | (12,775 | ) |                                            |   | (2,550 | )
|Sales and maturities of investments                                                      |  |                                              | 21,800  |   |                                            |   | 7,075  |  
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|Net cash provided by (used in) investing activities                                      |  |                                              | 3,220   |   |                                            |   | (1,415 | )
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|Cash flows from financing activities:                                                    |  |                                              |         |   |                                            |   |        |  
|Principal payments on long-term borrowings                                               |  |                                              |        |   |                                            |   | (1,625 | )
|Payments on capital lease obligations                                                    |  |                                              | (238    | ) |                                            |   | (273   | )
|Proceeds from exercise of stock options                                                  |  |                                              |        |   |                                            |   | 1,172  |  
|Reacquisition of common stock                                                            |  |                                              | (83     | ) |                                            |   | (48    | )
|Due from affiliate, net                                                                  |  |                                              | (751    | ) |                                            |   | 1,948  |  
|Distribution to minority shareholder                                                     |  |                                              | (327    | ) |                                            |   |       |  
|Other financing activities                                                               |  |                                              | 16      |   |                                            |   | (9     | )
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|Net cash provided by (used in) financing activities                                      |  |                                              | (1,383  | ) |                                            |   | 1,165  |  
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|Increase in cash and cash equivalents                                                    |  |                                              | 9,429   |   |                                            |   | 8,163  |  
|                                                                                         |  |                                             
|Cash and cash equivalents:                                                               |  |                                              |         |   |                                            |   |        |  
|Beginning of period                                                                      |  |                                              | 17,175  |   |                                            |   | 12,280 |  
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|End of period                                                                            |  | $                                            | 26,604  |   |                                            | $ | 20,443 |  
|                                                                                         |  |                                              |         |   |                                            |   |        |  
|Supplemental Cash Flow Information:                                                      |  |                                              |         |   |                                            |   |        |  
|Cash paid for income taxes                                                               |  | $                                            | 480     |   |                                            | $ | 170    |  
|Cash paid for interest                                                                   |  |                                              | 174     |   |                                            |   | 613    |  
|                                                                                         |  |                                             
|Supplemental Disclosure of Non-Cash Activity:                                            |  |                                              |         |   |                                            |   |        |  
|Reclassification of fixed assets to assets held for sale                                 |  | $                                            | 100     |   |                                            | $ | 189    |  

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



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##### Table of Contents

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 our 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 the
first quarter of fiscal 2007 ended August 26, 2006 and included 14 and 13 weeks, respectively.



|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 inter-company 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 liability on the consolidated balance sheet. The net inter-company payable, which was included as a component of accounts
payable, totaled $ 0.1 million as of September 1, 2007 and $0.8 million as of May 26, 2007.

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.



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|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):



|                                                                                            |  |                                        |        |   |                                      |        |                    |   |       |                                 |  |        |       |                    |        |  |   |     
|------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------ | ------ | ------------------ | - | ----- | ------------------------------- |  | ------ | ----- | ------------------ | ------ |  | - | ----
|                                                                                            |  | Fourteen Weeks Ended September 1, 2007 |        |   | Thirteen Weeks Ended August 26, 2006
|                                                                                            |  | Loss fromContinuingOperations          |        |   | Shares                               |        | Per ShareAmount(1) |   |       | Income fromContinuingOperations |  | Shares |       | Per ShareAmount(1)
|Basic EPS                                                                                   |  | $                                      | (2,459 | ) |                                      | 20,909 |                    | $ | (0.12 | )                               |  | $      | 3,410 |                    | 19,944 |  | $ | 0.17
|Effect of dilutive stock options                                                            |  |                                        |       |   |                                      |       |                    |   |      |                                 |  |        |      |                    | 460    |  |   |    
|Effect of dilutive convertible notes, net of tax                                            |  |                                        |       |   |                                      |       |                    |   |      |                                 |  |        | 684   |                    | 4,608  |  |   |    
|                                                                                            |  |                                        |        |   |                                      |        |                    |   |       |                                 |  |        |       |                    |        |  |   |     
|Diluted EPS                                                                                 |  | $                                      | (2,459 | ) |                                      | 20,909 |                    | $ | (0.12 | )                               |  | $      | 4,094 |                    | 25,012 |  | $ | 0.16
|                                                                                            |  |                                        |        |   |                                      |        |                    |   |       |                                 |  |        |       |                    |        |  |   |     
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  |                                        |        |   |                                      |        |                    |   |       |                                 |  |        |       |                    |        |  |   |     
|Stock options                                                                               |  |                                        |        |   |                                      | 725    |                    |   |       |                                 |  |        |       |                    | 1,705  |  |   |     
|                                                                                            |  |                                        |        |   |                                      |        |                    |   |       |                                 |  |        |       |                    |        |  |   |     
|Convertible notes                                                                           |  |                                        |        |   |                                      | 4,608  |                    |   |       |                                 |  |        |       |                    |       |  |   |     
|                                                                                            |  |                                        |        |   |                                      |        |                    |   |       |                                 |  |        |       |                    |        |  |   |     

---

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



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

Inventories are valued at the lower of cost or market
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. Inventory valuation adjustments were $0.1 million and $0.2 million, respectively, during the fourteen and thirteen week periods ended September 1, 2007 and August 26, 2006. As of September 1, 2007 and May 26, 2007, our
inventory reserves totaled $3.6 million and $3.4 million, respectively.

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):



|                           |  |                  |        |              |   |       
|-------------------------- |  | ---------------- | ------ | ------------ | - | ------
|                           |  | September 1,2007 |        | May 26, 2007
|Raw materials              |  | $                | 5,435  |              | $ | 5,134 
|Work-in-process            |  |                  | 8,305  |              |   | 7,297 
|Finished goods             |  |                  | 6,198  |              |   | 7,670 
|Consignment finished goods |  |                  | 7,023  |              |   | 5,130 
|                           |  |                  |        |              |   |       
|Total inventories          |  | $                | 26,961 |              | $ | 25,231
|                           |  |                  |        |              |   |       



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|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):



|                    |  |                   |       |              |   |      
|------------------- |  | ----------------- | ----- | ------------ | - | -----
|                    |  | September 1, 2007 |       | May 26, 2007
|Two parcels of land |  | $                 | 1,146 |              | $ | 1,146
|Excess equipment    |  |                   | 60    |              |   | 60   
|Real estate         |  |                   | 100   |              |   |     
|                    |  |                   |       |              |   |      
|                    |  | $                 | 1,306 |              | $ | 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. Certain financial information related to discontinued operations was as follows (in thousands):



|               |  |                                      |      
|-------------- |  | ------------------------------------ | -----
|               |  | Thirteen Weeks Ended August 26, 2006
|Revenue        |  | $                                    | 2,936
|Pre-tax income |  |                                      | 233  



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

Goodwill

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



|                             |  |                                    |        |   |                                      |   |       
|---------------------------- |  | ---------------------------------- | ------ | - | ------------------------------------ | - | ------
|                             |  | Fourteen Weeks Ended Sept. 1, 2007 |        |   | Thirteen Weeks Ended August 26, 2006
|Balance, beginning of period |  | $                                  | 31,614 |   |                                      | $ | 89,889
|Adjustments to goodwill      |  |                                    | (70    | ) |                                      |   | 417   
|                             |  |                                    |        |   |                                      |   |       
|Balance, end of period       |  | $                                  | 31,544 |   |                                      | $ | 90,306
|                             |  |                                    |        |   |                                      |   |       

Adjustments to goodwill in the fourteen-week period ended September 1, 2007 represented adjustments to
deferred taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Adjustments to goodwill in the thirteen-week period ended August 26, 2006 represented adjustments to bad debts on the receivable purchased.



7



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Definite-Lived Intangible Assets

At September 1, 2007 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 |  | September 1,2007 |        |   | May 26,2007 |  
|Customer relationships                      |  | 6.5-10 years       |  | $                | 17,168 |   |             | $ | 17,168 |  
|Accumulated amortization                    |  |                    |  |                  | (6,630 | ) |             |   | (6,019 | )
|                                            |  |                    |  |                  |        |   |             |   |        |  
|                                            |  |                    |  |                  | 10,538 |   |             |   | 11,149 |  
|                                            |  |                    | 
|Manufacturing sales representatives network |  | 5.5 years          |  |                  | 40     |   |             |   | 40     |  
|Accumulated amortization                    |  |                    |  |                  | (20    | ) |             |   | (18    | )
|                                            |  |                    |  |                  |        |   |             |   |        |  
|                                            |  |                    |  |                  | 20     |   |             |   | 22     |  
|                                            |  |                    |  |                  |        |   |             |   |        |  
|Total definite-lived intangible assets      |  |                    |  | $                | 10,558 |   |             | $ | 11,171 |  
|                                            |  |                    |  |                  |        |   |             |   |        |  

Amortization expense was as follows (in thousands):



|                                            |  |                                       |     |                                     |   |    
|------------------------------------------- |  | ------------------------------------- | --- | ----------------------------------- | - | ---
|                                            |  | Fourteen Weeks Ended September 1,2007 |     | Thirteen Weeks Ended August 26,2006
|Customer relationships                      |  | $                                     | 611 |                                     | $ | 610
|Non-compete agreement                       |  |                                       |    |                                     |   | 151
|Manufacturing sales representatives network |  |                                       | 2   |                                     |   | 1  
|                                            |  |                                       |     |                                     |   |    
|                                            |  | $                                     | 613 |                                     | $ | 762
|                                            |  |                                       |     |                                     |   |    

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



|                         |  |                       |        |                                            |   |   
|------------------------ |  | --------------------- | ------ | ------------------------------------------ | - | --
|                         |  | CustomerRelationships |        | Manufacturing Sales RepresentativesNetwork
|Remainder of fiscal 2008 |  | $                     | 1,658  |                                            | $ | 6 
|2009                     |  |                       | 1,975  |                                            |   | 7 
|2010                     |  |                       | 1,759  |                                            |   | 7 
|2011                     |  |                       | 1,552  |                                            |   |  
|2012                     |  |                       | 1,107  |                                            |   |  
|Thereafter               |  |                       | 2,487  |                                            |   |  
|                         |  |                       |        |                                            |   |   
|                         |  | $                     | 10,538 |                                            | $ | 20
|                         |  |                       |        |                                            |   |   



|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.



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



|                                   |  |                                       |        |   |                                     |   |       |  
|---------------------------------- |  | ------------------------------------- | ------ | - | ----------------------------------- | - | ----- | -
|                                   |  | Fourteen Weeks Ended September 1,2007 |        |   | Thirteen Weeks Ended August 26,2006 |  
|Balance, beginning of period       |  | $                                     | 2,129  |   |                                     | $ | 2,297 |  
|Expense incurred                   |  |                                       | 1,145  |   |                                     |   | 502   |  
|Settlements made during the period |  |                                       | (1,336 | ) |                                     |   | (521  | )
|                                   |  |                                       |        |   |                                     |   |       |  
|Balance, end of period             |  | $                                     | 1,938  |   |                                     | $ | 2,278 |  
|                                   |  |                                       |        |   |                                     |   |       |  



|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 currently has one state examination in progress, however it does not anticipate any adjustments that would result in a material impact to its
financial position, results of operations or cash flows.

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 three months ended September 1, 2007, the Company did not recognize any interest or penalties associated with unrecognized tax benefits.



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

Comprehensive income (loss) includes
the change in our cumulative translation adjustment. The following table sets forth the calculation of comprehensive income (loss) for the periods indicated (in thousands):



|                                            |  |                                     |        |   |                                   |   |       |  
|------------------------------------------- |  | ----------------------------------- | ------ | - | --------------------------------- | - | ----- | -
|                                            |  | FourteenWeeks EndedSeptember 1,2007 |        |   | ThirteenWeeks EndedAugust 26,2006 |  
|Net income (loss)                           |  | $                                   | (2,459 | ) |                                   | $ | 3,643 |  
|Change in cumulative translation adjustment |  |                                     | 16     |   |                                   |   | (9    | )
|                                            |  |                                     |        |   |                                   |   |       |  
|Total comprehensive income (loss)           |  | $                                   | (2,443 | ) |                                   | $ | 3,634 |  
|                                            |  |                                     |        |   |                                   |   |       |  



|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



9



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##### Table of Contents

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):



|               |  |                                       |         |                                     |   |        
|-------------- |  | ------------------------------------- | ------- | ----------------------------------- | - | -------
|               |  | Fourteen Weeks Ended September 1,2007 |         | Thirteen Weeks Ended August 26,2006
|Merix Oregon   |  | $                                     | 48,005  |                                     | $ | 54,218 
|Merix San Jose |  |                                       | 8,890   |                                     |   | 8,641  
|Merix Asia     |  |                                       | 43,254  |                                     |   | 40,120 
|               |  |                                       |         |                                     |   |        
|               |  | $                                     | 100,149 |                                     | $ | 102,979
|               |  |                                       |         |                                     |   |        

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



|               |  |                                       |        |                                     |   |       
|-------------- |  | ------------------------------------- | ------ | ----------------------------------- | - | ------
|               |  | Fourteen Weeks Ended September 1,2007 |        | Thirteen Weeks Ended August 26,2006
|Merix Oregon   |  | $                                     | 7,728  |                                     | $ | 13,876
|Merix San Jose |  |                                       | 1,951  |                                     |   | 2,517 
|Merix Asia     |  |                                       | 4,364  |                                     |   | 3,769 
|               |  |                                       |        |                                     |   |       
|               |  | $                                     | 14,043 |                                     | $ | 20,162
|               |  |                                       |        |                                     |   |       

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



|               |  |                  |         |             |   |        
|-------------- |  | ---------------- | ------- | ----------- | - | -------
|               |  | September 1,2007 |         | May 26,2007
|Merix Oregon   |  | $                | 166,045 |             | $ | 162,217
|Merix San Jose |  |                  | 29,399  |             |   | 29,807 
|Merix Asia     |  |                  | 97,262  |             |   | 94,833 
|               |  |                  |         |             |   |        
|               |  | $                | 292,706 |             | $ | 286,857
|               |  |                  |         |             |   |        



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

Information regarding customers that
accounted for 10% or more of our total revenue in the fourteen or thirteen-week periods ended September 1, 2007 or August 26, 2006 was as follows:



|                                                                         |  |                                     |     |  |                                   |  
|------------------------------------------------------------------------ |  | ----------------------------------- | --- |  | --------------------------------- | -
|                                                                         |  | FourteenWeeks EndedSeptember 1,2007 |     |  | ThirteenWeeks EndedAugust 26,2006 |  
|Percentage of consolidated revenue represented by significant customer 1 |  | 12                                  | %   |  | 15                                | %
|Percentage of consolidated revenue represented by significant customer 2 |  | *                                   | (1) |  | 10                                | %

---

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

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 September 1, 2007, five entities represented approximately 46%
of the Companys net accounts receivable balance, individually ranging from approximately 5% to approximately 14%. The Company has not experienced significant losses related to its accounts receivable in the past.



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##### Table of Contents

|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 Company expects that oral argument in the appeal will occur in 2008.

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 currently are not compliant with all applicable environmental permits and requirements. The Company
has worked cooperatively with regulators in the Peoples Republic of China and has agreed upon a remediation plan. The Company anticipates that this plan, if executed, would not result in any unplanned fines, penalties or costs. The Company
anticipates incurring $0.3 million in costs related to this plan in the remainder of fiscal 2008. 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 September 1, 2007, the Company had
capital commitments of approximately $6.0 million, primarily relating to the purchase of machinery and equipment.



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

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



|                            |  |                                     |     |                                   |   |    
|--------------------------- |  | ----------------------------------- | --- | --------------------------------- | - | ---
|                            |  | FourteenWeeks EndedSeptember 1,2007 |     | ThirteenWeeks EndedAugust 26,2006
|Consulting fees             |  | $                                   | 48  |                                   | $ | 43 
|Operating lease rental fees |  |                                     | 74  |                                   |   | 67 
|Management fees             |  |                                     | 18  |                                   |   | 7  
|Other fees                  |  |                                     | 124 |                                   |   | 83 
|                            |  |                                     |     |                                   |   |    
|                            |  | $                                   | 264 |                                   | $ | 200
|                            |  |                                     |     |                                   |   |    



11



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|17. | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
|--- | -----------------------------------------

FASB
Interpretation No. 48

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109, which clarifies the accounting for uncertainty in tax positions and seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. This
interpretation requires financial statement recognition under a more likely than not standard based on the technical merits of each position; and provides guidance on derecognition, classification, interest, penalties and financial statement
reporting disclosures. The Company adopted FIN 48 during the first quarter of fiscal 2008. See Note 11 for additional information regarding the adoption of FIN 48.

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 statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Merix plans to adopt SFAS No. 157 during the first quarter of fiscal 2009. The
Company is currently analyzing the effects of adopting SFAS No. 157 on its consolidated financial position, results of operations and cash flows.

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 evaluating the impact of adopting SFAS No. 159.

Emerging Issues Task Force (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.



|18. | SEVERANCE CHARGES AND CLOSING OF 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



12



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##### Table of Contents

its Huiyang plant to increase its manufacturing capacity in China. The Company expects to incur approximately $3.0 million to $4.0 million of cash
restructuring costs in connection with phasing out the Hong Kong facility, including approximately $3.0 million to $3.5 million (excluding amounts to be paid out of the Long Service Payment Plan) of severance and other employee related costs.
Approximately $0.2 million of the restructuring costs were accrued in the first quarter of fiscal 2008, with the remainder expected to be accrued through the date of the final closure. We expect to incur approximately $1.0 to $1.5 million of such
costs (excluding amounts to be paid out of the Asia Long Service Payment Plan) in the second quarter of fiscal 2008 with the remainder expected to be incurred in the second or third quarter of fiscal 2009.

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



|                                               |  |                           |     |                  |   |              |  |   |                        |   |  |   |    
|---------------------------------------------- |  | ------------------------- | --- | ---------------- | - | ------------ |  | - | ---------------------- | - |  | - | ---
|                                               |  | BeginningAccruedLiability |     | ChargedtoExpense |   | Expenditures |  |   | EndingAccruedLiability
|Merix Asias Chief Executive Officer severance |  | $                         | 453 |                  | $ |             |  | $ | (453                   | ) |  | $ |   
|Other Asia-related severance                   |  |                           |    |                  |   | 241          |  |   |                       |   |  |   | 241
|                                               |  |                           |     |                  |   |              |  |   |                        |   |  |   |    
|                                               |  | $                         | 453 |                  | $ | 241          |  | $ | (453                   | ) |  | $ | 241
|                                               |  |                           |     |                  |   |              |  |   |                        |   |  |   |    



|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 and costs of the restructuring; 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 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



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technological change, high levels of complexity and short product life-cycles, as new and technologically superior electronic equipment is continually being
developed.

Operating Segments

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. 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 total revenue was as follows:



|                                                                         |  |                                     |     |  |                                   |  
|------------------------------------------------------------------------ |  | ----------------------------------- | --- |  | --------------------------------- | -
|                                                                         |  | FourteenWeeks EndedSeptember 1,2007 |     |  | ThirteenWeeks EndedAugust 26,2006 |  
|Percentage of consolidated revenue represented by significant customer 1 |  | 12                                  | %   |  | 15                                | %
|Percentage of consolidated revenue represented by significant customer 2 |  | *                                   | (1) |  | 10                                | %

---

|(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.

Approximately 55% and 49%, respectively, of our OEM sales in the first quarter
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 totaled $57.4 million and $56.2 million at September 1, 2007 and May 26, 2007, respectively.

A substantial portion of our backlog is typically scheduled for delivery within 90 days and 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.

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.



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##### Table of Contents

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).



|                                                                                    |  |                                           |         |   |                                         |       |    |  |   |         |   |  |       |  
|----------------------------------------------------------------------------------- |  | ----------------------------------------- | ------- | - | --------------------------------------- | ----- | -- |  | - | ------- | - |  | ----- | -
|                                                                                    |  | Fourteen Weeks Ended(1)
September 1, 2007 |         |   | Thirteen Weeks Ended(1)
August 26, 2006 |      
|Net sales                                                                           |  | $                                         | 100,149 |   |                                         | 100.0 | %  |  | $ | 102,979 |   |  | 100.0 | %
|Cost of sales                                                                       |  |                                           | 86,106  |   |                                         | 86.0  |    |  |   | 82,817  |   |  | 80.4  |  
|                                                                                    |  |                                           |         |   |                                         |       |    |  |   |         |   |  |       |  
|Gross margin                                                                        |  |                                           | 14,043  |   |                                         | 14.0  |    |  |   | 20,162  |   |  | 19.6  |  
|Engineering                                                                         |  |                                           | 2,343   |   |                                         | 2.3   |    |  |   | 1,946   |   |  | 1.9   |  
|Selling, general and administrative                                                 |  |                                           | 11,506  |   |                                         | 11.5  |    |  |   | 11,489  |   |  | 11.2  |  
|Amortization of identifiable intangible assets                                      |  |                                           | 613     |   |                                         | 0.6   |    |  |   | 762     |   |  | 0.7   |  
|Severance charges                                                                   |  |                                           | 241     |   |                                         | 0.2   |    |  |   |        |   |  |      |  
|                                                                                    |  |                                           |         |   |                                         |       |    |  |   |         |   |  |       |  
|Operating income (loss)                                                             |  |                                           | (660    | ) |                                         | (0.7  | )  |  |   | 5,965   |   |  | 5.8   |  
|Other expense, net                                                                  |  |                                           | (1,150  | ) |                                         | (1.1  | )  |  |   | (1,989  | ) |  | (1.9  | )
|                                                                                    |  |                                           |         |   |                                         |       |    |  |   |         |   |  |       |  
|Income (loss) from continuing operations before income taxes and minority interests |  |                                           | (1,810  | ) |                                         | (1.8  | )  |  |   | 3,976   |   |  | 3.9   |  
|Income tax expense                                                                  |  |                                           | 413     |   |                                         | 0.4   |    |  |   | 500     |   |  | 0.5   |  
|                                                                                    |  |                                           |         |   |                                         |       |    |  |   |         |   |  |       |  
|Income (loss) from continuing operations before minority interests                  |  | $                                         | (2,223  | ) |                                         | (2.2  | )% |  | $ | 3,476   |   |  | 3.4   | %
|                                                                                    |  |                                           |         |   |                                         |       |    |  |   |         |   |  |       |  

---

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

Net sales decreased $2.9 million, or 2.7%, to $100.1 million, in the first quarter of fiscal 2008 compared to
$103.0 million in the first quarter of fiscal 2007. This decrease reflects a decrease at our Oregon segment attributed to lower demand in the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007, partially offset by an increase
at our Asia segment, as described in more detail below. The North American printed circuit board 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.

Net Sales by Segment

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



|               |  |                                     |         |                                   |   |        
|-------------- |  | ----------------------------------- | ------- | --------------------------------- | - | -------
|               |  | FourteenWeeks EndedSeptember 1,2007 |         | ThirteenWeeks EndedAugust 26,2006
|Merix Oregon   |  | $                                   | 48,005  |                                   | $ | 54,218 
|Merix San Jose |  |                                     | 8,890   |                                   |   | 8,641  
|Merix Asia     |  |                                     | 43,254  |                                   |   | 40,120 
|               |  |                                     |         |                                   |   |        
|               |  | $                                   | 100,149 |                                   | $ | 102,979
|               |  |                                     |         |                                   |   |        



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Per Unit Information

We define unit as the number of panel layers, which is the number of panels multiplied by average layer counts. Percentage increases (decreases) in unit volume and pricing were as follows:



|                     |  |                                                                       |   
|-------------------- |  | --------------------------------------------------------------------- | --
|                     |  | First Quarter of Fiscal 2008 Compared to First Quarter of Fiscal 2007 |   
|Merix Oregon:        |  |                                                                       |   
|Unit volume          |  | (15                                                                   | )%
|Average unit pricing |  | 4                                                                     | % 
|                     | 
|Merix San Jose:      |  |                                                                       |   
|Unit volume          |  | 5                                                                     | % 
|Average unit pricing |  | (2                                                                    | )%
|                     | 
|Merix Asia:          |  |                                                                       |   
|Unit volume          |  | (4                                                                    | )%
|Average unit pricing |  | 12                                                                    | % 
|                     | 
|Overall:             |  |                                                                       |   
|Unit volume          |  | (7                                                                    | )%
|Average unit pricing |  | 4                                                                     | % 

Merix Oregon

The decrease in net sales at Merix Oregon in the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 was primarily due to lower North American demand caused by the normal cyclicality that is inherent in the printed
circuit board industry. To a lesser extent, revenues declined from the comparable prior year period due to North American production transitioning to either Merix Asia or to other lower-cost offshore competitors. The decrease in demand was partially
offset by a 4% increase in average unit pricing, which resulted primarily from growth in the sale of higher priced, higher technology high-density interconnect (HDI) and military panels.

Merix San Jose

Net sales at Merix San Jose were relatively
flat in the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007, as this segments product mix is primarily quick-turn, which tends to be less influenced (compared to full lead time business) by normal market cyclicality.
However, pricing in the quick turn market is influenced by changes in overall market demand, which contributed to the 2% decrease in average unit pricing.

Merix Asia

The increase in net sales for Merix Asia in the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007
was primarily a result of the extra week reported in the first quarter of fiscal 2008. Unit pricing increased as a result of efforts to improve our customer mix through enhanced technology offerings to traditional Merix North America customers.



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##### Table of Contents

Net Sales by End Market

The following table shows, 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):



|                            |  |                                        |         |  |                                      |   |  |   |         |  |       |  
|--------------------------- |  | -------------------------------------- | ------- |  | ------------------------------------ | - |  | - | ------- |  | ----- | -
|                            |  | Fourteen Weeks Ended September 1, 2007 |         |  | Thirteen Weeks Ended August 26, 2006 |  
|Communications & Networking |  | $                                      | 41,777  |  | 41.7                                 | % |  | $ | 46,170  |  | 44.8  | %
|Computing & Peripherals     |  |                                        | 8,669   |  | 8.6                                  | % |  |   | 13,393  |  | 13.0  | %
|Industrial & Medical        |  |                                        | 10,276  |  | 10.3                                 | % |  |   | 8,677   |  | 8.4   | %
|Defense & Aerospace         |  |                                        | 5,770   |  | 5.8                                  | % |  |   | 5,122   |  | 5.0   | %
|Automotive                  |  |                                        | 20,208  |  | 20.2                                 | % |  |   | 20,400  |  | 19.8  | %
|Other                       |  |                                        | 13,449  |  | 13.4                                 | % |  |   | 9,217   |  | 9.0   | %
|                            |  |                                        |         |  |                                      |   |  |   |         |  |       |  
|                            |  | $                                      | 100,149 |  | 100.0                                | % |  | $ | 102,979 |  | 100.0 | %
|                            |  |                                        |         |  |                                      |   |  |   |         |  |       |  

The decreases in Communications & Networking and Computing & Peripherals in the first quarter of
fiscal 2008 compared to the first quarter of fiscal 2007 were due primarily to the normal cyclicality of the North American market discussed above.

The
increases in Industrial & Medical and Defense & Aerospace in the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 were due primarily to our efforts to penetrate in these markets to both diversify our
customer base and grow revenue.

The increase in Other in the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 was 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 affect
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 $3.3 million, or 4.0%, to $86.1 million in the first quarter of fiscal 2008 compared to $82.8 million in the first quarter of fiscal 2007. The
increase was primarily due to the extra week reported in our first quarter of fiscal 2008, partially offset by a reduction in volume processed in our North American factories.

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



|               |  |                                        |        |                                      |   |       
|-------------- |  | -------------------------------------- | ------ | ------------------------------------ | - | ------
|               |  | Fourteen Weeks Ended September 1, 2007 |        | Thirteen Weeks Ended August 26, 2006
|Merix Oregon   |  | $                                      | 7,728  |                                      | $ | 13,876
|Merix San Jose |  |                                        | 1,951  |                                      |   | 2,517 
|Merix Asia     |  |                                        | 4,364  |                                      |   | 3,769 
|               |  |                                        |        |                                      |   |       
|               |  | $                                      | 14,043 |                                      | $ | 20,162
|               |  |                                        |        |                                      |   |       



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Our gross margin as a percentage of net sales by segment was as follows:



|               |  |                                        |   |  |                                      |  
|-------------- |  | -------------------------------------- | - |  | ------------------------------------ | -
|               |  | Fourteen Weeks Ended September 1, 2007 |   |  | Thirteen Weeks Ended August 26, 2006 |  
|Merix Oregon   |  | 16.1                                   | % |  | 25.6                                 | %
|Merix San Jose |  | 21.9                                   | % |  | 29.1                                 | %
|Merix Asia     |  | 10.1                                   | % |  | 9.4                                  | %
|Overall        |  | 14.0                                   | % |  | 19.6                                 | %

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, 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 printed circuit boards is heavily weighted to fixed or step-variable costs. Thus, lower demand resulted in lower utilization rates and a decrease in gross margin as a percentage
of net sales.

Merix San Jose

Our gross margin
at Merix San Jose decreased as a result of a decrease in the gross margin as a percentage of net sales. The decrease in the gross margin as a percentage of net sales was due primarily to lower average pricing, as well as a change in product mix.
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.

Merix Asia

Our gross margin at Merix Asia increased primarily as a result of an improvement in the product mix. One of the primary
strategies in acquiring Merix Asia was the belief that Merix sales force would be able to migrate higher- margin business to Asia than what was traditionally produced by our predecessor. This new business has been termed synergy
business. Synergy business as a percentage of total Merix Asia sales has increased from 11% of revenue in the first quarter of fiscal 2007 to 23% in the first quarter of fiscal 2008. Synergy business represents sales of products that were not
originally sold by Merix Asia to both existing and new customers. 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. A modest portion of
the synergy revenue was previously manufactured at our Oregon factories, while the majority is incremental business from new or existing North American customers.

Engineering Costs

Engineering costs include indirect labor, materials and overhead to support customer design and the development of
new manufacturing processes required to meet our customers technology requirements, as well as to support our current manufacturing processes.

Engineering costs increased $0.4 million, or 20.4%, to $2.3 million in the first quarter of fiscal 2008 compared to $1.9 million in the first quarter of fiscal 2007. The increase was due primarily to an increase in headcount as we refilled
positions that were left open from turnover in previous periods, as well as 14 weeks of reporting in the first quarter of fiscal 2008 compared to 13 weeks in the first quarter of fiscal 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 remained flat at $11.5 million in the first quarter of fiscal 2008 as compared to the first quarter of fiscal 2007 due to a reduction in executive
variable compensation and bad debt expense offset by 14 weeks of reporting in the first quarter of fiscal 2008 compared to 13 weeks in the first quarter of fiscal 2007.



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Amortization of Identifiable Intangible Assets

Amortization of identifiable intangible assets was $0.6 million and $0.8 million in the first quarter of fiscal 2008 and the first quarter of fiscal 2007, respectively.
The reduction in amortization was primarily related to the fact that certain intangibles acquired as part of the Merix San Jose acquisition were fully amortized during the later part of fiscal 2007. Our identifiable intangible assets balance at
September 1, 2007 was $10.6 million and current amortization is approximately $0.6 million per quarter.

Severance Charges

Severance charges of $0.2 million in the first quarter of fiscal 2008 primarily included costs related to the closing of our Hong Kong facility as discussed in Note 18
of Notes to Consolidated Financial Statements.

Interest Expense

Interest expense decreased to $1.1 million in the first quarter of fiscal 2008 compared to $1.8 million in the first quarter of fiscal 2007 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. In addition, our average
borrowing rate was 4.41% in the first quarter of fiscal 2008 compared to 4.91% in the first quarter of fiscal 2007.

Income Tax Expense

On a quarterly basis, we estimate our provision for income taxes based on our projected results of operations for the full year. Income tax is
provided for entities expected to generate profits that are not offset by losses generated by entities in other tax jurisdictions. As a result, our effective income tax rate was negative 22.8% in the first quarter of fiscal 2008 and 12.6% in the
first quarter of fiscal 2007.

The provision for income taxes for the first quarter of fiscal 2008 differs from tax computed at the federal statutory rate
primarily as a result of our mix of earnings in various tax jurisdictions and the diversity in income tax rates. The effective rate in the current quarter is negative as a result of current taxes expected to be paid on profits in
certain jurisdictions and the recording of a valuation allowance against net operating losses incurred in other jurisdictions. In addition, we determined that it is appropriate to record and maintain a valuation allowance on any
deferred tax assets or net operating losses generated or carried forward into the current fiscal year.

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.

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



|               |  |                                    |      
|-------------- |  | ---------------------------------- | -----
|               |  | ThirteenWeeks EndedAugust 26, 2006
|Revenue        |  | $                                  | 2,936
|Pre-tax income |  |                                    | 233  



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Liquidity and Capital Resources

Our sources of liquidity and capital resources as of September 1, 2007 consisted of $26.6 million of cash and cash equivalents and $55.0 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 September 1, 2007, 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. 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 September 1, 2007, approximately $55 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 September 1, 2007. 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. We are discussing alternatives with our lenders, although we may not be able to increase this
limit. As of September 1, 2007, we had invested approximately $9.3 million against this limit.

In the first quarter of fiscal 2008, cash and cash
equivalents and short-term investments increased $0.4 million to $26.6 million as of September 1, 2007 from $26.2 million as of May 26, 2007 primarily as a result of $7.6 million provided by operations (as described in more detail below)
and the net maturity of investments of $9.0 million, offset by the use of $5.8 million for the purchase of property, plant and equipment, a $0.8 million increase in due from affiliate and a $0.3 million distribution to a minority shareholder.

Accounts receivable, net of allowances for bad debts, decreased $0.8 million to $76.0 million as of September 1, 2007 from $76.8 million as
of May 26, 2007. Our days sales outstanding, calculated on a quarterly basis, was 75 days at both September 1, 2007 and May 26, 2007.

Inventories, net of obsolescence and other reserves, increased $1.8 million to $27.0 million as of September 1, 2007 compared to $25.2 million as of May 26, 2007. The increase primarily was due to increased work in
process and consigned finished goods as a result of lower demand. Our annualized inventory turnover rate, calculated on a quarterly basis, was 13.2 times for the quarter ended September 1, 2007 and 12.5 times for the quarter ended May 26,
2007.

Other current assets increased $2.7 million to $9.5 million as of September 1, 2007 compared to $6.8 million as of May 26, 2007.
This was primarily due to a $1.0 million increase in prepaid value added taxes in foreign jurisdictions, due primarily 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 $0.8 million increase in prepaid employee benefits due to the timing of invoice receipts, and a $0.2 million increase related to prepaid software technical support for our ERP project.

Accounts payable increased $6.3 million to $52.2 million as of September 1, 2007 compared to $45.9 million as of May 26, 2007. This was primarily due
to increased focus on improving the management of working capital.

Other accrued liabilities increased $2.1 million to $9.2 million as of
September 1, 2007 compared to $7.1 million as of May 26, 2007. The change primarily was due to a $0.8 million increase in distributions payable to minority shareholders and a $0.7 million increase in liabilities related to capital
expenditures.

Expenditures for property, plant and equipment of $5.8 million in the first quarter 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 $30 to $35 million. A significant portion of this spending is



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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.

Recently Issued Accounting Pronouncements

See Note 17 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 are effective 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.

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, except as follows:

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 Weakness

The material
weakness noted above has not been remediated as of the end of first quarter of fiscal 2008. Because of the material weakness identified in our fiscal 2007 evaluation of internal control over financial



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##### Table of Contents

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.

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, automotive, high-end computing and
storage, test and measurement, and aerospace and defense end 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 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



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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.

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 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.
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.

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



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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 closure of our Hong
Kong-based facility, 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 lose key employees;
| | - |  | -----------------------------------------------------------



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

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 at our expanded facilities;
| | - |  | --------------------------------------------------------------



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



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



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



| |  |  | 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 and 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.

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.

We have a bank credit covenant that limits the incremental investment in Merix Asia

Merix has a bank credit
agreement covenant that limits the incremental investment into Merix Asia to $25 million. As of October 8, 2007, we had advanced Merix Asia approximately $11.9 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.

We have minority investors in our China manufacturing facilities.

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%



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to 15%. These minority holders are local investors with close ties to local economic development and other government agencies. The investors lease to the
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. Failure to maintain good relations with these investors 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.

Our facility is leased from a Chinese company under an operating lease that 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. Further, failure to successfully renew such lease could materially adversely affect our ability to realize the anticipated benefits of the Asian acquisition.

We may not be able to remediate the material weakness in our internal control over financial reporting.

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 assessment of our internal control over financial reporting, we identified the following material weakness in our internal
control over financial reporting as of May 26, 2007:

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.

See Item 4. Controls and Procedures above for additional information.

Automotive customers have higher quality
requirements and long qualification times.

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 quarter of fiscal 2008 and in all of
fiscal 2007, respectively. Net sales to two customers represented 12% and 8% of consolidated net sales during the first quarter 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 from one or more major



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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 46% of the consolidated net trade accounts receivable balance at September 1, 2007, individually ranging from
approximately 5% to approximately 14%. 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 results of operations would be adversely affected.

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; 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 the income tax on foreign-owned facilities. In addition, some government policies and rules are not timely published or communicated in
local districts, if they are published



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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 Hong Kong and 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 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 and Hong Kong 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 and Hong Kong. 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 and Hong Kong, 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 or Hong Kong, 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



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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.
| | - |  | -----------------------------------------------

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. 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.



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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. We may encounter unexpected difficulties, delays, costs 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 forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and records and to 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. In the complaint, the plaintiffs seek unspecified damages. This lawsuit and others are described in Note 15 of Notes to Consolidated Financial Statements above. More lawsuits could be filed against us.

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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We may be required to record asset impairment charges in the future.

We recorded impairment charges against certain assets in fiscal 2007. 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.
| | - |  | ----------------------------------------------------------------------------------------

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



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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 September 1, 2007, we had 3,101,036 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 and bylaws, as well as provisions of Oregon law, could inhibit a takeover attempt.

Some of the provisions of our
articles of incorporation and bylaws, such as the authorization of blank check preferred stock, 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. 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.



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

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



|                                   |  |                                |  |                            |      |                                                                |   |                                                              |  
|---------------------------------- |  | ------------------------------ |  | -------------------------- | ---- | -------------------------------------------------------------- | - | ------------------------------------------------------------ | -
|                                   |  | Total numberof sharespurchased |  | Averageprice paidper share |      | Total numberof sharespurchased aspart of publiclyannouncedplan |   | Maximumnumber ofshares thatmay yet bepurchasedunder the plan
|May 27, 2007 to June 30, 2007      |  | 4,042                          |  | $                          | 7.89 |                                                                |  |                                                              | 
|July 1, 2007 to July 28, 2007      |  | 3,764                          |  |                            | 8.10 |                                                                |  |                                                              | 
|July 29, 2007 to September 1, 2007 |  | 3,137                          |  |                            | 6.75 |                                                                |  |                                                              | 
|                                   |  |                                |  |                            |      |                                                                |   |                                                              |  
|Total                              |  | 10,943                         |  |                            | 7.63 |                                                                |  |                                                              | 
|                                   |  |                                |  |                            |      |                                                                |   |                                                              |  

Purchases during the first 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.



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

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



|     |  |                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Merix Corporation Bylaws, as amended                                                                                                                    
|     | 
|10.1 |  | Summary of Key Terms of Compensation Arrangements with Merix Corporation Executive Officers.                                                            
|     | 
|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.



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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: October 11, 2007 |  |  |  |  |  | /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/ RUSSELL S. PATTEE                               
|                        |  |  |  |  |  | Russell S. Pattee                                   
|                        |  |  |  |  |  | Vice President Corporate Controller and Treasurer   
|                        |  |  |  |  |  | (Principal Accounting Officer)                      



34